By Kaitlin Bruskin, Paulynn Cue and Carli Schoenleber, with contribution from Kristen Wernick.
November 22, 2021
The Intergovernmental Panel on Climate Change (IPCC) released its Sixth Assessment Report in August 2021, complete with updated analyses from climate scientists and professionals across all 195 IPCC Member States. In the most alarming report yet, the authors further underline that global warming is unequivocally caused by human activities and that every region on earth is already being negatively impacted. Due to slow action to address climate change, the report deviates from previous IPCC predictions by highlighting that 1.5 degrees of warming is likely inevitable in the next 20-30 years, even if we begin rapidly reducing emissions today. This means negative impacts like heatwaves, storms and flooding are all but guaranteed to become more frequent and intense (source).
On the heels of the August IPCC report, the 26th United Nations Climate Conference (COP 26) took place throughout the first two weeks of November in Glasgow, Scotland. COP 26 was the most significant climate conference since COP 21 in Paris, France, where 196 countries committed to the Paris Agreement, an international decarbonization policy designed to limit pre-industrial global warming to 2°C, and ideally only 1.5°C. In the six years between COP 21 and COP 26, countries were expected to achieve their pledges to mitigate their greenhouse gas emissions, otherwise known as Nationally Determined Contributions (NDCs). A key goal of COP 26 was to update and “ratchet up” each country’s NDC to ensure progress towards the Paris Agreement. Even with these updated NDCs, however, the 2021 United Nations Environment Programme (UNEP) Emissions Gap Report found 2021 commitments are inadequate and will likely culminate in 2.7°C of warming by 2100 (source).
To stand a chance at achieving the Paris Agreement, the commercial real estate industry will undoubtedly play an essential role—current estimates suggest buildings and construction are responsible for nearly 40% of global CO2 emissions (source). As such, real estate companies have never been under more pressure to rapidly mitigate emissions and safeguard assets against the inevitable trajectory of accelerating climate impacts. Indeed, a cardinal event of COP26 was a three-part panel on the topic of decarbonizing commercial real estate and the challenges and opportunities that lie ahead (source). Drawing on the IPCC’s recent findings and the COP 26 proceedings, this article explores five key climate action avenues for the commercial real estate industry and what progress is already being made.
Carbon Footprint of Buildings
Undoubtedly, the top implication from the IPCC's recent report is that carbon emissions in every sector must rapidly decrease, and the real estate industry is no exception. Globally, building operations are responsible for over half of electricity usage (source) and account for approximately a third of energy-related CO2 emissions (source). While decarbonizing the electricity sector will certainly play a major role in reducing buildings' carbon footprints, there is also growing pressure to make high-performing commercial buildings the industry standard. To simultaneously reduce energy demand and operational costs, owners and tenants are increasingly pursuing strategies centered around energy efficiency, on-site renewable energy production, reduced building footprints, demand-response technologies, Virtual Power Purchase Agreements and conservation education for building occupants. Illustrating the growing shift towards climate-friendly real estate is participation in GRESB, the leading global organization connecting investors with real estate environmental performance data. As of November 2021, 1,520 portfolios participated in the GRESB real estate assessment, representing a total of US$5.7 trillion of AUM (up from $4.8 trillion) and nearly117,000 individual assets (up from 96,000), a 24% increase from 2020 (source).
With the IPCC report clearly demonstrating that climate change will inevitably worsen in coming decades, adaptation is another key strategy to minimize climate-related physical risks. According to a survey by Cervest, an estimated 88% of large companies already have a physical asset that is negatively impacted by extreme weather (source). As climate change intensifies, investors are set to demand more thorough climate-risk disclosures as well as detailed plans on how risks will be mitigated. Among the top concerns is sea level rise, an impact that will naturally concentrate in coastal areas with high-value real estate (source). In the U.S. alone, sea level rise is predicted to put an estimated $135 billion worth of real estate assets under threat by 2045 (source). To protect the long-term value of assets and minimize negative impacts to building occupants, building owners are progressively exploring risk mitigation tactics like water capture and storage systems, storm-resilient construction design and green infrastructure (source).
Refurbishment and Retrofit Instead of New Construction
Emissions from operations represent only a part of the equation when it comes to buildings and climate change. Often overlooked are the emissions from constructing, maintaining and demolishing the building, otherwise known as embodied carbon or embodied energy (source). According to the United Nations, while the buildings sector at large represents 38% of energy-related CO2 emissions, emissions from construction and materials manufacturing account for over a quarter of that, approximately 10% (source). With building floor space expected to double by 2050, refurbishment and retrofitting of existing buildings will be critical to prevent building-related emissions from rising (source).
Where new construction can be avoided, in places like the U.S. and Europe embodied carbon can be reduced by extending the lifecycle of existing buildings via retrofitting. One study found that if the entire New York City United Nations campus was demolished and reconstructed, it could take 35-70 years for the efficiency improvements to offset the new emissions from the embodied carbon. When new construction cannot be avoided, a second option is to reduce emissions from material production processes. This is already possible via increasing energy efficiency in manufacturing, switching to renewable energy sources (e.g., biofuel, wind, solar), recycling previously used building materials (i.e., adaptive reuse) and expanding use of renewable, carbon-sequestering materials like wood, bamboo and hemp (source).
Electrification of the Built Environment
Electrification is another key strategy to reduce emissions from the built environment. Electrification involves replacing fossil fuel-powered technologies (e.g., furnace, water heater, stove) with alternatives powered only by electricity. While electrification will almost always result in improved air quality for building occupants, the potential for electrification to reduce emissions hinges closely on what resource is used to create the electricity. The more electricity grids are powered by renewable resources, the greater potential there is for electrification to reduce emissions. A study from the National Renewable Energy Laboratory found that, across buildings, transportation and industry, electrification alone could reduce U.S. emissions by 41% below 2005 levels by 2050; when combined with policies to decarbonize electricity, this estimation increased to 74% (source).
Although the U.S. still lacks a comprehensive federal policy to decarbonize electricity, most U.S. states fortunately are already working toward cleaner electricity grids. Only 20 U.S. states do not have a renewable portfolio standard or target, and 10 states have a 100% clean or renewable energy target by 2030-2050 (source). Maximizing the emission-reduction potential of electrification also depends on improving the economics of an electrification transition. Although the technology to electrify buildings is already available, fuel prices and capital costs of equipment are two barriers that can make electrification of buildings cost prohibitive (source). While incentives like tax credits and rebates help to reduce these costs, an economy-wide carbon pricing policy has been suggested as a more efficient approach to rapidly decarbonize electricity and incentivize electric technologies (source).
Increasing Vegetation and Supporting Biodiversity
With all five scenarios in the latest IPCC report predicting at least 1.5 degrees of warming by 2040, heatwaves are expected to increase in both frequency and intensity, a trend that coincides with accelerating urbanization around the world. Today’s cities are already struggling with the dangerous hazards of the heat island effect—a phenomenon whereby urban areas experience hotter temperatures due to buildings, roads, and other infrastructure absorbing and re-emitting more heat than would normally occur in the natural environment. Under pressure to mitigate and adapt to climate change, cities must implement creative strategies that simultaneously reduce temperatures, curtail cooling-related emissions and mitigate heat-related health, social and economic impacts that disproportionately affect communities of color.
Vegetation is considered one of the most effective and simple responses to address the heat island effect. Through shade and evapotranspiration, trees and other plants have been shown to significantly reduce surrounding surface and air temperatures. Applicable for a wide range of buildings, the use of shade trees and green roofs result in both lower demand for cooling-related energy and reduced maintenance costs for heat-sensitive building materials and pavement. One study estimated that planting four shade trees per house could result in a 25% reduction in net cooling and heating energy use in urban landscapes (source). Likewise, another study from the Oak Ridge National Laboratory observed green roofs reduced buildings’ peak summer cooling needs by around 25% (source).
Vegetation also comes with myriad co-benefits, including improved air quality, reduced runoff and expanded opportunities for outdoor recreation. Projects with trees and other green spaces have increased property values of3 to 15% and increased rental rates of7% (source). By planting a variety of locally native plants, the cornerstone of biodiversity, buildings can also create habitat and support local pollinators and wildlife. Well designed and maintained native plant landscapes also offer significant savings in water use, maintenance and landscaping waste (source). In California, a sustainably designed, drought-tolerant native landscape can use 85% less water per year than a turf-dominated, high-water landscape (source). Native plant landscapes can also help reduce greenhouse gas emissions due to the reduction in maintenance equipment use. Incorporating sustainable features such as rain gardens and swales keeps water onsite for plants and reduces polluted runoff. Rain gardens, for example, cost 42% less over their life cycle and reduce environmental impact by 62-98% (source).Finally, studies have found a positive correlation between high-performing landscapes and overall well-being (source).To address the interdependency between climate change and biodiversity, real estate portfolio owners and building managers need to look beyond conventional esthetics that favor non-native planting sand instead prioritize functional, native landscapes which “support life, sequester carbon, feed pollinators, and manage water,” while still beautifying their location (source).
Carbon Offsets to Bridge the Gap
Carbon offsetting is another climate mitigation tactic being pursued by the real estate industry. Carbon offsets allow companies to reduce their net emissions by mitigating or sequestering carbon elsewhere in the world, even though their operations still rely on fossil fuels. Carbon offset projects can range from nature-based projects like reforestation to renewable energy projects and carbon capture and storage. As net zero commitments have accelerated across both the public and private sectors, demand in the voluntary carbon offset market has rapidly grown, ascending from a $473 million dollar valuation in 2020 to a projected $1 billion dollar valuation by the end of 2021 (source).
Because buildings are responsible for a large portion of global emissions, many real estate companies have jumped on the carbon offset trend to meet their net zero targets. While commercial buildings can pursue emission reductions through increased energy efficiency and renewable energy development, carbon offset credits can help make up the difference. Hudson Pacific Properties, for example, was able to achieve carbon neutrality in 2021 using carbon offset credits purchased from a landfill gas-to-energy project in Illinois (source). Some companies are opting out of the offset market altogether by investing in their own carbon offset projects. Standard Life Investments Property Income Trust recently purchased around 1,500 hectares of land in Scotland on which it plans to conduct an offset-related reforestation project (source).
Despite growing optimism around carbon offsetting, it is important to note that the carbon offset market is still relatively new, largely unregulated, and faces many barriers around credibility and scaling. On one front, there is growing evidence that many carbon offset projects will not deliver the amount of carbon sequestration as promised. Particularly for land-based projects, which comprise about a third of the voluntary offset market (source), there are risks that carbon sequestration could eventually be reversed due to factors such as pests, forest fires and poor land management. To mitigate these risks, it is important for companies to prioritize credits that are verified by independent third parties such as the Verified Carbon Standard, Climate Action Reserve, Gold Standard and American Carbon Registry.
Beyond offset quality issues, there is a second concern that accelerating demand for credits will quickly outpace the market’s ability to supply them. While there is theoretically enough potential supply, significant barriers remain in quickly bringing this supply to market; McKinsey & Company estimated that around half the potential supply could be “impeded by mobilization challenges” related to rate of scaling, risks, financing and the location of potential projects (source). More broadly, many argue that offsetting gives polluters a “free pass” to continue utilizing fossil fuels even if the company could realistically reduce operational emissions with current technologies. While offsets can provide a bridge between a fossil fuel and clean energy-run economy, it is critical that they are used only to supplement already robust plans to decarbonize buildings.
The findings from the IPCC and results of COP26 have clear implications: all industries must play their part in rapidly decarbonizing to avoid extreme climate impacts. If we fail to act immediately, we risk potentially irreversible changes not only to the environment but also to our economy, which depends on a stable climate. Given that the real estate industry is responsible for around 40% of emissions, it is even more imperative that commercial building owners and managers rapidly shift toward reduced carbon footprints, low-carbon building materials, electrification, vegetation and biodiversity, and that they utilize carbon offsets to fill in the gaps. On the bright side, most of the technology is already available to make these changes. All that is needed is increased momentum to make a brighter, more sustainable future a reality.
About the Authors
Kaitlin is a LEED Green Associate with 4 years of sustainability experience. She is an Energy Engineer for Verdani Partners where she leads building efficiency initiatives and ESG programs for real estate clients. She is also the Research & Coordination Manager for VIBE, a non-profit built to empower organizations with cost-effective strategies to create sustainable buildings and communities. Kaitlin brings expertise in electrification, embodied energy and LEED buildings. She has a B.S. in Integrated Science and Technology from James Madison University and received NOAA's 2017 Student Award.
Paulynn is the Chief Communications Officer for Verdani Partners, bringing over 20 years of experience in sustainability and ESG, business development, communications, design and regenerative development. She has been instrumental shaping Verdani’s programs, since 2014. Paulynn studied architecture at Carnegie Mellon University, advertising at New York University and environmental design at Parson’s School of Design, and has worked with leading organizations such as Gensler, World Building Institute, and the Intergovernmental Renewable Energy Organization Sustainable Development Commission.
Carli currently serves as a writer for Verdani Partners and the Verdani Institute for the Built Environment, where she is leading efforts on VIBE’s sustainable real estate textbook series. Carli has a decade of experience in the sustainability field, working across diverse roles in wetland science, environmental education, land use planning and conservation psychology research. She holds a B.S. degree in Environmental Science, Policy, and Management and a M.S. degree in Forest Ecosystems and Society.
Kristen is an Associate ESG Manager for Verdani Partners, where she is leading biodiversity initiatives and ESG programs for real estate clients. She brings experience in the native plant landscaping, water efficiency, sustainable landscape design and business development fields. She has worked with numerous stakeholders including property managers, water agencies, landscaping and nursery professionals, and scientists. She is an MBA candidate at the UCI Paul Merage School of Business, an A.S. in Landscape Design, and a B.S. in Environmental Studies.