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Today, a growing number of US cities and states have performance standards designed to reduce operational energy and carbon in buildings. Incentives, such as those from the federal Inflation Reduction Act, can greatly increase the rate of energy retrofits sector wide. However, a new report by Arup and U.S. Green Building Council (USGBC), reveals that these positive trends remain unevenly distributed across the sector and the nation, undermining our ability to meet 2050 net zero goals for commercial buildings. As Peter Templeton, President and CEO of USGBC notes, the report is a call to action for leaders in the building industry to significantly accelerate our efforts to decarbonize.
To explore the roadblocks and solutions for scaling decarbonization in the industry, Arup and USGBC convened a diverse panel of leaders in building decarbonization at COP28: Korinti Recalde, Senior Director, ESG, Carrier Global Corporation; Sara Neff, Head of Sustainability, Lendlease Americas; Guy Grainger, Global Head of Sustainability Services, Jones Lange LaSalle; with Robert Kay, Arup’s Americas Climate and Sustainability Services Leader moderating.
In your conversations with clients about decarbonization, who have you been talking to, and how has that changed over time?
Kori: The dialogue is different now. Around 66% of the Fortune 500 companies have greenhouse gas emission targets, and many are aligned SBTi targets, which follow the goals of the Paris Agreement. In support of these goals, we are now seeing customer conversations elevated to the C-suite, and these leaders are becoming more accountable for their companies’ sustainability targets. Additionally, investments in more energy-efficient technologies are seen through the lens of total cost of ownership, which allows us to break through that cost-first barrier.
Sara: Our company published our Scope 3 Protocol in 2023, which sets the goal of absolute zero carbon by 2040, including Scope 3. Our new development fund requires all its assets to be neutrally operating from day one, including construction and tenant emissions. That changes the conversation in the contracting process. We collaborate with our competitors all the time to send collective demand signals directed far up and down the supply chain. So, we’re not only talking to the concrete sub but also to the batch and cement suppliers. We also collaborate laterally within our own industry and to finance institutions.
Guy: When we have conversations with our corporate occupiers, which is about 50% of our clients, they understand that their buildings must be super-efficient to minimize high-carbon resources. They want partners to work with who not only design low-carbon buildings, but also help them use their buildings in an efficient way. This requires greater coordination and partnership between the owner and the occupier around building use, including asking them the right questions and providing the data they need. It’s a partnership model where the building owner provides a valuable service to the occupier — how to use the building more efficiently and over time drive down energy demand.
To do this, owners will need to move from thinking of the tenant as merely the capital behind their investments to seeing the financial value in an ongoing relationship with the users of the building. This then becomes a major transition for the real estate investment industry, but there’s an opportunity for entrepreneurial real estate developers and investors — the other 50% of our clients — to embrace this as the future model.
What business cases are you making with your clients and customers for deeply decarbonizing both operational and embodied carbon for buildings?
Kori: Historically, Carrier was seen as an HVAC manufacturer but today we are a global leader in intelligent climate and energy solutions. To support our customers in achieving their climate ambitions, our digital lifecycle solutions, such as the Abound cloud-based digital platform, uses advanced technologies to provide decision makers with real-time data for optimizing building performance. This data, coupled with Carrier’s energy-efficient solutions, allow building owners and operators to better understand their operations, where the pain points are, and how they can take action to create heathier and more sustainable indoor environments.
Sara: From an existing building retrofit standpoint, I would love for us to start thinking of the building engineer as the customer. This is where the action happens. You can have great technology, such as a fantastic new heat pump, but it’s wasted if not used properly. We need to educate engineers on the business case for decarbonizing and influence their behavior through better engagement. For example, in one portfolio I launched a small engagement campaign to recognize the energy and water efficiency accomplishments of our building engineers. That year, that portfolio exceeded its energy and water reduction targets almost twofold because of their active involvement in generating strong results.
Guy: Creating the least impactful and more energy-efficient buildings is turning into a demand-led proposition — certainly in the commercial space. It’s a positive signal to the market that this change has a commercially viable model behind it. However, the business case is not getting through to the investment committees because the real estate and development industries are underestimating the value of creating low-carbon buildings — even when there is a huge undersupply of them. While our world is changing through the disruptive force of climate change, the real estate sector continues to use historical data, which doesn’t indicate the future value of assets. The opportunity is to move from lagging indicators to leading indicators, particularly in how we assess the value of real estate in the context of climate change.
The USGBC report revealed a huge disparity across the US in terms of building performance standards and local policies and regulations. How can we move the entire sector forward?
Kori: The U.S. Inflation Reduction Act sends a market signal for our customers and even for our company as an intelligent climate and energy solutions provider. Governments have a role to play to support R&D investments, including offering tax incentives and rebates to facilitate the investment and growth of low-carbon technologies.
Sara: We're out of the stage of pilots, and now it’s about learning and scaling as fast as possible, where you can. This all depends on the level of building codes and the availability of products and services in a particular location. For example, we can get all-electric construction equipment in California, but due to noise restrictions, we can’t use an electric crane in New York. Meanwhile, for a project in New York, we were able to replace 40% of the Portland cement in the foundation with ground-glass pozzolan, a recycled glass compound, at no cost. But we can’t get this product anywhere else. Climate solutions need to be more universal to scale decarbonization.
Guy: I'm really interested in what's happening at a city level in the US. The cities that are driving change with new building codes — California, New York, Boston — will end up leading. Europe is taking a more aggressive approach than the US with embodied carbon and nature-based solutions. Both nationally and globally, cities are looking on with a lot of interest.
We have been talking about partnering and working together across the real estate sector. How can collaboration help us achieve our urgent climate goals?
Kori: HVAC systems account for roughly 40% of a building’s energy consumption, and approximately 40% of energy-related global greenhouse gas emissions come from the building sector. Therefore, we are an important enabler to realize a net zero future. Developers, owner operators, and equipment and solutions providers have the opportunity to collaborate to drive broader adoption of energy-efficient, lower GWP refrigerant equipment as well as electric solutions, such as heat pumps. Additionally, through providing real-time data and helping customers interpret that data, collectively we can make a material impact in reducing building greenhouse gas emissions.
Guy: To decarbonize at scale, the real estate industry needs much more collaboration. It means you need to compromise and fit into a single system, which Scope 3 is moving us towards. It’s worth looking at how other industries have collaborated and created tipping points that end up moving whole markets.
Sara: The industry needs to work together to show that if materials such as market-rate lower-carbon concrete were available, they would buy a lot of it. Aviation is a fantastic example of an industry where competitors have come together and created standards, enabling greater investment and rapid progress for sustainable aviation fuel. There are UN protocols around aviation fuels, which we don't have for construction materials, but that's the kind of collaboration and advanced market signaling that would be game-changing. Education is also instrumental for helping suppliers decarbonize. For example, we’re holding a series of workshops for suppliers on how to use our Scope 3 protocol.
Guy: Aviation accounts for about 3% of the global emissions footprint. Yet, data centers are a real estate asset class that’s approaching about 2%, which should compel collaboration within our industry.
In addition to regulations, I like seeing how market forces can do the work. The lending and transaction markets are increasingly responding to decarbonization in terms of risk and opportunities. This will create value around low-carbon assets that will help to do the work of climate transition. We’re seeing that in Europe, where if you don’t have a credible transition pathway, finance can be difficult to secure. And that will send some real messages out that will begin to reverberate here.
