Amy Erixon, head of our Global Investment Management arm, shares her thoughts on our sustainability journey and future plans. She shares the opportunities and challenges her clients are facing and the steps we’re taking to make a positive impact and generate solid returns.
Across our portfolio, we continued to refine our focus from simply achieving ‘scores’ to a more holistic focus on decarbonization. Looking at asset-level CapEx plans, we identified pathways and priorities on the road to net zero. While the approach varies by market, one example of this in Germany is the addition of smart metering and increased tenant energy disclosures. We are working with those tenants to prioritize these things to achieve greater asset performance.
Throughout 2023, we heard from our clients that their focus was on 1) achieving greater granularity in their risk screens and 2) data harmonization. This is an industry-wide trend, especially among plan sponsors with multiple managers. These areas are well within our team’s expertise and comfort zone – making it very easy for us to step in to support our clients on their journey.
One area we see as a big opportunity is the introduction of renewable energy sources and onsite renewable energy production. We have set a target to achieve 25% of energy consumption across the portfolio from renewable sources by 2030; 50% by 2040; 100% renewable energy consumption by 2050. Across our buildings, we’ve seen promising implementation across some of our properties. In North America, our team is exploring renewable power purchase agreements with local utility providers, with a longer-term plan to investigate on- site renewable options. In our European buildings, we’re gaining momentum, actively raising awareness and encouraging the use of green energy during lease negotiations whenever available. Several tenants are pursuing on-site solar generation to support their operations.
Despite a few years of tough inflation numbers and rising cap rates in most, if not all markets, our assets are well positioned to compete and to perform. For the most part, our tenants are adapting to more challenging business conditions, and we are taking the opportunity to build in greener tenant improvements and upgraded base building systems.
The key challenge is of course making all the math work. Thankfully, retrofits of vacant space are much easier than completing the same work on occupied space.
Insurance costs are steeply increasing and require more lead time and assistance to ensure adequate coverage and explain cost increases to tenants. These increases have been far higher than other operating expense items – so we need a concerted focus on this area.
In 2025, we will also be completing the Carbon Risk Real Estate Monitor (CRREM) modelling for our European portfolio and will be building a pathway to net zero for our North American assets. looking to increase data coverage from our U.S. tenants. We expect to add additional assets in Canada this year and are targeting state-of-the-art green new developments for our Canadian programs.
Challenging financial conditions have created significant political headwinds for advancing the green agenda. We, along with most real estate professionals recognize this is political expediency and we must continue to engage our employees, contractors, tenants, and financial partners in understanding that doing the right thing is less expensive in the long run and prevents functional obsolescence risks that could aggravate already difficult tenant, financing, and insurance markets. Industry leaders are stepping up political pressure and are speaking out to resist backsliding.
After attending ULI’s European meeting in Milan, I felt uplifted by case studies, testimonials and inspirational speeches about success with advanced climate activism, building better places for people and improving the world we live in. There was an overall energy that felt largely akin to its pre-pandemic enthusiasm.
Green is not dead, quite the contrary, the greenest projects are leasing faster for higher rents and enjoying financial premia alongside stronger appraisal support.
The future is here!
