Five ways Canadian real estate must prioritize decarbonization now

In Canada:

• Building codes and regulations are changing to reflect decarbonization mandates.
• Investors are increasingly incentivized by their stakeholders to have a robust policy and strategy for managing sustainability, as well as climate risks and opportunities. This includes the governance of these issues and the implementation of risk assessment processes, monitoring KPIs and decarbonization and resilience plans.
• Banks and financial institutions will have to report on their climate profiles by the end of 2024 — including Scope 3 emissions related to financing or investments.
• Asset managers want to assess and reduce the climate impact of their portfolios, through both the assessment of emissions related to building projects and the implementation of net-zero building solutions.
• Insurers are more interested in how organizations — owners and tenants — assess the risk of being climate ready as the physical impacts of climate hazards like flooding, heatwaves and wildfires require more resilient buildings overall and replacement and repair costs soar.
• Influencers of all kinds are applying considerable pressure for the real estate industry to ramp up their efforts; that pressure is mounting year over year. This includes the influence of the Government of Canada through the Greening Government Strategy and net-zero energy-ready buildings mandate, as well as Treasury Board guidelines for procurement and embodied emissions.
• Sustainability considerations are actively making their way into voluntary standards such as LEED, BOMA BEST and WELL, commanding higher market prices and changing market expectations.

This environment is compounded by the fact that depending on where your ownership structure is based, your organization may already be subject to sustainability reporting requirements in jurisdictions outside Canada. And failing to comply abroad — or as regulations pass in Canada — will be costly. We’re not talking about one-time penalties, but rather the bigger picture.

As new policies are developed and implemented, the quantum of financial penalties becomes better understood. Risks to borrowing emerge as the Office of Superintendent of Financial Institutions (OSFI) has mandated financial institutions report on the carbon emissions of their portfolios. Stakeholder demands are becoming stronger and more impactful. For example, we’ve already seen a landmark climate lawsuit in Australia when a financial institution failed to protect retirement savings from climate change. We can’t underestimate the increasing demand, urgency and financial implications of failing to address the transition now.

The CSSB standards do align to the international standards but are voluntary at this point in time. However, every industry stakeholder will ultimately be required to disclose their strategy and key tactics to help get the economy to net zero.

Considerable portions of Canada’s emissions are related to real estate and construction which means real estate organizations have an important role to play in advancing and achieving net zero commitments. In view of the long-term nature of real estate construction, taking action right now can help organizations in Canada proactively address these priorities in meaningful ways, while there’s ample runway to do so thoughtfully. What’s more, organizations based here have a unique opportunity to learn from leading practices already rolling out among real estate leaders in other countries and jurisdictions. 

Anyone looking to make progress on this front now can gain traction by keeping the following considerations in mind:

1.      Start with your supply chain. Many building RFPs and bids outline material requirements clearly, even going so far as to include sustainability factors. Mining your own supply chain to understand more about the materials your organization draws on can surface all kinds of opportunities to create a clearer path to net zero. We’re already seeing innovative suppliers — for instance, cement manufacturers — digging deep into their own processes to become more sustainable. Reframing the supply chain to prioritize those that are moving in this direction can help you decarbonize right from the beginning of the construction process.

2.      Think beyond your own footprint. Becoming more sustainable doesn’t only mean addressing the materials embedded within buildings themselves. It’s broader than that. How can real estate players help develop sustainable communities? What role can real estate stakeholders play in addressing transportation, ensuring commercial and residential properties are conceived in connection to low-carbon transport networks? Organizations in Canada can target net zero by thinking collaboratively to address the bigger-picture issues that contribute to a more sustainable future for all.

3.      Consider the lifetime emissions of building projects. Only 28% of the total emissions of  a building from design to decommission is generated during construction phase. To advance decarbonization it is critical to estimate and address emissions related to the design, construction, use, operations and end-of-life of the project. The idea is to integrate eco-responsible solutions as early as possible throughout each phase. This should include identifying low-carbon materials, energy performance objectives, preventive maintenance schedules, future modularity, recyclability and more.

4.      Measure, prioritize, invest and track progress over time. Strong frameworks and performance indicators will be critical in terms of assessing progress and adapting strategies along the way. Due to increased investment both globally and in Canada, decarbonization solutions are advancing at unprecedented speed. Tracking the progress of your assets and conducting market benchmarks can support more efficient and innovative strategies and solutions.

5.      Identify opportunities to make the most of your sustainability commitments and performance. The number of tax incentives and provincial and municipal programs, as well as the number of financial institutions looking to invest in more sustainable real estate projects, is growing exponentially. Strategically capitalizing on these can both reduce costs and facilitate access to better capital while building your brand.

6.      Enhance transparency and accountability in financing decisions. Financial Institutions are mandated to report on the carbon profile of their client portfolio. Access to capital will require the right projects and the right data and reporting. Therefore, integrating transparency and accountability measures into financing decisions ensures alignment with sustainability goals and fosters the prioritization of environmentally responsible projects. By demanding and providing comprehensive carbon profile reports, stakeholders can effectively evaluate the environmental impact of investments and drive funding towards initiatives that support decarbonization efforts.