Purpose & scope

This guidance explains why embodied carbon is becoming a material investment issue for real estate and infrastructure investors. Focusing on new developments and major refurbishments, it provides practical methods for measuring and reducing embodied carbon, building on frameworks such as the Net Zero Investment Framework (NZIF). Although developed for Australia, the guidance is intended to be relevant to global investors. The report notes that the built environment generates 42% of annual global emissions, with 15% arising from building materials and construction, while upfront embodied carbon could represent half of all new construction emissions by 2050.

What is embodied carbon?

Embodied carbon comprises emissions generated during material extraction, manufacturing, transport, construction, maintenance and end-of-life stages of buildings and infrastructure. Most emissions are locked in during planning, design and construction, making new developments and major refurbishments the primary opportunity for investors to influence outcomes. Operational energy and water emissions are excluded from embodied carbon.

Why investors care

Embodied carbon is increasingly material because it affects project costs, asset valuations, regulatory compliance, financed emissions reporting and long-term transition risk. Frameworks including NZIF, the Science Based Targets initiative (SBTi) and AASB S2 encourage investors to measure, disclose and reduce embodied carbon. The guidance recommends a maturity pathway of measuring and benchmarking emissions, setting credible reduction targets, and implementing reductions through design, procurement and construction decisions.

The materiality of embodied carbon

Embodied carbon is a significant Scope 3 emission source. It represented 16% of Australia’s built environment emissions in 2019, while infrastructure embodied carbon accounted for 5.9% of national emissions. As operational emissions decline through electricity grid decarbonisation, embodied carbon could increase to 85% of built environment emissions by 2050. Because commercial assets typically last 30–100 years, the report recommends early benchmarking and target-setting to reduce future regulatory, financial and reputational risks.

Mandatory reporting

Australian Sustainability Reporting Standard AASB S2 requires disclosure of climate risks and Scope 1, Scope 2 and material Scope 3 emissions. For real estate investors, this includes upstream embodied carbon from construction activities and downstream operational emissions. The report recommends using recognised methodologies such as EN15978 and the Partnership for Carbon Accounting Financials (PCAF) framework to improve measurement consistency and financed emissions reporting.

Implications for net zero targets

IGCC’s 2025 survey found that 45% of Australian asset owners have interim net zero targets for real estate and infrastructure portfolios, while 61% of asset managers have targets for real estate and 56% for infrastructure. NZIF recommends incorporating embodied carbon into decarbonisation plans, disclosures and asset-level targets, while SBTi encourages disclosure of financed embodied carbon intensity to improve transparency.

Sectoral targets and benchmarks

The report highlights recognised reduction pathways. The Green Building Council of Australia and World Green Building Council recommend approximately 40% reductions in upfront embodied carbon by 2030. Green Star Buildings v1.1 increases embodied carbon requirements over time, while the Carbon Leadership Forum recommends 50% reductions by 2030 and net zero performance by 2040. Australian-specific benchmarks, including Slattery’s datasets, support target-setting.

Strategic benefits

Reducing embodied carbon can improve long-term asset value, reduce transition and stranded asset risks, strengthen regulatory compliance and improve disclosure quality. Investors demonstrating credible reductions may enhance transparency, attract capital and position assets more favourably as demand grows for properties aligned with science-based net zero pathways.

How to drive embodied carbon outcomes

The report recommends a three-stage approach: measure and benchmark embodied carbon using tools such as NABERS, EN15978, PCAF and Australian infrastructure guidance; establish reduction targets aligned with GBCA, WorldGBC and SBTi pathways; and monitor implementation throughout project lifecycles. Private equity investors can influence project design, procurement and certification, listed equity investors can drive improvements through stewardship and engagement, and debt investors can embed embodied carbon metrics within green bonds and sustainability-linked loans. A featured case study describes the University of Tasmania’s AUD 350 million green bond, which committed to reducing upfront embodied carbon by at least 20% compared with conventional construction practices.