Path to Decarbonization and Net Zero Journey: Strategies for Commercial Real Estate Companies
07/05/2022 | by Lizzy Lees

During Nareit’s June 28 webinar and LinkedIn Live broadcast, Path to Decarbonization and Net Zero Journey: Strategies for Commercial Real Estate Companies, panelists discussed what it takes for a real estate company to reach net zero and shared resources for decarbonization and their lessons learned on the net zero journey.

Nareit Senior Vice President of ESG issues Fulya Kocak moderated the conversation between:

  • Tricia Baker, SVP of strategy & impact at PACE Equity;
  • Billy Grayson, EVP of centers and initiatives at Urban Land Institute;
  • Dana Schneider, SVP, director of energy, sustainability and ESG at Empire State Realty Trust (NYSE: ESRT); and,
  • Natalie Teear, SVP of innovation, sustainability & social impact at Hudson Pacific Properties (NYSE: HPP).

Defining Net Zero and Goal Setting

What net zero means in the context of real estate is not always clearly defined, panelists agreed. Grayson recalled when ULI’s Greenprint set a net-zero goal in 2020 and aligned its definition with the World Green Building Council. “Since then, and very quickly, the industry has evolved and we're seeing more and more people define net zero broadly and also expecting real estate owners and developers to define it in a way that's material for their business operations,” he noted.

While setting a net-zero goal can be daunting, panelists agreed that to start companies should focus on energy efficiency by collecting accurate data, benchmarking against peers, and setting targets. Schneider emphasized the importance of accurate metering in establishing a data collection plan to ensure the data set itself is complete. Companies can prioritize low-cost initiatives through facility management and tenant engagement as well.

Baker shared additional insights about PACE (Property Assessed Clean Energy) Equity as a resource for real estate owners and developers seeking to improve energy efficiency or to reach a net-zero goal while improving their return on equity. PACE is state legislated and currently available in 30 states. It recently launched a program called CIRRUS Low Carbon: ESG Financing which provides the opportunity to have green building verification with a lower cost of capital and interest rate.

Net Zero Property Sector Trends

When discussing sector-specific trends, Grayson observed that commercial office in gateway markets has generally been the most likely to commit to net zero, often in response to the tenants these companies are hoping to attract and regional regulations. “I think those are the first movers, but we've seen some real leadership across real estate investment and development strategies across asset classes,” he said.

Teear added that practical considerations in different geographies and asset classes can make it more challenging to reach net zero. Hudson Pacific, which is based on the West Coast, has been carbon neutral and net zero with carbon in its operations since 2020. She noted that most of their utilities offer green power plans, and because they are vertically integrated, they can include whole building energy use for their portfolio in their carbon neutral claim.

Teear went on to discuss the steps Hudson Pacific took to reach their goal of carbon neutrality. The REIT worked closely with its in-house engineering team and invested in energy efficiency, focusing on the “low hanging fruit” to start. Eventually, the company layered in a renewable energy procurement strategy and purchased high quality offsets for buildings that utilize natural gas.

Value of Partnerships

Empire State Realty partnered with NYSERDA, the Clinton Global Initiative, and other NYC-based landlords to develop a resource for building owners and operators seeking to improve building efficiency and reach decarbonization goals. The Empire Building Playbook: An Owner’s Guide to Low Carbon Retrofits outlines the step-by-step process for existing commercial buildings to develop a pathway to carbon reduction with proven returns on investment.

Net Zero and Decarbonization Resources

Kocak highlighted Nareit’s upcoming REITworks Conference as an opportunity for commercial real estate professionals to learn more about sustainability best practices, ESG reporting, and much more. She shared that during the ESG town hall session taking place on Sept. 13 at the conference, “we’ll put our heads together and look at some of the ESG-related opportunities and challenges for our industry and discuss solutions and action items around those,” she added. View the REITworks agenda.

Grayson mentioned several other resources for companies looking to accelerate their sustainability programs:

Lessons Learned

To wrap up the event, panelists shared lessons learned from their own experiences with net zero and decarbonization.

Schneider suggested focusing on the infrastructure in place to collect data to help both create a baseline and develop a strategy. She advised partnering with tenants when possible. “Never compromise the health and wellness of a building for energy efficiency and emissions reduction, and make sure you're continuing to educate your occupants so that they understand what you're doing is also making the building healthier, safer, and also at the same time, more comfortable and efficient,” she said.

Teear agreed. “Bring the same level of rigor to your environmental program, whether that's your data or your strategy work and financing, as you do to every other aspect of the business.”

“When you think it about decarbonization, it starts with efficiency—the roof, ventilation, lighting, insulation. Solar readiness is important,” Baker added. Grayson concluded the session by encouraging companies to take advantage of moments in a building’s life cycle where cash is cheap and ROIs are better—during acquisition, recapitalization, and disposition. “Think about those as opportunities to go fossil fuel free and all electric, because that's an important step on the path to decarbonization.”

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