Offsetting Is Not The Answer: Regulations Are Now Demanding Real Decarbonization Plans

Environmental, social and governance has become a big deal for all industries, not least commercial real estate. But while some businesses are starting to make real strides with their ESG initiatives, too many have lost sight of the main goal. Rather than reducing energy consumption, they are focusing instead on meeting regulations and alleviating pressures from investors and tenants.

This is the message from technology company InSite Director of Sustainability Kylie Ford, who said for CRE to make a real difference with ESG initiatives, the conversation needs to move away from meeting short-term targets and toward real action. 

“What real estate is doing, by and large, is committing to net-zero targets with no tangible way to get there,” Ford said. “We need to return to the original challenge, moving away from demonstrating compliance to actually being sustainable in the truest sense of the word. By doing so, we will meet the next challenge of increasing regulations.”

The technology exists to give property managers the data they need in order to understand how to improve environmental performance, Ford said. However, the first thing that needs to change is CRE’s approach to meeting targets. 

“At the moment, many organizations are paying money to offset carbon emissions,” she said. “That’s not to say that is bad; they’re under pressure from tenants and investors. But best practice is not to start there but to find ways to optimize energy use. We want an actionable path to decarbonization that doesn’t rely on offsetting.”

As well as missing the point of the need to reduce carbon emissions, offsetting will not cut it when it comes to new and pending legislation, Ford said. Already, organizations may be under pressure to disclose carbon emissions by local energy benchmarking compliances. The Washington, D.C.-area Montgomery County Energy Benchmarking Law requires organizations to create an annual report of energy use and meet long-term site energy-use intensity standards, while other local laws such as D.C.'s Building Energy Performance Standards fine a company whose buildings don't reduce energy enough.

New laws are now being considered on a municipal level that require not only carbon emissions disclosure, but reductions to a level over a given base year. These will follow in the footsteps of laws such as Local Law 97 in New York City. 

On a federal level, the Securities and Exchange Commission is considering requiring public companies to disclose carbon emissions, including supply chain emissions. On a state level, states including California have already come out with new laws that regulate not only mandatory GHG reporting, but also laws governing building codes, such as shifts to electric heat pumps and water heating. This is not just for new buildings, but also upgrades to existing ones.

In short, a property owner or landlord not taking the need to reduce emissions seriously will soon need to. 

“There are leaders in this space who are taking action, but others have a head-in-the-sand mentality about how this will affect them day in, day out,” Ford said. “There is a lack of proactivity but this will have to change. The risk is they don’t understand how they are performing.”

In terms of how to reach net zero carbon, there are three main areas that a property owner or manager needs to consider, Ford said. 

“No. 1 is to reduce consumption,” she said. “No. 2 is to switch energy sources, move to fully electric power and so on. No. 3 is renewable generation, to sell energy back to the grid.”

Today, technology exists to help companies with the first area, Ford said. The tools are there to gather data, which is the only way to measure how effective any energy reduction process might be. However, there are two factors holding organizations back even if they see the need for decarbonization. 

“Lots are interested in doing the right thing but don’t have a way to start,” Ford said. “Or they have started to take stock of data but have no remedy. The second challenge is that people can find a quick win on one project but don’t look at their wider portfolio. All buildings are different and need examining.”

To create a real, actionable decarbonization plan, property owners and managers need to couple the right technology with the right guidance in how to reduce consumption, Ford said. Once companies understand not only the need to reduce energy use but also the legislation that is likely to come into force over the next few years, this technology and advice will become not a nice-to-have but a necessary investment. 

This article was produced in collaboration between InSite and Studio B. Bisnow news staff was not involved in the production of this content.

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