The Path Forward to Achieving Carbon Neutrality in the Built Environment
Arah Schuur, Executive Director, Northeast Energy Efficiency Partnerships (NEEP)
Achieving operations that balance economic, social, and environmental goals is one of the major challenges the building industry is facing today. Less clear is how building owners and developers can seize the opportunities offered by zero-emissions mandates and disruptive energy technologies to generate business opportunities and value for their stakeholders.
Building owners and operators are realizing that assessing and addressing the energy and carbon profile of their buildings is no longer a “nice to have” but a core business requirement. This evolution has been happening rapidly and is driven by several factors including investor pressures, tenant preferences, and growing government regulation. The energy used in the operation of commercial buildings contributes nearly 20 percent of U.S. greenhouse gas (GHG) emissions, so the building sector must be part of the solution to rapidly and deeply cut emissions to address climate change.
The Biden-Harris administration is making climate change core to its focus and has indicated that climate change mitigation and resilience will drive priorities in all aspects of federal action. While the full scope of this focus remains to be seen, the expectation is that more agencies, for example the Securities & Exchange Commission (SEC), will look at both regulatory action and directing funding with a climate lens. In fact, the SEC announced on March 2, 2021, that they have created an enforcement task force focused on climate and ESG issues, in the Division of Enforcement.
Federal priorities will be catching up with state and local policy and regulation, which has been more 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 in carbon dioxide by 2030 and net- or near-net zero by 2050. More jurisdictions are looking to regulatory frameworks like New York City’s Local Law 97 and the DC Clean Energy Omnibus Act, which build on mandatory benchmarking and disclosure of building energy and/or carbon use to set declining emissions caps that existing buildings must meet.
Investors are also driving the imperative to address climate impact. In early 2020 the CEO of BlackRock, Larry Fink said, “climate risk is investment risk” and he has since noted that a fundamental reallocation of capital to sustainable investments has begun. Investors are no longer asking “Do you have an ESG program?” They are now saying, “To be investible, companies have to be taking action, demonstrating performance, and be transparent.” The focus of the investment community brings new scrutiny on the rigor and credibility of commitments and reporting, and pressure on the need to converge on a single standard for reporting.
Adding to the business imperative, more and more companies (building tenants) are making corporate net-zero commitments and requiring that their leased space meets these goals. Almost a quarter of global Fortune 500 companies – representing $8 trillion in revenue and 18 million employees – have made commitments to be carbon neutral by 2030. Tenant space requirements are evolving from voluntary leadership designations (such as ENERGY STAR or green building rating) to buildings that are operated under climate commitments that align with their own, with transparent reporting that can be incorporated into their corporate climate reporting.
This growing pressure from tenants, investors, and regulators, as well as more stringent calls for transparency and demonstration of performance can be overwhelming. But there is a best-practice process and frameworks to follow, as well as examples of owners and operators who have followed the framework and begun their progress toward carbon neutrality. As discussed in the Realcomm webinar on Feb. 18, Ryan Tinus of Hudson Pacific Properties shared his company’s Better Blueprint for carbon neutrality focuses on achieving net zero carbon across all operations using a sustainable, healthy, and equitable approach. Hudson Pacific Properties is building on a strong foundation of health and energy efficiency, including third party validation through certifications and adding off-site renewables, electrification, and green energy procurement.
Similarly, Sara Neff with Kilroy Realty (now with Lendlease) shared that CEO John Kilroy’s goal is to not just be a leader in ESG but to help move the market towards carbon neutrality by announcing Kilroy Realty’s commitment to carbon-neutral operations in September of 2018. For years, the company had been committed to efficiency, innovation, and deployment of on-site renewables and in 2018 executed an offsite power purchase agreement to purchase 100 percent renewably-powered energy for the remainder of the energy consumption.
These successful leaders and others follow a process that starts with a critical first step: an investigation of the portfolio and consideration of the implications, and options for determining the right approach, end goal, and timeline to climate neutrality. What is the end goal?
- Is it “net zero emissions” which refers to achieving zero carbon dioxide emissions by eliminating, reducing, and finally offsetting portfolio emissions, or “carbon neutrality” which does not specifically address the elimination of carbon from the portfolio?
- What emissions scope(s) will be addressed and how will reporting boundaries be established?
- What approach makes short- and long-term business sense?
- What is the regulatory landscape for the portfolio – and what is it likely to be in the future?
- What is the carbon intensity of the portfolio’s electric grid(s)?
- What is the suite of incentives available for energy efficiency, electrification or developing on-site renewables?
- What interventions, in which order and over what timeframe will allow progress to be made and goals to be met in a way consistent with business needs?
- Will the goal comport with the evolving demands of regulators and investors for measurable and transparent results?
Determining the right end goal – and the milestones along the way – should be part of developing a comprehensive carbon management strategy.
The next step is developing a greenhouse gas/carbon inventory that aligns with the scope and boundaries determined at the outset. An accurate and complete inventory not only sets a baseline to against which to measure (and show progress), but is an essential component in setting realistic, achievable interim targets and demonstrating ongoing credibility through tracking and reporting. The most straight forward framework is the GHG Protocol's Corporate Accounting and Reporting Standard. Another framework available as companies evolve in their carbon neutrality approach is the Science-Based Target Initiative. This organization works with companies to set carbon reduction targets that are aligned with what climate science considers necessary to limit global warming to below 2°C or 1.5°Celsius as 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 same Realcomm webinar. All of 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.” As Joel Makower wrote recently in GreenBiz, “Companies may be relying far too much on the ‘net’ and far too little about the ‘zero’; we can’t continue to run a business as usual approach and just write a check for offsets.”
Another important aspect of a carbon management plan that must be considered at the outset is the ability, willingness, and methodology for tracking and reporting progress. The ability to measure consistently and identify and track key components of the plan are fundamental to reporting progress toward goals, as well as assessing and, if necessary, adjusting strategy to stay on track. This includes considering the array of available frameworks and tools, from focused tools like the U.S. Environmental Protection Agency’s ENERGY STAR Portfolio Manager, to comprehensive ESG reporting and benchmarking platforms like the GRESB framework and carbon emissions registries like CDP (formerly known as the Carbon Disclosure Project). Staying abreast of developments in the investment community as well as in the regulatory space will inform the choice of platform or 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).
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 future reputational risk and potential negative financial impacts.
Executing on a climate neutrality commitment will be a combination of executing traditional projects, such as energy efficiency retrofits and developing on-site renewable generation, and considering new opportunities, such as end-use electrification and investing in various offset schemes. It requires constantly reassessing the strategy and the balance of business constraints and opportunities as new technologies come online, grid energy decarbonizes, carbon offset prices change, and new value streams and business model 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 ensure that the portfolio is on track to meet the ultimate goal as well as milestone targets along the way.
Gone are the days when a plaque in the lobby was enough to attract tenants and mollify investors. We are entering a rapidly evolving era of rigorous and credible climate target-setting, tracking, and achieving emissions reductions. Companies that take climate risk seriously, and develop, track, and report climate neutrality goals will be at an advantage in this new world.
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