Achieving Carbon Neutrality in the Built Environment: Context, Commitment and the Path Forward
Leading companies that are seizing opportunities offered by zero-emissions mandates to generate business opportunities and value for their stakeholders was the focus of the most recent Realcomm webinar highlighting pathways to improving environmental, social, and governance (ESG) performance. In Improving ESG Performance and Part II: Achieving Carbon Neutrality in the Built Environment, industry leaders illustrated examples of how to use a planning process and smart building technologies to achieve energy savings and realize the value creation potential of ESG.
Commercial buildings contribute nearly 20 percent of U.S. greenhouse gas (GHG) emissions, so the building sector must be part of the solution to address climate change. For owners and operators, addressing the energy and carbon profile of their buildings is no longer a “nice to have” but a core business requirement. This evolution is driven by growing investor pressure, tenant preferences, and government regulation.
The Biden-Harris administration has signaled that agencies will view regulatory action and directing funding with a climate lens. For example, in March of 2021 the Securities & Exchange Commission (SEC) announced a task force focused on climate and ESG issues within the Division of Enforcement. State and local policy has been aggressive on energy and climate regulation. In total, 24 states and the District of Columbia have established economy wide GHG emissions targets, many of which align with a 50 percent reduction by 2030 and net zero (or nearly) by 2050. Jurisdictions are looking to frameworks like New York City’s Local Law 97 and the DC Clean Energy Omnibus Act, which build on mandatory benchmarking and disclosure of energy and/or emissions to set binding declining emissions caps for existing buildings.
Investors are also driving the imperative to address climate impact. The CEO of BlackRock, Larry Fink said, “Climate risk is investment risk” and noted that a fundamental reallocation of capital to sustainable investments has begun. Investors are no longer asking “Do you have an ESG program?” but saying, “To be investible, companies have to be taking action and transparently demonstrating performance.”
Increasingly, tenants are making net-zero commitments and requiring that their leased space meets these goals. Almost a quarter of global Fortune 500 companies committed to be carbon neutral by 2030 and are looking for buildings that align with these commitments, with transparent reporting that can be incorporated into their corporate climate reporting.
Leaders who have begun their progress toward carbon neutrality discussed their process in the Realcomm webinar Achieving Carbon Neutrality in the Built Environment.
Ryan Tinus of Hudson Pacific Properties shared his company’s Better Blueprint focused on achieving net zero carbon across all operations using a sustainable, healthy, and equitable approach. Sara Neff with Kilroy Realty shared CEO John Kilroy’s goal to be a leader in ESG and to help move the market towards carbon neutrality by announcing a commitment to carbon-neutral operations in 2018.
These successful leaders are following a best-practice process. The critical first step is an investigation of the portfolio to determine the approach, end goal, and timeline to reach climate neutrality. This includes determining emissions scope(s) and reporting boundaries, assessing the regulatory landscape and carbon intensity of the portfolio’s electric grid(s), and understanding incentives available for energy efficiency, electrification or onsite renewables, all of which contribute to a comprehensive carbon management strategy, appropriate end goal and milestones along the way.
The next step is developing a greenhouse gas/carbon inventory that sets a baseline against which to measure (and show progress), helps set realistic, achievable targets, and demonstrates ongoing credibility through tracking and reporting. The most straightforward framework is the GHG Protocol's Corporate Accounting and Reporting Standard. The Science-Based Target Initiative works with companies to set carbon reduction targets that are aligned with the targets defined in the Paris Climate Accord.
After a GHG emissions inventory has been developed, opportunities to evaluate ways to reduce emissions can be assessed, prioritizing efficient operations and appropriate updating of inefficient systems and equipment as well as using innovations such as those described by Jon Schoenfeld with Buildings IoT and process approaches like those described by Chris Cayten, CodeGreen Solutions on the Realcomm webinar. These best practices coalesce around reducing emissions as the primary focus, maximizing the use of on- and off-site renewable energy sources, and then purchasing “offsets” for the remainder of the emissions as the “last step.”
Another important aspect of a carbon management plan is consistent measurement and tracking of key metrics. This is fundamental to reporting progress toward goals and assessing and adjusting strategy to stay on track. Staying abreast of developments in the investment community as well as in the regulatory space will inform the choice of platform(s), including the need for tools that comport with industry-specific standards, such as those developed by the Sustainability Accounting Standards Board (SASB) or the Task Force on Climate-related Financial Disclosures (TCFD). A best practice example of ongoing internal and external reporting and data management is described by Tanya March with Envizi on the Realcomm Achieving Carbon Neutrality webinar.
Next comes the fun part: announcing a commitment! Every week a CEO makes headlines for a bold climate commitment. At the same time, there is growing scrutiny about some of these commitments. “Long-range” goals that once seemed very far off are no longer so, and as 2030 draws nearer, the pressure to transparently demonstrate real progress will grow. Companies that invest in the foundational work of analyzing the opportunity, developing an accurate inventory, and setting realistic, achievable targets will protect themselves against reputational risk and potential negative financial impacts.
Executing on a climate neutrality commitment requires a combination of executing energy efficiency retrofits, incorporating renewable generation, considering opportunities such as end-use electrification, and investing in various offset schemes. It requires reassessing strategy as new technologies come online, grid energy decarbonizes, carbon offset prices change, and new value streams and business models emerge. A successful carbon management strategy will set a realistic and achievable “North Star” goal, utilize consistent and rigorous tracking and measurement, and follow the plan-do-check-act framework to stay on track.
Gone are the days when a plaque in the lobby was enough to attract tenants and investors. We are entering an era of rigorous and credible climate target-setting, tracking, and achievement. Companies that take climate risk seriously, and develop, track, and report climate neutrality goals will be at an advantage.
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