Designed and executed with care, net-zero carbon goals can offer more than sustainability window dressing for commercial buildings in the decades to come. More real estate owners, operators, developers and investment firms see the appeal of future-proofing properties from climate shocks such as floods and fires; from market shocks such as high prices for scarce fossil fuels; and from policy shocks such as any future laws requiring climate disclosures or that tax or penalize greenhouse gas emissions.
The Paris Agreement's goals hinge upon the aggressive decarbonization by 2050 of buildings, which account for nearly 40 percent of global greenhouse gas (GHG) emissions. The forces mobilizing behind this include C40 Cities, Architecture 2030, the World Resources Institute’s (WRI) Zero Carbon for All initiative, the World Green Building Council’s Net Zero Carbon Buildings Commitment and the Global Alliance for Building and Construction’s Global Call.
Among the numerous pledges during COP26 in Glasgow, 44 more companies including Arup and Perkins+Will signed on to the Net Zero Carbon Buildings Commitment, reaching a total of 122 businesses aiming to reach "whole life carbon" by 2030, which includes eliminating operational carbon and reducing embodied carbon.
Risk and adaptation
"The market has changed from seeing sustainability as an amenity to sell to being something that is actually about risk management," said Breana Wheeler, director of U.S. operations at the U.K.-based Building Research Establishment (BRE). The century-old BRE in 1990 launched one of the first green building standards, BREEAM, which even then focused on reducing carbon emissions and which today delivers maximum credits for assets that achieve net-zero carbon in operations.
"As we're moving from what was traditionally an avoidance of carbon emissions to avoid climate change, we're now moving much more into adaptation," she said. "Finding solutions or adopting solutions and approaches that both mitigate and adapt are really critical from a perspective of protecting asset value."
Unsustainable buildings are expected to lose market value next to greener ones. Net-zero carbon features may not only protect long-term property values, but they can also help to spring a development or retrofit off the ground in the first place. The 450 banks and other financial bodies behind the new Glasgow Financial Alliance for Net Zero are expected to accelerate investments in decarbonized assets, including buildings. Buildings with transparent greenhouse gas footprints and green features already attract green loans and sustainability bonds.
"That is increasing the table stakes for just getting in the game and getting access to capital," said Chris Kline, global senior principal for sustainability and ESG at Cardno, a global infrastructure company that assists property owners with ESG efforts. "It's really intimidating if you're an individual developer or a commercial developer or even a large corporation that is responsible for tens of thousands of acres of property and infrastructure."
The individual firms that build, retrofit and manage buildings have a heavy lift ahead. Net-zero carbon buildings barely make up 1 percent of the world's building stock, and there were only about 500 official net-zero energy commercial buildings as of 2017, according to WRI.
Defining net zero
Where should companies in the business of buildings start? The Stanford Building Decarbonization Learning Accelerator, developed with Point Energy Innovations, offers rich materials for college-level educators that may be helpful for companies, too.
A report from architecture and engineering firm Arup advises taking three steps on a net-zero path, starting with defining net zero, and then incentivizing it, followed by taking a whole-lifecycle approach.
The U.K. Green Building Council has this definition of net-zero carbon: the "reduction in the demand for energy and materials to a level that can be met solely by sources that do not emit greenhouse gases."
Walk before you run. Start with something that is achievable in a medium term, rather than net zero right out of the gate, because the infrastructure is not here to support that.
Ideally, net-zero carbon is based upon the idea that carbon shouldn't merely be offset but shouldn't be emitted in the first place, and if it is emitted it must be removed. However, critics of net-zero pledges charge that corporations fall back on "net zero" goalposts to look virtuous while getting a free pass for their carbon-polluting sins and that net-zero deadlines are set so far in the future as to omit any accountability plan.
"It's really, really hard to get to net zero," Kline said. "Don't bite off more than you can chew initially. Say, OK, eventually we'd like to get to net zero, but what are we going to do over the next five years?"
Activists and ESG professionals quibble on the finer points of net-zero carbon partly because it is unevenly defined. That's why the Science-Based Targets initiative several weeks ago issued a Net-Zero Standard to usher companies toward the Paris Agreement’s global target of 1.5 degrees Celsius by 2050.
The standard includes rapid goals for the next decade, emphasizes deep decarbonization work across all scopes and limits the dependence on neutralizing emissions that can't yet be eliminated. Its four main ingredients include focusing on rapid, deep emission cuts first; followed by mixing long- and near-term targets; followed by holding back from making new net-zero claims until long-term targets are met. Finally, the standard advocates for reaching beyond the value chain to mitigate beyond science-based targets but only in addition to emissions cuts.
Early steps and standards
Kline recommends using the long-running science-based targets methodology to take steps toward a 40 percent emissions reduction by 2030, in line with the Paris Agreement's goals. "That's a little more achievable than net zero,” he said. “Walk before you run. Start with something that is achievable in a medium term, rather than net zero right out of the gate, because the infrastructure is not here to support that, frankly."
One of Cardno's clients, driven toward a net-zero commitment by a large pension fund investor, agreed to adopt electric vehicles for its 100-vehicle fleet, pairing solar charging stations with battery storage. That's an industry-leading example, yet most organizations lack the resources for such a transformation. What if your fleet provider doesn't offer low or zero-emissions vehicles but you've committed to reducing Scope 1 and 2 emissions by 30 percent?
Many of Cardno's clients that own or manage tens of thousands of acres of land are interested in the potential for monetizing carbon credits through actions such as converting farmland into solar fields with vegetation that sequesters carbon or turning a tract of open land into woodlands, Kline said. However, there are constraints on doing that because the carbon economy is immature. "We may see some guidance coming from the [Federal Trade Commission] and other kinds of regulatory bodies to encourage that and to help support that, but it's not quite there yet," he said.
Wheeler advised focusing on transparency and measuring performance to foster accountability, "particularly during development, when there are decisions to be made, and tradeoffs that are made."
There's more upfront capital needed, but the return on that capital is pretty significant.
Actions toward net zero that help deliver business resilience on multiple levels include onsite renewable energy, the central feature of net-zero energy buildings, because it withstands disruptions to a centralized energy grid. That's attractive to tenants, especially those that can’t afford power outages, such as medical facilities or manufacturers, she said.
"The majority of our building stock has a long way to go, and the important thing is being transparent about where those assets are so that the risk can be managed and then being able to act on that," Wheeler said. "We have the technology, the know-how, and we know what we need to do to get probably 80 percent of the way there, and so we just need to do it."
In addition, third-party validation can provide some trust and credibility. Independent standards, including BREEAM, which is more popular in Europe than in the U.S., can provide a structure around which to keep a net-zero building project on track. The U.S. Green Building Council’s LEED Zero Carbon certification complements the LEED rating, labeling buildings that demonstrate net-zero emissions over a one-year period. The International Living Future Institute’s ILFI Zero Carbon Certification requires projects to add renewable power to the grid, eliminate combustion-based fuels and to reduce embodied carbon in materials — and requires that one-time carbon offsets must be Green-e Climate certified or equivalent.
A holistic approach
However, certifications aren't necessary for every net-zero project, according to Kevin Bates, owner and president of Sharp Development. With clients including Google, Volvo and Ingram Micro, his company develops carbon-netural, net-zero-energy industrial buildings with an emphasis on health and wellness. Bates advocates for embracing net zero as a competitive differentiator.
"We can take what we know and do a building now to emit zero carbon, net-zero energy, with that strong emphasis on health and wellness in the same amount of time than with a big conventional retrofit," he said. "There's more upfront capital needed, but the return on that capital is pretty significant. What we found is that once a tenant gets in, they don't want to leave the building... It's not just appropriate for empty buildings or buildings that are going through a transition, but it's very appropriate for existing fully leased buildings."
A breakdown of steps along the "Road to Net Zero." (Source: Arup)
For instance, Sharp Development renovated a 2,000-square-foot manufacturing building in 2011, then returned in 2018 to retrofit it to net-zero energy. As a result, the renovations effectively insulated the tenant from power rate increases, Bates said, citing additional effects, such as making tenants more profitable and occupants more productive while helping their own ESG goals.
"You need to shift that conventional design mentality into a holistic integrated design mentality," Bates said. "You're looking at everything together, as opposed to looking at sustainability or energy efficiency initiatives in silos." Avoid making the common mistake of focusing mostly on the payback of individual systems, such as a new solar array or panoply of LED lighting, he added. Instead, less flashy features such as insulation or a ceiling fan may not have an obvious ROI over five years but can be some of the most important approaches relative to energy efficiency.
In addition, an integrated approach to a net-zero project, in Bates' view, would involve the developer bringing together the architect, engineers and even sales and marketing professionals before breaking ground.
"Everybody hits the table at the same time, and that makes the communication a super easy one so everybody's learning from each other," he said. "The architect now understands the implications of floor-to-ceiling glass... Everybody is now feeling like they're learning, they're participating, they're adding value and they're understanding how to acquiesce and trade off. To get to where we're all going in the same direction, it actually is less complicated because we're not communicating to each other individually, from different places, back and forth."
For new construction it's also critical to pick seasoned team members, starting with a local contractor, Bates advised. However, don't limit the search to local professionals; a development in Kansas may find a top-notch mechanical, electrical and plumbing (MEP) architect based in California, he said.
"Even the architects can coordinate with an architect in Wichita to process the drafting and the code compliance from a design standpoint. First and foremost, call around for people like me or whoever you may notice to get the best solar and battery engineers and mechanical, electrical plumbing engineers and architects come to all those folks assembled." Plus, a consultancy sitting alongside the developer can facilitate the process, Bates added.
Josh Richards, sustainability director of Houston-based commercial real estate firm Transwestern, describes four steps for decarbonizing an existing building. First to tackle is energy efficiency; maintaining comfort and functionality while reducing unnecessary energy consumption. Next, integrate renewable energy by adding wind turbines or solar panels; maybe solar panels can bloom at a parking lot or an offsite undeveloped plot of land. The third move is to electrify machines and systems that power the building, retiring those that use fossil fuels. Finally, embodied carbon needs to be examined, within the products used in the operations of the building and along supply chain lines, as well as incentives for low-carbon transportation alternatives for employees' commutes.
If we're seeing things on fast forward in terms of what is happening with the climate, then development has to stay on top of that.
Kline of Cardno described the importance of landscape design to conserve water and bolster green infrastructure, embracing features such as xeriscaping, bioswales and permeable paving to reduce stormwater runoff and flooding.
"That kind of thing has to get integrated," he said. "If we're seeing things on fast forward in terms of what is happening with the climate, then development has to stay on top of that." In other words, don't design to the current floodway but recognize what the Intergovernmental Panel on Climate Change is projecting for heat and water-level rise for future decades. Size the heating and cooling systems not to the current American Society of Heating, Refrigerating and Air-conditioning Engineers (ASHRAE) standard but to the direction expected in the next 10 or 15 years.
Another consideration for property managers is green leases, which are becoming more appealing in order to attract and empower ESG-minded tenants. Green leases include stipulations for the tenant and lessor to achieve shared sustainability goals, such as reducing waste in energy and water. Features such as EV chargers in the garage can be negotiated into a green lease, sweetening the deal for corporate tenants seeking to please electric car-driving employees. Kline described a transparency benefit of green leases: For example, Cardno can't learn about how it uses energy throughout the 60 U.S. offices it leases, but it can build in that requirement when it renegotiates leases.
In addition, explore ways that decarbonizing real estate can be financially beneficial, Wheeler of BRE said. Maybe rooftop solar can generate revenue by feeding energy to the local grid. And don't assume the money isn't there; look beyond the upfront calculation. There may be insurance benefits from demonstrating that an asset is more resilient and protects tenants' ability to pay, and preferential financing may incentivize sustainable assets that are seen as a risk, she added.
Some sustainability sticklers may see no place for offsets, charging that they allow polluters to pull a fast one, but others see a place for carefully chosen offsets at this early stage in the development of net-zero technologies and market mechanisms. In fact, for large buildings net-zero carbon is virtually impossible to achieve right now because of the embodied carbon in building materials.
"The advice to commercial real estate developers is to be very transparent and very careful about those offsets, because you wouldn't want to end up making a commitment that you don't have control over, that you use as a differentiator — that turns out to be termed greenwashing or ESG-washing," Kline said.