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As environmental regulations for buildings and commercial properties tighten in the USgreen leases and technologies offer owners and operators opportunities to reduce the carbon footprint of their portfolios, generate cost savings and further align with ESG goals. However, challenges with monitoring and managing Scope 3 emissions continue to pose threats to sustainability-related goals as climate change impacts pose significant risks to real estate portfolios, according to a new Cushman report & Wakefield.
Against the backdrop of increasing regulatory pressures and related building decarbonisation efforts, Cushman & Wakefield’s 2024 Sustainability Megatrends Report identifies seven trends driving ESG integration for companies across all sectors. Here are six such trends that building owners and operators will find useful to keep a close eye on.
Mandatory ESG reports
Jurisdictions are increasingly requiring some form of ESG benchmarking and disclosure for commercial real estate properties, intensifying the need for building owners and real estate teams to be accountable for the carbon footprints and environmental impacts of their portfolios, says Cushman & Wakefield.
Currently, 49 US cities and six states have mandated some form of ESG benchmarking and disclosure for commercial real estate properties, the report says. At the federal level, the US Securities and Exchange Commission’s final climate disclosure rules would require public companies to disclose their climate-related risks and include relevant information about greenhouse gas emissions in their annual reports, pending an ongoing legal review, Cushman & Wakefield says.
Building performance standards
About 13 U.S. cities have building performance standards, accounting for about a quarter of all U.S. buildings, by early 2024, with more than 30 additional U.S. cities committed to adopting BPS by 2026 or sooner, according to a recent JLL report. And at least four states, including Oregon, Maryland, Washington and Colorado, have passed laws to implement BPS, according to the Institute for Market Transformation, which manages the National BPS Coalition.
A company’s portfolio that is not yet affected by the rapidly increasing prevalence of building performance standards at the local, state and federal levels likely will be soon, says Cushman & Wakefield.
Identifying and implementing no-cost and low-cost energy conservation measures such as adjustments to existing programs, equipment scheduling, after-hours operational reviews and additional capital measures are some of the steps that can help homeowners and property managers to meet, or even exceed, building energy. performance standards, or BEPS, the report says. For example, a 273,000-square-foot office building subject to BEPS in Washington, DC reduced energy consumption by 29% from its 2019 baseline after adopting these measures in consultation with the Cushman & Wakefield’s energy and sustainability services, according to the report.
Green leasing practices
The report points to a growing push for energy consumption and utility cost reduction measures through green leasing practices that align tenant and landlord interests with sustainability initiatives such as energy efficiency and conservation. water
An analysis of energy efficiency measures facilitated by the signing of green leases, published by IMT in 2015, found that the execution of green leases can reduce the energy consumption of US office buildings by 11% to 22% and reduce utility costs up to $0.51 per square foot. That means the U.S. leased office market alone could generate $1.7 billion to $3.3 billion a year in cost savings if every leased office building executed green leases, according to a Green Lease Leaders paper released by IMT and Better Buildings from the US Department of Energy. alliance
Earlier this year as part of the GLL program, the DOE and the IMT announce 65 awardeeswith an area of 2.9 billion square feet, in recognition of landlords and tenants who have modernized their tenancies to promote collaboration on energy efficiency, decarbonisation, cost savings and other environmental and social issues. The number of platinum-level winners, the program’s highest level of recognition, increased more than 100% last year, reflecting industry recognition of the benefits of green leasing, says Cushman & Wakefield.
Reduction of emissions
Scope 3 emissions (indirect emissions in a company’s value chain not including purchased or procured energy) continue to pose a challenge, however, accounting for up to 90% of a company’s emissions. according to the Carbon Disclosure Project. So commercial real estate companies and stakeholders are exploring strategies to target the sources of their Scope 3 emissions, says the Cushman & Wakefield report, which notes thousands of companies reporting their Scope 3 emissions to frameworks such as CDP or those participating in the Science-Based Targets Initiative. , which sets emission reduction targets in line with the goals of the Paris Agreement.
These strategies include setting internal Scope 3 targets, encouraging suppliers to set emissions targets and engaging partners to promote transparency across the value chain, according to an action plan set out by the CEO Climate Leaders Alliance . The Greenhouse gas protocol it also outlines key methods to reduce scope 3 emissions, including implementing sustainable procurement policies, reducing business travel and improving the energy efficiency of assets, particularly in tenant spaces.
Mitigation of climate risk
So is climate risk entail significant risks for real estate assets. Understanding the short-, medium- and long-term transition and physical risks associated with climate change, including increased risk of floods, wildfires and heat stress, will help portfolio owners control associated costs and take advantage of emerging opportunities, says Cushman & Wakefield. . Commercial properties also face the financial implications of growing climate risk, the firm notes. While property insurance costs typically increase between 2% and 3% annually, year-over-year increases have been as high as 17% in some markets and have seen an annual growth rate of 7.6% for commercial properties nationally since 2017, with a greater impact on properties. more susceptible to climate risk, the report says.
Cushman & Wakefield recommends that owners and operators leverage climate risk assessments to assess risks related to existing assets and across portfolios, while incorporating climate resilience into portfolio investment strategies.
Adoption of technology
AI-driven systems, automation and access to data can also accelerate construction decarbonisation efforts, the report says, citing a World Economic Forum study that found that properties using building technologies systems automation are 120% more likely to measure emissions accurately and 90% more likely to reduce them. emissions in accordance with their objectives.
For example, installing a building management system with direct digital control to manage HVAC systems and building equipment schedules can save up to 29% energy and an additional 9% when add-ons like fault detection and diagnostics are included, according to DOE research. , says Cushman & Wakefield.
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