This is the final part of our series on the SEC’s new climate disclosure rules and their expected effects on commercial real estate. You can read part one on material risk here and part two on carbon accounting here.
Commercial real estate was shocked by a number of the SEC’s draft rules around climate disclosure.
For example, there’s still a question over whether, and to what extent, scope 3 emissions must be included in carbon accounting.
But arguably the most shocking item was around targets and transition plans.
The draft rules stated that if a company has published carbon reduction targets, it must disclose how those targets are going to be achieved.
Many companies have publicized commitments with the assumption that they will figure out the details later.
Unless the SEC significantly changes course, it appears “later” is now.
Setting Targets
For some, the obvious answer is to stop publishing anything about carbon reduction targets.
That strategy may buy some time, but investors and tenants are already basing their decisions partly on how companies position themselves from a sustainability perspective.
But setting targets in commercial real estate is often immensely difficult because:
- Many companies still struggle to benchmark their current emissions
- Landlords don’t control everything (sometimes anything) that happens in their buildings
- Nobody has proven an ability to decarbonize at scale, so there’s no playbook to follow
Anyone who’s read about Science Based Targets understands the immense undertaking that this seemingly simple exercise entails.
The thing is, decarbonization cannot take a back seat while these challenges are worked through.
Short term and achievable
As difficult as setting an ambitious long term target might be, it’s nothing compared to the amount of effort necessary to achieve it.
But like all goals, they are best tackled by being broken down into smaller milestones.
Near term targets have several benefits
- From an actual carbon emissions perspective, emissions avoided today are worth more than those avoided later
- Near term targets can more easily be tied to specific actions and optimizations
- It creates momentum and “wins” in the organization
But energy efficiency is “asset level,” right? There’s just no way to connect that to portfolio-level emissions…
Not necessarily.
The divide between the asset level and the portfolio level has only been created because:
- Portfolio level reporting tools are only based on building-level utility data
- The tools used daily on site have not been focused on decarbonization
- Energy efficiency solutions have been too in-the-weeds to translate to the portfolio
Let’s look at this example.
The portfolio has already achieved a 5% reduction in overall energy consumption.
There’s another 8% outstanding.
These are made up of many specific actions that can be taken. How about the goal of executing on all of these actions in the next 12 months.
Long term transition plans
Of course, while a 13% reduction through energy efficiency is a great start, it is a long way from net zero.
To achieve that, owners will need to consistently make smart capital investments over a very long time horizon.
Currently, few organizations are set up to do this.
That’s because capital projects flow through operations and asset management, with sustainability only able to influence a handful of big ticket items per year.
A much better approach is to digitize the entire capital planning process, so decarbonization can be infused into the normal workflows.
And then use data to map the expected emissions from all of the capital plans across the portfolio onto your long term targets.
Most capital plans are done on a 5-10 year time horizon, so this won’t get you to 2050 necessarily.
However, it is an effective way to get out of the minutiae of goal setting and start making more concrete decisions.
When everyone is submitting their transition plans, this will go a long way towards positioning the company as a sustainability leader.
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