Climate plans in the building sector: how do Japanese firms perform?

In the World Benchmarking Alliance’s fifth Climate and Energy Benchmark, the 50 most influential building companies worldwide were assessed by their low-carbon transition strategies. The findings were consolidated into an insights report published in March 2023. In this blog post, we at Codo summarize the main findings and analyze how Japanese firms performed.

What are WBA climate benchmarks?

The World Benchmarking Alliance (WBA) is a global non-profit that creates benchmarks of over 2000 firms by comparing their contributions to the Sustainable Development Goals (SDGs) and publishes assessments of companies’ climate plans across various industries. The assessments are based on the ACT methodology, developed by ADEME and CDP to measure the quality of corporate low-carbon transition plans.

The WBA Climate and Energy Benchmark focuses on assessing companies in high-emitting sectors. Following car manufacturers (automotive), electric utilities, oil and gas, and transport industries, the WBA has assessed the building sector. The comprehensive assessment of these companies combines ACT assessments (conducted by CDP) and “just transition” assessments (conducted according to an internal methodology) to provide an overall score covering the environmental, industrial, and social dimensions of each company’s low-carbon transition.

The building sector benchmark covers 50 building companies operating in over 91 countries, including three companies from Japan. Although the total number of companies assessed was smaller than in other sectors, their combined global impact is as large or larger than the other assessed sectors, with building industry emissions alone being responsible for 37% of global CO2e emissions (as of 2021). While the building sector can be further divided into complex sub-sectors, each of the companies included in the WBA Buildings Benchmark have a role in at least one of the following fields: property development, property management, and construction.

A sector whose current choices will have decades-long impact, but is not taking responsibility

The WBA’s key findings highlight how important it is for companies to take immediate and critical action. The building sector is responsible for 37% of global emissions, yet currently, most companies do not have emission reduction targets or transition plans in place to achieve net-zero goals supporting the Paris Agreement 1.5°C transition. As corporate actions of the building sector have a significant global impact on both short-term and long-term time scales, it is crucial to assess where they stand and hold them accountable.

Based on the 50 company assessments, the WBA identified 5 key findings:

There is little evidence that companies are trying to reduce their in-use emissions. A lack of proper design, construction, and/or renovation creates locked-in (unable to be easily changed/reduced without causing other environmental harm) emissions that will significantly limit society’s ability to decarbonize in the long term.
Very few companies are actively planning for their low-carbon transition, while 54% of companies have not yet even partially developed a transition plan.
The building sector must engage with its value chain to achieve emission reductions, but 46% do not have a strategy for client engagement toward decarbonization.
There is a lack of commitment and a failure to act to improve responsible corporate conduct including respect for human rights and protection of the health and safety of their own workers and that of the workers in their supply chains.
All building companies scored 0 on their “just transition planning,” putting over 1 million direct employees and millions of other contracted workers at risk.

Photo by Danist Soh on Unsplash

How did the Japanese companies perform?

Overall, Japanese companies performed comparatively well. Among the entire 50 companies, 3 were headquartered in Japan. They all ranked in the upper half: Mitsubishi Estate (7th), Mitsui Fudosan (12th), and Sumitomo Realty & Development (23rd). These relative rankings, however, fail to demonstrate the vast room for improvement that the sector as a whole has in front of them. ACT scores are comprised of three metrics, with the highest possible score being 20, A, +, respectively. Please reference our previous article for more information on the ACT scoring methodology.

Mitsubishi Estate ranked 7th across the 50 companies with an ACT performance rating of 6.9B= and emissions reduction targets for 2030 for Scope 1, 2, and 3 emissions validated by the Science Based Targets Initiative (SBTi). However, the data regarding its absolute emissions was incomplete, and there was little evidence or public disclosure of its ethical engagements in line with a “just transition”.

Mitsui Fudosan ranked 12th and obtained an ACT performance rating of 6.5B+ from their transition plan to invest in renewable energy and low-carbon materials. They lost points due to a general lack of full and consistent absolute and intensity-based emissions disclosure. It also failed to communicate about public commitments to providing more decent work opportunities and protections to employees in line with a just transition.

Sumitomo Realty & Development ranked 23rd from their ACT performance rating of 3.2C- earned due to their clear short-term decarbonization targets until 2030. However, they have no long-term targets or actions planned, and their total emission reporting is incomplete. Like its competitors, it is also missing any public commitments to ethical business practices towards a just transition.

Japanese companies performed relatively well. Overall, where companies have declared emission reduction targets, they are specific and in line with scientific requirements. However, Japanese companies consistently lost points due to gaps in their emissions reporting and declared ethical business practice initiatives.

Only Mitsui Fudosan has declared specific actions they will take toward achieving a greener building sector, resulting in a positive trend score. Given Mitsui Fudosan’s positive trend score and close performance and narrative scores, we can expect them to surpass Mitsubishi Estate in the next assessment. However, Mitsubishi Estate can keep its lead by developing and implementing clear plans for how it will achieve its SBTi-aligned decarbonization goals. Having goals is an important first step, but a well-thought-out business transformation is required to achieve those goals and ensure the achievement is in line with the set timeline.

Sumitomo Realty & Development has a larger gap to cover but can easily make improvements through the clear declaration of mid- and long-term goals similar to their already declared short-term target. The specific actions required to achieve those goals can be considered from there.

Recommendations from the WBA to all companies in the building sector

Upon analyzing the global benchmark results, the WBA identified four key recommendations to companies across the buildings sector. These recommendations apply universally and give direction to companies looking to improve their standing. Japanese companies must also improve along these lines to retain their rankings.

Better disclosure

Most companies still lack a complete report of their emissions, particularly in-use emissions, which represent 75% of the sectoral emissions. In-use emissions span the lifetime of a building and make up the majority of its scope 3 emissions. This would therefore require more engagement with a company’s value chain. WBA recommends that to deliver a proper assessment of companies’ in-use emissions, companies “should aim to disclose what proportion of low-carbon floor area they currently deliver and that they plan to deliver in the future.”

Detailed transition planning

To carry out a low-carbon transition, all companies must deliver a more detailed transition plan that includes financial and short, medium, and long-term emission reduction commitments that are SBTi-aligned and realistic. These plans should be specific and time-bound with clear actions to take, how those actions contribute to the declared commitments, and when these actions will be taken by.

Engagement with value chain

As mentioned above, a large share of the building sector emissions is from in-use emissions. In-use emissions source from indirect scope 3 emissions influenced by the goods and services a company purchases. While it is a complex issue, businesses must begin engaging more with their supply and value chains, building comprehensive strategies to achieve a low-carbon transition.

Detailed “just” transition strategy

All companies in this benchmarking assessment failed to provide “just transition planning, ” indicating their lack of commitment to social impacts. Companies must begin to implement and declare more ethical and inclusive business practices that respond to their employees, the workforce within their supply chain, and other stakeholders or communities affected in their value chain.