Biscred offers a database that connects CRE businesses. As part of our commitment to helping businesses navigate the commercial real estate industry, we offer in-depth guides that help readers understand key topics in the CRE industry. This guide addresses the following questions about sustainability, green building, eco-friendly building, and carbon-neutral building.
Why should building owners be thinking about sustainability?
How can CRE buildings reduce their carbon footprint?
What are the benefits and challenges of implementing sustainability initiatives?
What financing is available to help building owners implement sustainable changes?
Why is it important to have regulations around implementing clean energy?
What does sustainability mean in commercial real estate?
First, let's answer the question, What is corporate sustainability? Corporate sustainability refers to business practices that adhere to long-term benefits to the environment, society, and the world economy (governance). Collectively, these are referred to as the three pillars of corporate sustainability or ESG.
The overall goal of sustainability is to maintain a consistent process by which the Earth’s resources can be used in the long term. In commercial real estate, corporate sustainability involves conducting business and incorporating practices in a way that is considerate of people and the environment.
Sustainability in CRE is broken up into three factors:
Economic: Incorporating building initiatives that contribute to financial growth while being mindful of causing harm to the environment.
Social: Ensuring that buildings are accessible for the needs of a diverse population, which includes providing accessibility to public transportation and points of interest, and creating spaces with health and wellness in mind.
Environmental: Designing and constructing buildings with the intent to conserve energy. Examples include using more sustainable building materials, installing solar panels and inputting HVAC systems that take in air from outside and circulate it indoors.
Why should building owners be thinking about sustainability?
Many CRE investors have been putting ESG (environmental, social, governance) at the forefront when it comes to making decisions about their assets. PricewaterhouseCoopers found that 80% of 325 asset managers surveyed listed ESG as one of their key reasons for investing, with cutting down on carbon emissions being the primary focus.
CRE building owners have been realizing the long-term benefits of sustainability when developing and managing a building, both for the environment and the health of the business. Bringing forth more environmentally and economically conscious practices can help with bringing in and retaining tenants as well as cutting down on costs associated with using products that emit carbon.
How can CRE buildings reduce their carbon footprints?
According to Architecture 2030, buildings account for 40% of carbon emissions worldwide, with 27% originating from day-to-day operations and the remaining 13% coming from emissions incurred throughout the construction process. For building owners, reducing emissions means embracing materials and practices that help with energy savings, which are both beneficial for the environment as well as the business’s bottom line.
Some of these processes may include:
Incorporating sustainable building materials, such as mass timber, over concrete and steel.
Using modular construction techniques to reduce waste and prevent emissions caused by building apparatuses.
Installing geothermal systems for heating or cooling or solar panels for electricity.
Deriving light sources from natural light or LED lights.
Keeping design at the forefront, by including different styles of furniture to fit different workers’ needs and preferences.
What are the advantages and challenges of implementing sustainability initiatives?
Sustainable buildings can be achieved either through new construction or by making changes to existing buildings to become more sustainable. The benefits of bringing forth buildings with sustainability in mind can include:
Prioritizing cutting down on carbon emissions
Reducing waste caused by construction
Cutting down on operations costs down the line
Conserving water
Reusing materials
Boosting better health within the building
While incorporating clean energy initiatives helps with reducing the amount of energy used and saving money in the long run, constructing a new building or making upgrades to existing buildings can come with sustainability issues, such as:
High upfront costs for purchasing or installing equipment or replacing outdated equipment
The risk of ruining an existing structure
Getting someone who knows the specifics of building for sustainability
The efficacy of some greener energy sources — such as solar panels or wind turbines — may be dependent on the location of the building, the weather conditions or the strength of the wind.
What financing is available to help building owners implement sustainable changes?
Building owners who are taking steps to decarbonize their buildings may receive tax benefits offered by their municipality and state as well as by the U.S. government that are applicable toward financing clean energy solutions. Buildings can also access C-PACE financing and can pay back the loans through an assessment that appears on property taxes.
Why is it important to have regulations surrounding clean energy?
There have been an increasing amount of regulations that have been implemented around meeting sustainability targets. These regulations — also known as performance standards — have been enacted to achieve a greater and quicker reduction in the carbon footprint and to create plans that would work for the long run.
In December 2021, President Biden issued an executive order to address climate change by setting targets for reducing emissions between 2030 and 2050. The overall goal for the U.S. is to power electricity without the need for carbon by 2035 as well as to achieve “net-zero emissions economy-wide” by 2050. The order also helps with bringing forth union jobs that can support the path to a more sustainable future.
So far, 22 states as well as Washington, D.C. and Puerto Rico have committed to setting goals for achieving renewable energy between 2030 and 2050, according to the Clean Energy States Alliance.
According to the Environmental Protection Agency, having performance standards helps commercial buildings optimize their performance. States and municipalities can also work with stakeholders such as building owners, developers and utility companies to make these changes.
Among these regulations include:
New York: Local Law 97
LL97 is legislation created toward New York City’s goal of net-zero carbon dioxide emissions by 2050. Among the targets leading up to this goal includes:
By 2030, New York City is aiming for a 40% emissions decrease among most buildings with 25K SF or more.
By 2050, New York City is aiming for an 80% emissions decrease among most buildings with 25K SF or more.
In addition to buildings exceeding 25K SF, LL97 also applies toward two or more buildings with the same owner that exceed 50K SF.
To comply with LL97, eligible buildings have to disclose their GHG emissions in a report to the Department of Buildings by May 1, 2025 and each subsequent year on May 1st. Buildings that have gone over the allotted emissions in a given year will be subject to a penalty of the actual emissions minus the allotted emissions within the year multiplied by $268.
Colorado: Building Performance Standards
Colorado Building Performance Standards — or House Bill 21-1286— has set goals of cutting 7% of emissions by 2026 as well as 20% by 2030, with both targets in comparison to 2021 emissions. Buildings consisting of 50K SF or greater have to disclose their energy emissions to the Colorado Energy Office. Additionally, new construction that costs $500K or more would need to comply with these standards.
Failure to comply with these benchmarks result in a $500 payment for a first offense and $2K for every offense thereafter.
Massachusetts: Clean Energy and Climate Plan
Massachusetts set a goal of carbon neutrality by 2050. Under the Clean Energy and Climate Plan, its emissions goals target buildings, modes of transportation, electricity, industrial and farmland.
Among the targets leading up to this goal includes:
By 2025, the city is aiming to achieve a 33% reduction of carbon since 1990
By 2030, the city is aiming to achieve a 50% reduction of carbon since 1990
As of August 2022, buildings that exceed 20K SF are required to submit a yearly report of their emissions
New Mexico: Energy Transition Act
New Mexico’s Energy Transition Act is aiming to transition to using more energy-efficient solutions and cutting down on the cost of energy. The state is also aiming to achieve the following targets:
By 2030, to use 50% clean energy for utilities that are owned by “investor-owned utilities and rural electric cooperatives”
By 2040, to use 80% clean energy
By 2050, to transition to zero carbon
Bisnow Sustainability
32 of 75 institutional investors have yet to create a tangible plan for decreasing carbon emissions. Considering that 40% of the world’s GHG emissions comes from building, buildings must take steps toward reducing carbon use.
Special Report: Real Estate’s Efforts To Cut Carbon Emissions ‘May As Well Be Doing Nothing’
Investors and investment management need to include Scope 3 emissions — which account for 90% of emissions — when tracking how much carbon is put out.
Clear regulations can prompt CRE owners to get on board with decreasing carbon usage. However, regulations should be in step with tangible goals for reducing carbon emissions.
RESOURCE
Sustainability
Sustainability in CRE Development, Building, Operations