REDUCING EMISSIONS – ENHANCING GLOBAL APPEAL FOR COMMERCIAL REAL ESTATE

Introduction

According to the IPCC AR6, WGIII Report (2022/2023), the construction and real estate sector accounts for around 40% of total global CO₂ emissions related to energy and industrial processes. Within this, embodied carbon—emissions from building materials, cement and steel production, transportation, and construction—makes up approximately 18% of the sector’s total CO₂ emissions.

A UNEP report, Building Materials and the Climate: Constructing a New Future (2023), also confirms that the construction and building materials industry is one of the largest emission sources, with cement, steel, and aluminum contributing significantly to embodied carbon.

On the international commitment front, at COP26, Vietnam officially pledged to achieve Net Zero by 2050. In parallel, mechanisms such as the EU Taxonomy and the Carbon Border Adjustment Mechanism (CBAM) are being advanced, meaning that commercial real estate projects developed without attention to ESG will face increasing difficulty in accessing international capital markets.

Therefore, the future of commercial real estate in Vietnam must view carbon emission reduction not merely as an optimization measure during the operational phase (electricity, water, HVAC, lighting, etc.), but as a process that begins right from the design and construction stages—since traditional materials such as cement and steel are major contributors to embodied carbon.

Carbon reduction is no longer an option to simply “polish ESG credentials”; it has become a matter of survival for Vietnam’s commercial real estate. This shift is essential for the sector to remain competitive against international rivals, particularly within ASEAN, where countries like Singapore and Thailand have already made significant progress in carbon reduction within real estate. Furthermore, ensuring lower carbon emissions enables developers to gain easier access to FDI and green financing, in line with international policy frameworks and capital markets that increasingly prioritize low-carbon assets.

Carbon Emissions in Commercial Real Estate – Sources and Challenges in Vietnam

Carbon emissions in commercial real estate can be divided into two main categories: Embodied Carbon (emissions from materials and construction processes) and Operational Carbon (emissions during the operational phase). Embodied carbon arises from cement, steel, and glass production, transportation, and on-site construction; while operational carbon is generated continuously throughout the building’s lifecycle, mainly from electricity, water, HVAC, and lighting systems. According to the World Green Building Council, operational emissions account for about 28% of global energy-related emissions, while embodied carbon accounts for around 11%.

For newly designed and efficiently operated commercial buildings, operational emissions can be significantly reduced through energy-saving technologies. However, as operational emissions decrease, the share of embodied carbon in the total lifecycle increases—rising to as much as 40–50% of a building’s overall emissions (Lützkendorf et al., 2022, Buildings and Cities Journal). This highlights that even when a building achieves energy efficiency standards, if its materials have high carbon intensity, total lifecycle emissions remains high, undermining carbon reduction goals.

Challenges in Vietnam

In Vietnam, this challenge is particularly acute. Domestically produced cement emits on average 725–750 kg CO₂ per ton, higher than the global average. The steel industry also relies heavily on traditional blast furnace–basic oxygen furnace technology, which has much higher emission intensity. Furthermore, many commercial real estate projects have not yet conducted lifecycle carbon assessments (LCA), resulting in a lack of transparency for investors and tenants.

From a policy perspective, Vietnam is only at the early stage of piloting an emission trading system, while there is still no carbon tax or strong incentive mechanism for low-carbon buildings. As a result, developers lack sufficient financial motivation to select green materials and technologies. Additionally, the adoption of green materials requires advanced design, construction, and project management expertise, which is not yet widespread in Vietnam’s construction sector.

Mechanisms for Carbon Reduction in Commercial Real Estate

Carbon reduction in commercial real estate is not merely a technical objective but a critical business strategy that enhances a building’s attractiveness to international tenants and foreign investors. Reduction mechanisms can be implemented across three main pillars: design/construction, operations, and lifecycle management.

Illustrative Case Study – International Practice

Case Study – Keppel Bay Tower, Singapore

Keppel Bay Tower became Singapore’s first net-zero energy commercial building in 2020. By applying circular economy principles—reusing steel and concrete while upgrading mechanical and electrical (M&E) systems—the project avoided tens of thousands of tons of CO₂ emissions compared to a new-build scenario. At the same time, energy-saving technologies such as high-efficiency HVAC systems, LED lighting, and smart sensors reduced electricity consumption by an additional 20% relative to conventional benchmarks.

The project avoided tens of thousands of tons of CO₂ emissions compared to a new-build scenario. Keppel Bay Tower successfully improved occupancy rates, increased rental values, and attracted FDI capital, demonstrating that combining lifecycle carbon footprint accounting with circular economy practices generate sustainable added value.

Carbon Tax in Commercial Real Estate

The EU’s Carbon Border Adjustment Mechanism (CBAM) is advancing. In the medium and long term, a domestic carbon tax or carbon credit system will soon become a mandatory cost component in Vietnam.

Projects using green materials may face higher upfront investment costs, but they avoid the risks of carbon tax volatility, more easily obtain green certifications, attract international tenants, and access FDI capital. Conversely, buildings relying on high-emission materials risk losing appeal to global tenants.