A New Climate Agenda for CRE

That 2023 was a tremendous year for climate pledges and actions—particularly for the carbon-intensive commercial buildings sector—is not in question. From the long-awaited launch of the 27-member Buildings Breakthrough at COP28, to the release of the White House Climate Resilience Framework, to the continued proliferation of building performance standards and other policies across U.S. state and local jurisdictions, there is mounting consensus behind the merits of decarbonizing the built environment.

There are promising indicators in other energy- and carbon-intensive sectors, too. For perspective, the International Energy Agency estimates that should all the energy-related pledges made at COP28 come to fruition then the global annual total of greenhouse gas emissions in 2030 would be at least 4 gigatons of CO2 equivalent lower than would be expected without them. More encouraging still, the U.S. Environmental Protection Agency reckons that, thanks largely to the incentives from the U.S. Inflation Reduction Act, buildings will deliver more GHG reductions by 2035 than any other end-use sector.

On average, U.S. commercial buildings are already 26 percent more energy-efficient than they were in 1990, according to a report by the U.S. Green Building Council. And to start 2024, preliminary data by Rhodium Group suggests that, in 2023, the U.S. buildings sector achieved a year-over-year emissions reduction in energy-related emissions of 4 percent, second only to the power sector.

The sustainability battle isn’t won yet

It’s probably tempting, then, to consider this momentum self-sustaining, particularly in the U.S. where the combination of supportive long-horizon federal and state policymaking together with changing attitudes among investors and tenants offer plenty of reasons for optimism. But building developers, owners, managers and investors—and those who advocate for an acceleration of their climate actions—must resist that temptation. And there are several big reasons why.

First, despite recent progress, buildings remain one of the largest sources of GHG emissions both in the U.S. and abroad. Second, the rate of building decarbonization is simply insufficient to meet Paris Agreement goals; according to JLL research, the annual rate of retrofits for existing buildings must be tripled. Third, net zero buildings, which often run entirely on purchased and on-site renewable power, have tremendous capacity to support the decarbonization of other carbon-intensive sectors. And fourth, beyond reducing society’s contributions to climate change, sustainable buildings are perhaps our most effective means of adapting to a warming planet’s adverse effects.

The task that lies ahead for the commercial real estate sector is simply to step up the ambition and accelerate action. But expecting would-be agents of building decarbonization to promptly march to the rhythm of that now classic drumbeat is part of what’s gotten us into this predicament. Instead, we need to break this charge into incremental components.

GNFZ’s areas of improvement

With that, the Global Network for Zero proposes two straightforward, near-term goals for both the U.S. CRE industry and, ideally, the federal government. They must conclusively expand the “scope” of their ambition for building decarbonization. And they must collaborate to equip building developers, owners and investors with more concrete and accessible information regarding the “how” of building decarbonization as well as with evidence of its merits—especially financial.

On the scope of ambition, there are three areas for improvement. First, champions and practitioners of building decarbonization will need to look beyond the allure of achieving net zero operations in new buildings and elite, or rather, or “showcase” projects.

Second, both industry and government must agree to a definition of zero emissions operations. The definition of net zero operations must encompass both operational value chain emissions and embodied carbon, rather than simply on-site, operational energy-related emissions. The reason is that these emissions, categorized as Scope 3, comprise the majority of buildings’ total emissions and therefore represent the greatest opportunity for change.

And for policymakers, third, it will be critical to commit to implementing building performance standards that not only cover a greater share of the commercial building stock within their jurisdictions but also mandate compliance with more modern energy-efficiency standards. For perspective, of the dozen state and local BPS regulations tracked by the Institute for Market Transformation, none cover commercial facilities below the 20,000-square-foot threshold. And according to data compiled by the U.S. Green Building Council and Arup, more than a dozen U.S. states have a minimum energy code rooted in standards that are at least 10 years out of date. As of October 2023, at least seven states have no minimum building energy code at all.

Building blocks toward a more sustainable future

There is, to be sure, encouraging momentum in the right direction. ASHRAE, a global professional standards body whose definitions and frameworks feature prominently in government regulations and various third-party green building certifications, has released an updated standard for energy efficiency and emissions performance in existing buildings. Also recently, ASHRAE and the International Code Council have revealed their proposed methodology for evaluating and documenting buildings’ operational greenhouse gas emissions—inclusive of Scope 3 emissions—and historical, or rather, embodied emissions. At the same time, the U.S. Department of Energy’s Building Technologies Office is hard at work evaluating public input received on Part 1 of its definition for a “zero emissions building.”

It bears repeating, though, that conclusive, universal standards and definitions are only one part of the equation. Yes, they address the discrepancies between the green building certifications designed and awarded by independent bodies. Yet they are only effective if building developers, owners and investors alike have a clearer understanding of not only the benefits associated with attaining those certifications but also a roadmap for realistically pursuing them—especially for the existing building stock.

Yes, mounting pressure from stakeholders offers an invaluable incentive for the CRE sector to take action, particularly for their legacy assets where concerns over project financing, costs associated with operational disruption, and even technical feasibility are forceful impediments. Yet even with that potential, actors still need definitive and evidence-based pathways to success.

Attention is turning toward the need for the development and publication of a repository of actionable evidence for CRE leaders. This database must not only support the business case—the ROI—for building decarbonization but also the technological, financial and managerial pathways toward achieving financially advantageous climate change mitigation and adaptation outcomes.

With governments and independent standards bodies setting long-needed, conclusive standards for what constitutes a green building and how to determine a facility’s compliance with those criteria, it’s time that the industry considers this pursuit of enlightenment the immediate next goal.

Mahesh Ramanujam is a co-founder of the Global Network for Zero.