Green Buildings Play in Decarbonizing Real Estate
As a major consumer of finite energy resources and one of the largest carbon emitters in the world, buildings account for 39% of all commercial sector energy use and 38% of all US CO2 emissions. Consequently, it is crucial for real estate to play a major role in decarbonizing our economy and society. To make headway on this goal, a broad set of green initiatives are already underway by developers and owners to build or renovate buildings that reduce energy consumption and emissions.
Whether by using more sustainable and recycled materials to produce building components, implementing smarter lighting control systems or installing solar panels, or by designing buildings with more efficient ventilation and access to outdoor space, these innovations all aim to limit energy consumption and emissions, as well as contribute to occupant wellbeing and productivity. In addition, the COVID-19 pandemic has spotlighted the importance of ensuring that buildings are more resilient and can be used safely by reducing vulnerability to infection and providing more opportunities for people to work remotely.
The challenge lies in prioritizing and executing a plan to Decarbonizing real estate operational and embodied emissions. The former requires identifying cost-optimal solutions to improve equipment efficiency and reduce the carbon footprint of existing buildings, while the latter involves finding strategies to offset the remaining embodied emissions through the use of renewables and other climate finance mechanisms.
What Role Do Green Buildings Play in Decarbonizing Real Estate?
To succeed, the industry will need to collaborate horizontally with a range of players across the built-environment value chain. Manufacturers of materials and technologies (e.g., low-carbon insulation and engineered wood) can adopt best practices regarding processes that minimize their impact on climate change while partnering with real estate companies to create demand and accelerate market penetration of new products. Incentives and financing options can be offered to help overcome barriers to adoption, while leveraging building data will enable developers to identify optimal strategies and optimize project execution.
Owners can also rethink capital-planning approaches and incorporate decarbonization analysis into the process of acquiring buildings and portfolios. This may include establishing funds and allocating capital for a large set of interdependent energy-saving, zero-emissions investments with short or negative payback periods, rather than applying marginal abatement cost curves that tend to prioritize discrete projects with clear stand-alone payback periods.
The growing awareness of the environmental, health, and cost benefits of green buildings has created a demand for them among stakeholders from investors to tenants. As a result, many are willing to pay a premium for properties with leading sustainability or green credentials. This trend should continue as the climate transition accelerates and more rigorous carbon reduction goals and energy-efficiency requirements are imposed. To realize this potential, the real estate industry must ensure that the right policies are in place to support green investment and innovation. This will require integrating ESG metrics into capital-raising decisions and, ideally, working with investees to implement incremental emission reduction plans. This will be key to accelerating the greening of the global real estate sector.