Discussions on net zero carbon can quickly take a complicated turn into talk of Scope 3 emissions, embodied carbon, and electrochromic smart windows. Yet the simple starting point for most net zero strategies is going on an “energy diet”—improving energy efficiency and reducing consumption, said Daniel Cashdan, president of Jones Lang LaSalle Securities and a senior managing director in the Los Angeles office of JLL Capital Markets.
Cashdan provided that observation as a segue into the panel discussion titled “Operationalizing Net Zero for Real Estate: From Goals to Action” at the 2021 ULI Fall Meeting. The panel included experts from Nuveen Real Estate and Boston Properties who shared strategies, case studies, and results of efforts to achieve operational net zero at the asset and portfolio levels.
Recordings of the 2021 Fall Meeting are available now on ULI’s Knowledge Finder.
“We view net zero carbon as a key structural change alongside things like shifts in demographics and the rise in technology that will present both risks and opportunities for real estate investment portfolios,” said Jessica Long, head of sustainability for Nuveen Real Estate’s U.S. portfolio.
Nuveen has set a goal to achieve net zero carbon for its real estate portfolio by 2040. For Nuveen, the pathway to achieving its goal includes steps such as operational changes to improve energy efficiency, deep building retrofits, and adding on-site renewable generation, as well as purchasing carbon offsets to account for any remaining consumption within established energy-use-intensity limits.
The company has set specific milestones to help make progress in reaching its net zero goals. For example, by 2025, the company aims to complete asset-level business plans that will provide a better understanding of the cost and feasibility of achieving net zero for buildings currently in its portfolio.
Boston Properties is another leader in sustainability that has committed to achieving carbon-neutral operations for Scope 1 and 2 emissions by 2025. The three pillars of the Boston Properties carbon-neutral program framework are climate action, resilience, and social good. Setting goals and benchmarking also have been important tools for the company.
“If you want people to play differently, you have to keep scoreboards,” said Ben Myers, vice president, sustainability, at Boston Properties. For example, Boston Properties established energy, emissions, and water waste targets across its entire portfolio beginning in 2015.
To its credit, the firm has ground-up success stories that include high-performance projects rated Platinum under the Leadership in Energy and Environmental Design (LEED) program, such as 888 Boylston Street in Boston and Salesforce Tower in San Francisco. The company also has worked to review existing buildings in its portfolio to find areas where it can deploy capital in an efficient manner.
“There are some aspects of our portfolio where the payback is not there, and you have to do the best you can with what you have,” said Richard Monopoli, senior vice president, development, at Boston Properties. However, there are opportunities to move the needle in a big way by adding more sophisticated systems that improve efficiency and reduce emissions, he added.
Not only is net zero becoming more important to a variety of stakeholders, but standards for buildings are going to change dramatically over the next few years. New city ordinances, such as Boston’s recently approved Building Energy Reporting and Disclosure Ordinance (BERDO 2.0), pose transition risk in terms of a negative correction in value for buildings that do not take necessary measures to reduce emissions. Going forward, it will be critical to stay ahead of new codes and regulations on new builds to avoid fines and expensive retrofits.
There also is recognition that property owners need to manage for the future and get out ahead of transition risk.
“We know energy codes are tightening. We know buildings of the future that investors are going to assign a premium to are going to have to comply with code, and we know if these investments don’t comply, they are going to be discounted at sale or valuation,” said Alexander Hancock, portfolio manager, U.S. domestic equity, at Nuveen Real Estate. “We haven’t seen that permeate the market yet, but it’s coming.”
