Green leases can help address longstanding energy-saving issues by aligning incentives between building owners and tenants.
2020 has been a formative year for sustainable business. While the coronavirus pandemic upended the status quo, it also accelerated the shift to sustainable finance and increased the urgency to plan for and anticipate the next global crisis: climate change. Despite a challenging year for the commercial real estate sector, GRESB participation leapt 22%, and more companies than ever made net zero targets.
It’s often repeated that nearly 40% of global CO2 emissions come from the built environment – and much of that is buildings already in operation. While net zero buildings are a critical component for a net zero future, commercial buildings are chronically underperforming. For proof, look no further than the 2020 energy performance of commercial office buildings. Though occupancy declined to as little as 10-15% since March 2020, only 10% of facilities reduced their energy use by more than 20%. Put another way, many buildings consumed energy at nearly the same rate, no matter if people were in them.
In commercial real estate buildings, tenants consume between 60-80% of the building’s total energy consumption. Though landlords own the building and its energy infrastructure, such as the HVAC equipment and building management systems – the tenants are the prime consumers of energy. Conventional leasing agreements have not made it easy for landlords and tenants to work together on building energy optimization because the assets and insights needed to drive energy management have been out of reach for tenants, while the benefits of reduced energy consumption help tenants first and foremost. Given the disconnect, it’s no surprise commercial buildings are wasting energy.
One answer to this problem is green leasing practices (also called “energy-aligned” or “high-performance” leases). Put simply, this innovative commercial agreement provides financial incentives to tenants to identify and implement inefficiencies, enables cost-sharing for energy management tools and systems needed to help tenants reduce energy costs, and provides accountability for tenants to achieve their sustainable building goals. By harnessing the power of data and analytics, we can connect both tenants and landlords with the information to make smarter energy management decisions and optimize the performance of spaces. Green leases help align incentives between tenants and landlords so both can save energy, reduce costs, and achieve organizational sustainability goals.
While green leases have been slow to be adopted in the past due to landlord uncertainty, they’ve become much more accessible and appealing through a variety of tools, thanks to Green Lease Leaders and precedent-setting building operators.
Green Lease Leaders was created by the Institute for Market Transformation (IMT) and the U.S. Department of Energy’s (DOE) Better Buildings Alliance to recognize landlords and tenants who have implemented energy efficiency in a portfolio of leased spaces.
Green Lease Leaders, a growing collective and resource library of green lease participants, such as Boston Properties, SL Green, Kilroy, Lasalle, and many others says that “A green lease includes smart, energy-aligned clauses that unlock win-win investments in energy efficiency and sustainability. By greening a lease, landlords and tenants collaboratively transform buildings into higher-performing ones.”
Green lease expert Audi Banney of IMT recently argued in All Roads Lead to Green Leasing, “Done well, green leases can help businesses be more creative, more flexible, save money, collaborate better, show leadership to clients and investors, withstand competition, increase occupant health and also reduce the risks of climate change.”
The repercussions of COVID-19 present commercial landlords with unprecedented challenges. This moment of pause is an opportunity to reset ‘business as usual’ and innovate in how we tackle global problems. Industry experts, such as Scott Rechler, and the leaders of Boston Properties, SL Green, Kilroy, Lasalle, and many other international and national landlords believe that green leases will be critical to recovering commercial real estate from COVID-19. Here at Envizi we believe it will also enable a faster, more cost-effective pathway to a low carbon future.