Making Progress on Net Zero, But a Long Way to Go

Eight years ago, the landmark Paris Agreement kicked off a worldwide campaign to reduce carbon emissions. The targets set were big: slash emissions by 45 percent by 2030 and be net zero by 2050. So far, the world is not making enough progress on those lofty goals, and the progress that has been made has been very unevenly distributed. Experts from major real estate firms, including Boston Properties, CBRE, and Community Preservation Corporation, drove home the net zero transition’s importance during a panel discussion at the 2024 ULI Spring Meeting in New York City. They talked about the costs of getting to net zero, what lenders and owners are doing to get there, and the risk of not addressing climate change.

Decarbonization is particularly important for the real estate industry, which is responsible for 40 percent of all greenhouse gas emissions globally. If the transition to net zero is delayed, it could affect the rate of global warming over time. The Paris Agreement targeted limiting global warming to 1.5 degrees Celsius above pre-industrial levels, but if the transition is delayed, the figure could hit 1.7 degrees, said Dennis Schoenmaker, executive director, principal economist, at CBRE Econometric Advisors. Over time, the rising temperatures could significantly affect productivity in the Northern Hemisphere in terms of output. “There’s a huge amount of work to do for the real estate industry,” Schoenmaker said.

That work means not just building new buildings to be highly energy efficient and sustainable, but also a lot of retrofitting and upgrades to existing properties and getting financing to do so. The Community Preservation Corporation (CPC) is a nonprofit lender that has worked for decades in helping to finance affordable housing and community revitalization efforts across the country. Recently, the EPA announced a nearly $7 billion investment from the National Clean Investment Fund to Climate United, a national nonprofit coalition that focuses on delivering the benefits of green technologies to communities across the United States. As one of the members of the coalition, CPC will use the investment to help fund clean energy upgrades and decarbonize the country’s building stock.

Sadie McKeown, president of CPC, pointed out that most major energy-efficient and sustainable upgrades have not been done through first mortgage markets but instead through incentives from utility providers such as Con Edison and grants from such organizations as New York’s NYSERDA. That’s something they are looking to change. “When you think about the capital needs required for that? It’s an ocean,” said McKeown. “NYSERDA and ConEd incentives are a drop in that ocean. We really need private capital in that equation and there’s a big risk if we don’t [get it].”

Armed with its new funding, the CPC is focused on driving more and more first mortgage lenders to the net zero space, and the company is focusing a lot on Freddie Mac and Fannie Mae to help do so. “If we had this idea 25 years ago, when rates were 8 to 9 percent and regulation was on the books, as rates came down and trillions and trillions came out of real estate, we could have addressed decarbonization,” said McKeown. “We missed the opportunity to do it then, but we can’t afford to miss the opportunity again.”

Boston Properties (BXP), one of the largest office owners, developers, and operators in the country, has been building up its sustainability efforts since 2015. Leaders at the company have set targets in curbing its emissions that align with the 1.5 degree goal set by the Paris Agreement. By 2025, BXP expects to cut emissions portfolio-wide by a full third by reducing onsite energy use. In one of its recent repositioning projects in the Boston area, BXP was able to reduce water use by 38 percent and added rooftop solar and storage. The net zero repositioning of 140 Kendrick was done in partnership with Wellington Management, which took a long-term lease at the property of more than 100,000 square feet. As part of the lease agreement, BXP committed to repositioning the office property as net zero and carbon neutral, as well as meeting the LEED Zero Carbon Certification standard.

The major repositioning and retrofit was not cheap: altogether, the investment totaled $100 per square foot, with $30 going to Wellington, as premium costs associated with electrification, insulation levels of the interior envelope, and work on advanced heat recovery. But Wellington was committed to its net zero lease and the higher costs that came with it. “This is an example of a client signing on to have a bump in base rent, and it was a success,” said Ben Myers, Senior Vice President of Sustainability at BXP.