Conversations about Net Zero

This is an ongoing conversation between José Ortiz, ExcelSense's Chief Research Officer, and Carlos Infantes, ExcelSense's founder and CEO, on the subject of carbon emissions and how the effort to achieve net zero targets will impact real estate asset managers and investors. It will be updated on a weekly basis, as we advance in our goal of creating a modeling tool to measure emissions inferring data from our financial modeling tool.

1. Framework

An initial discussion about the discussion itself to explore and set up some boundaries and goals

September 27, 2021


Hello José, and thank you for this initiative. I want to start by establishing a framework for this conversation and setting up some goals. Of course, like everything else, especially in this company, it is subject to change as we move forward and learn more about the topic.

But for the moment, let's agree on the the following:

  1. I will be asking some questions on the subject as if I was still the CEO of an Asset Management company. 
  2. You should assume that I know very little on the subject and that I am asking based on two impulses:
    - On a personal level, a sense of curiosity and concern for the state of the environment, and 
    - On a corporate level, a sense of responsibility to respond to what seems it will become a major driver in our industry and a critical part of our accountability.

In terms of goals, I would also like to establish two targets:

  1. For our customers, partners and readers, to provide a simple but comprehensive approach to a very complex subject that is still being defined, specially from the perspective of answering the following questions:
    - How is the Net Zero target going to impact our industry in general, and our companies in particular?
    - What should I do to stay in the loop and keep providing competitive value to my stakeholders in relation to this area?
  2. For ExcelSense, we want to use this effort to structure our thoughts as we advance and reach out to people and organizations that share our values and interests.


Hello Carlos, yes, an open framework will be essential for this conversation as, whilst the underlying climate emergency (“the problem”) is generally well formulated and understood, the impact it has in our industry and the solutions that are being proposed, are evolving very rapidly. This will also allow us to visualize how society, the industry and ourselves, are adapting as we learn more and get our heads around how to deal with this problem, and hopefully turn it into a great opportunity.

Let's get down to it, shall we?


Ok, first question, then: In simple terms, what is the Race to Net Zero Campaign, why is it important and which are the key initiatives addressing it, specifically those more relevant to real estate?.


Hmmm, you are packing a lot there… 

I am sure everybody is familiar with the concept of "global warming" or "climate change". Put simply, Global warming is driving Climate change in every region on Earth. Many of these changes are unprecedented in thousands of years and will increase as the climate continues to warm. Some of the changes, such as raising sea levels, are irreversible over hundreds to thousands of years and are already seriously affecting the environment and the lives of many people, especially those living in the most vulnerable regions.

Global warming is normally wrongly understood as an average temperature increase across the planet but that is not the way it is perceived. For example, a small average temperature increase over a vast amount of water in the oceans results in huge accumulation of energy that is later unleashed in the form of extreme weather events with extraordinary destructive power. 

There is scientific consensus that climate change is  reaching a point of no-return that will lead to a less habitable world with dare consequence for all. 

The evidence is clear that carbon dioxide (CO2) is the main driver of climate change and human activity is a key source of CO2 emissions. That perhaps wasn't too much of a problem when we were a couple of billion people, less than 100 years ago, but we are now almost 8 billion!. That is a 4x growth in the last 100 out of the 300,000 years we have been on earth. No wonder we are having an impact.

Our World in Data


And human activity is not only growing due to the increased population, we are proportionally building more intensively than 100 years ago. Just to give you a sense of magnitude related to our industry, the UN is projecting the world will be building the equivalent of one additional the city of Paris every week for the next 40 years.

"The global buildings sector is growing at unprecedented rates, and it will continue to do so. Over the next 40 years, the world is expected to build 230 billion square metres in new construction – adding the equivalent of Paris to the planet every single week."
*UN Environment, Global Status Report 2017


Indeed! In 2007 world urban population overtook, for the first time in history, those living in rural areas and the trend is only accelerating. So, coming back to your first question, reducing CO2 emissions due to human activity is critical and we don’t have much time before more irreversible changes are triggered. Our civilisation is challenged with this race to zero emissions. Put in other words, a global commitment to reach a point where our activities become neutral in terms of emissions by 2050

There is a series of high level agreements, the most relevant being the Paris Agreement of 2016, sponsored by the UN.

Since then we have seen multiple organizations created to focus and organise this effort. In relation to real estate, which accounts for a significant proportion of the global CO2 emissions, we will identify, as we progress this conversation, the key initiatives driving the Real Estate’s transition to Net Zero and the role they play in the different regions where our customers operate. 

I would start  with the Net Zero Asset Management Initiative: An international group of Asset Managers around the globe that have signed a pledge to meet the Net Zero goal by 2050 or sooner. This organization is relevant since their signatories manage over $40 trillion (last time we checked) and they are key real estate drivers, so their pledge will undoubtedly trickle down to general partners and developers.

There are plenty more that we will discuss in this conversation, but this is a great place to start if anyone is interested in diving a bit deeper.

Net Xero Asset Managers Initiative


That  is very helpful, thank you. What kind of impact do you envision will this effort have for the real estate investment industry in the next few years? What is the risk of the so-called "green-washing" and how much will it actually define the way we build and manage our cities from now on?.


Well, experience shows that profound transformations of any industry or human activity are more effectively achieved when change is driven from inside. Initiatives and commitments pledged by the Real Estate stakeholders will have a better chance of succeeding than any measure imposed from the outside. Although external pressure always helps to focus our minds.

Green-washing is a risk in the early stages of this big transition. Might be tempting for the mistakenly self interested, but a painful long term strategy. More than painful, deadly. Green-washing can only cover up the problem of your specific portfolio for a little while. It’s not addressing the real issue and, as time passes by, your problem only gets augmented. We live in the era of data. Hiding is not any longer possible. Social responsibility is becoming more easily enforceable for those that single themselves out by not doing the right thing.

I believe there is an increasingly powerful effort to implement real measures in the next few years and ultimately everybody will comply, just like they have done with Health & Safety regulations or Fiscal Compliance before. At the end of the day these advancements happen because they deliver long term good to the industry and society. We just need a kick-start as it’s always been the case to trigger real action. 

A key issue related to your question is that real impact can only be achieved when we can measure what we are trying to do.To be able to meet the Net Zero target, first we need to be able to effectively measure emissions and to do it at scale. So far, we have the technology to measure emissions at a building scale but we don't know yet how to do it in a practical way for a multi-billion portfolio without breaking the bank.


Can you explain how it can be measured, what are the critical concepts we should start familiarising with?


We will dive deep into this problem another day, but for the sake of illustrating the complexity think for every asset (let say an existing building you purchased, renovated and are currently operating), you would need to define at least 3 categories of emissions during the time it remains under your management:

  • Scope 1: Direct emissions from your own company activities
  • Scope 2: Emissions generated by the suppliers of the energy you consume
  • Scope 3: Emissions generated by the asset itself (waste and energy used by your tenants, for example)... Also your supply chain for everything else you use.

But that's not all, you will also need to take into consideration the embodied carbon (in the asset) that you inherited from the previous owner and will be transferring to the next.  

So as you can see, some measures are a bit easier than others. At the beginning we are going to do a lot of high-level inferring at portfolio level from what we know for individual (or groups of) reference assets, but as new technology is developed in different areas we should be able to approach this with increasing levels of precision.


I have to say that we, at ExcelSense, are determined to be one of those drivers helping get it right sooner rather than later. In that same spirit, what should be expected of us, as managers and investors in the near future and how can we start getting ready for it?


In general terms, I would say that real estate managers are accountable and will need to start collecting all types of data broken down by activities. 

There will be an increasing level of pressure for more detailed and sophisticated reporting from every relevant stakeholder, specifically institutional investors and the banking industry. And is going to take a lot of resources from both sides in a trial and error phase until we can settle on a series of input parameters and output metrics.

The problem is that this is coming as managers are already suffering a pinch with additional complexity derived from covid and new and intense operating models on one side and significant fee compressions on the other.

I think it is not viable for managers to consider a traditional approach to this challenge. You can't just throw more controllers into an entangle of spreadsheets and think it is going to work.


Can you explain in generic terms how ExcelSense is approaching this issue and what could we expect in the near future that could be of relevance for our customers?


We have been working for some time now on inferring models that help predict carbon emissions from our financial models since we have a very granular level of data by relevant activities. 

There are a lot of parameters that we are still designing in close collaboration with our definition partners and it is hard to say when we will be ready to offer a commercial  emissions modeling tool, but I think, based on our current progress we should be having an MVP in the second quarter of 2022.


I would like to add that one of ExcelSense key drivers is to help liquify the real estate markets, and I believe when this finally happens the emissions metrics will play a very positive role in directing the capital into the most efficient initiatives. To me this will have a much bigger impact towards achieving Net Zero than any potential regulation or good-will commitments. Anyway, we can talk about that some other day,  I think we can leave it here for today.

If you are ok with it, for next week I would like to go a bit deeper into the different scopes to try to understand which ones are relevant for real estate and how is the current state of affairs in terms of modeling and measuring them.

Thank you José,


Looking forward to it. See you next week.

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