What's next for sustainability in commercial real estate?

Cortex Sustainability Intelligence released its annual CRE Sustainability Trends report that sheds light on pivotal factors shaping sustainability in commercial real estate, with a specific spotlight on the office asset class. Against the backdrop of a challenging year for the distressed office sector, 2023 saw significant strides in decarbonization, the establishment of measurement standards, and the pursuit of sustainable profitability.

With commercial buildings being responsible for 28% of all carbon emissions, decarbonization strategies have become a higher priority for CRE leaders who are facing increasing pressures from investors and regulatory bodies. The report from Cortex focuses on three predictions for the year ahead based on the analysis of 2023 events and its prior predictions. Cortex’s team of engineers, data scientists, and sustainable CRE experts spoke with leaders across the commercial real estate industry to identify the three major themes impacting ESG strategies in the new year.

The findings include:

• Pressure to decarbonize will intensify in 2024, driven by new entities. Aligned with last year's predictions, the urgency to decarbonize has not only persisted but intensified. Investor pressure, regulatory actions, and tenant demands have emerged as powerful catalysts, propelling sustainability from the periphery to a central business strategy. In particular, tenants are playing an increasingly influential role in the push for decarbonization, expressing a willingness to pay premiums for sustainable spaces. The evolving landscape, however, faces challenges like the "split incentive" problem. Innovative strategies such as green leases and data sharing agreements are fostering the needed collaboration between tenants and owners, marking a pivotal shift in the industry.
• Ongoing challenges persist in decarbonization measurement and reporting. Despite attempts to standardize metrics, difficulties persist in assessing and communicating progress in decarbonization. While the Global ESG Benchmark for Real Assets (GRESB) has become more widely recognized, there is still a lack of uniform terminology and standardized methodologies. Global endeavors such as the Corporate Sustainability Reporting Directive (CSRD) and the anticipated SEC climate disclosure regulations emphasize the necessity for high-quality data suitable for investors. Between voluntary disclosures and soon-to-be enforced disclosures, the ability to aggregate data at scale for reporting transparency and auditability will be critical.
• Achieving decarbonization alongside economic gain is priority in the year ahead. Despite navigating a period of capital scarcity, the focus on profitable decarbonization remains paramount. Operational improvements, such as digitizing building systems and adopting renewables, offer practical approaches to reduce carbon emissions and energy costs. Research indicates that these initiatives can cut operational carbon emissions by up to 42%, addressing concerns about capital expenses. Applying intelligence to Building Management Systems (BMS) will not only enhance sustainability but also improve asset value in the year ahead. As the industry grapples with financial challenges, software-driven optimization options will offer a rapid start to decarbonization goals and an ESG payback.

"Considering the ESG landscape, the past year has witnessed a noteworthy surge in pressure and requirements, signifying a positive shift. However, aligning with budget constraints in 2023 adds a layer of complexity. As we confront the impending challenges within commercial real estate, the macro forces at play underscore the critical need for strategic decision-making," said Bryan Bennett, CEO and founder of Cortex Sustainability Intelligence. "It's not just about embracing ESG; it's about finding a balance that ensures sustainability without compromising financial prudence in the face of what promises to be a challenging year.”

Cortex's decarbonization platform has helped leaders in the CRE industry with both the asset- and portfolio-level insights to accelerate their decarbonization journey. With 23,000 metric tons of CO₂e reduced per year across the 45 million square feet it manages, Cortex’s team is well-versed in identifying the needs of asset and property managers, building engineers, and sustainability executives to meet their ESG goals. As the CRE industry enters 2024, successful decarbonization requires collaborative efforts from investors, regulators, tenants, and owners. Sustainability is no longer an option but a strategic imperative.

Download and read the full report.