1.          Introduction

ESG, particularly environmental issues, has moved from being a constraint to a value-creating activity.

Encouraged by the implementation of the new European Taxonomy and the CSRD directive on non-financial reporting, a veritable groundswell of so-called "sustainable finance" is hitting the real estate sector. Real estate players must now consider addressing sustainability in three ways:

·         By analyzing existing portfolios from a sustainability perspective with a view to finding value,

·         By decarbonizing existing buildings,

·         By creating new activities related to sustainability.

The objective of this document is to help lessors prepare for this, and to respond to two challenges that justify decarbonizing their real estate asset portfolio.

1.1. Issue no. 1: Real estate is a major source of negative impacts

Given the urgency of climate change and resource scarcity, ESG criteria must be taken into account in the real estate sector, especially as it has a major impact on the environment:

Environmental impact of the real estate sector [1]

1.2.        Issue No. 2: The risk of depreciation due to carbon obsolescence [2]

80% of real estate asset managers [3] expect a write-down of their assets due to carbon risk ² . According to them, in the absence of an effective decarbonization strategy, this write-down can reach 25% or more.

Discount envisaged by the panel of asset managers who responded to the Business Immo ³ barometer

2.          The decarbonization and circular economy strategy

This document describes a lessor's overall strategy for deploying a decarbonization approach, based on the circular economy, in order to accelerate the decarbonization of its portfolio to preserve - or even increase - the value of its managed assets, and meet the challenges of the European Taxonomy and the CSRD directive [4] .

1. Inventory the resources of existing buildings, or diagnose the PEMD of buildings being deconstructed, by enriching them with DPP Passports , and importing them into the Upcyclea Net-0 Platform,
2. Using information from the DPP, calculate the Circular Signature of the buildings in the real estate portfolio, in particular to estimate the economic value of resources, as well as other indicators useful for financial and extra-financial reporting,
3. Manage resources in the maintenance/small works phase to preserve their values,
4. Eco-design the renovated parts to facilitate maximization of reuse,
5. Maximize reuse during renovations/restructuring to recover the residual economic value of used resources,
6. Produce the indicators required for financial and extra-financial reports using the Upcyclea Reporting module.
   

3.          The 5 processes of decarbonization & circular economy

The strategy is based on 5 processes:

1. Eco-design process: this process specifies how to design and build/renovate a healthy, circular, low-carbon building, like a “materials bank”. It includes in particular a description of the data and processes relating to:
   
1. Eco-design principles,
2. Eco-design and reuse process,
3. Circular signature and incoming ESG indicators.
   
2. Reuse Process: This process indicates how to maximize the reuse, upcycling, or recycling of used resources from the buildings in the park, during deconstruction, renovation, or maintenance operations. It includes:
   
1. PEMD diagnosis of used resources,
2. Creation and monitoring of reuse, upcycling and recycling ecosystems,
3. Monitoring of outgoing ESG indicators,
4. Deconstruction/construction clauses,
5. Low-carbon construction site.
   
3. Operations Process: This process specifies how to manage the resources of a building in service in a circular manner, in order to accelerate its decarbonization over the course of its operation [5] . It includes in particular a description of the data and processes relating to:
   
1. Circular resource management process,
2. Reuse process,
3. ESG indicators.
   
4. ESG Reporting Process : This process specifies how to calculate, as automatically as possible, the financial and extra-financial indicators expected by the European Taxonomy and the CSRD directive. It includes in particular a description of the data and processes relating to:
   

-          Increased attractiveness to tenants due to the ESG performance of assets, and the provision of new ESG services,

-          Income or savings generated by external resale or internal use of used resources from restructuring operations,

-          Increased attractiveness to investors due to sustainable, measurable and verifiable financial and extra-financial reporting.

4.          Glossary

1. Digital materials bank : digital instance of a building managed in the Upcyclea Platform.
2. CRREM: The CRREM is a tool that defines decarbonization pathways by 2050. Based on the IPCC report and Europe's climate ambitions, it aims for a scenario limiting global warming to 1.5 or even 2°C maximum for each country and sector of activity.
   
3. CSRD (Corporate Sustainability Reporting Directive) : European directive on extra-financial reporting, adopted in France in December 2023.
4. PEMD Diagnostics: Mandatory resource inventory for any significant demolition or renovation, under the AGEC law of February 2020.
5. Discounted Cash Flows (DCF): The Discounted Cash Flows method consists of determining the income that an asset will generate in the future.
6. EPD (Environmental Product Declaration – FDES in France) : product sheet compliant with standard EN 15804 and describing the LCA footprints of a product in terms of carbon, water and energy.
7. ESPR (Ecodesign for Sustainable Products Regulation ): law of July 18, 2024 aimed at encouraging the design and manufacture of sustainable products, while raising consumer awareness of the environmental impact of the products they buy, thus contributing to the transition to a more environmentally friendly economy.   
8. Identifiers designate both the user ID and password for accessing the Upcyclea Platform.
9. Noah Platform [6] : The Noah service ( www.noah-remploi.com ) centralizes the deposits of reusable, reconditioned or destocked products from several French marketplaces, manufacturers or recycling centers, as well as the catalog of reusable products, resulting from renovations/restructuring of the lessor's assets, which can be made available to its tenants for low-carbon developments.
10. Digital Product Passport (or DPP) : digital sheet containing the environmental information of a product: composition, toxicity, recycled/biosourced share, future lives, manufacturing locations, EPD data (carbon, water, energy). The DPP has been a European standard since July 18, 2024 (under the ESPR law on eco-design) and will be applicable to all products (excluding food) from 2027. The Upcyclea Platform already contains a library ⁴ of 10,000 Passports with free access ( www.upcyclea.com/librairie-de-Passeports-circulaires-consultation).
11. Operational scope of carbon calculation : in accordance with the BEGES decree [7] , the operational scope of a legal entity includes 1) direct GHG emissions which physically originate from the organizational scope [8] of the Legal Entity, 2) indirect emissions which arise from the operations and activities of the Legal Entity as well as, where applicable, from the use of the goods and services which it produces.
    

1. PIRÉE ² Platform (Inter-actor REEmployment Platform) : Urban mine shared between public and private donors, launched by Upcyclea, USH, ULI France and ADI, which allows the sharing of inventories resulting from PEMD diagnoses or resources of subscribing actors, the declaration of reuse or upcycling needs, and the provision of a common Resource manager which offers reuse/upcycling ecosystems.
2. Upcyclea Platform: The Platform allows you to manage digital banks of materials from the real estate portfolio, and offers eco-design, reuse and calculation services for incoming and outgoing ESG indicators (Incoming: Scope 3 carbon and embodied Carbon, health, circularity, economic value – Outgoing: waste and _CO2 avoided, water preserved, financial report). The Upcyclea Platform ²   includes the Upcyclea Net-0, Upcyclea Reporting , Upcyclea Noah and Upcyclea Piraeus modules.
3. Resource Manager : Operator in charge of administering the Upcyclea Platform, and whose function is to manage the resources and needs declared in the Platform, in order to propose recovery ecosystems, to generate environmental and financial indicators.
4. Scope 1/2/3 : ISO 14064-1:2018 distinguishes six categories of emissions: 1) direct emissions, 2) indirect energy-related emissions, 3) indirect emissions associated with transport, 4) indirect emissions associated with purchased products, 5) indirect emissions associated with sold products, and 6) other indirect GHG emissions. Category 1) is called “Scope 1,” category 2) is called “Scope 2,” and categories 3) to 6) correspond to the definition of “Scope 3.”
   

1. Services : services offered by the Upcyclea Platform, such as: importing resource inventories into the Digital Building Bank, updating the resources in the Digital Bank (quantity, state of wear, availability, etc.), calculating the building's ESG indicators (embodied carbon footprint scope 3 and carbon intensity per ^m2 , health, reuse, circularity, financial indicators, etc.) required for financial (European taxonomy law) and extra-financial (CSRD directive) reports, suggesting and monitoring the reuse and upcyclea ecosystem for used resources, as well as the associated recovery indicators.
2. Circular Signature ⁹ (or Incoming ESG Indicators) : The Upcyclea Platform Services allow you to calculate the Circular Signature of a building or an entire asset. It includes the following incoming ESG indicators: carbon footprints (embodied carbon scope 3, carbon intensity according to RE2020 and LCBI [9] ), health, reuse, circularity, disassembly, share of recycled/biosourced, residual economic values of used resources according to several scenarios, data reliability, etc.
3. Upcycling : Upcycling involves transforming resources into products of equal or higher quality. For example, used concrete reprocessed into concrete is said to be upcycled; but concrete used as a road base is simply recycled (we could say downcycled because there has been a loss of value).