Sustainability & Real Estate Explained

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• Real estate is the largest asset class on earth and one of the largest sectors of the global economy. So it shouldn’t come as a surprise to learn that the sector consumes about 40% of the world’s energy, emits 30% of all GHGs, and consumes 40% of all raw materials.

• We are in the midst of a watershed moment for the real estate community. Over the past six months, three critical stakeholder groups have put real estate leaders on notice around their responsibilities here:

• 1) Regulators have enacted legislation that specifically targets real estate with aggressive, near-term emissions reduction requirements.

• New York’s Climate Mobilization Act, which passed in May 2019, is a package of bills and includes Local Law 97 (LL97) that requires an incredible 40% drop in GHG emissions by 2030 and an 80% drop by 2050, with enforcement beginning in 2024.

• Los Angeles’ Green New Deal, also passed in May 2019 and requires that all new buildings be net-zero carbon by 2030, with the entire building stock converted to zero-emission technologies by 2050.

• Looking around the world, we’ve seen this same trend taking shape at an incredible pace over the past couple of weeks: Presidential hopeful Mike Bloomberg unveiled a plan to make new buildings carbon neutral by 2025 (via The Washington Post). London Mayor Sadiq Khan said if he’s re-elected he will make London carbon neutral by 2030 (via The Guardian). Canada’s Finance Minister reported that climate change will be a centerpiece of the country’s 2020 budget (via The Wall Street Journal). The European Union released details around a $1 trillion plan to make the whole continent carbon neutral by 2050 (via Forbes).

• 2) Investors have stated clear mandates to preferentially deploy capital into companies and assets with low and net-zero carbon performance.

• In his 2020 annual letter to CEOs, BlackRock’s CEO Larry Fink

• The United Nations Net-Zero Asset Owner’s Alliance, a group of pension funds and insurers, announced a commitment to make its combined $4 trillion-worth of assets carbon-neutral by 2050.

• A group of investors led by APG, PGGM, and Norges Bank funded a new initiative to create a real estate benchmark to assess climate change risk in its global real estate investment portfolios.

• 3) Customers (e.g., tenants) are beginning to demand low carbon performance from their landlords.

• Microsoft announced that it will be carbon negative by 2030, which includes the buildings it owns and leases. Alphabet Inc.’s Google, one of the largest tenants in New York City, has aggressive carbon-neutrality goals for its offices.