CRE Carbon & Sustainability in 2024

Demand for sustainable building products in the new year

More than any year before, our team at ecomedes has witnessed a maturation of real estate owners in their “ask” for sustainability.? This typically originates with building owners who pass it through their product/material “supply chain” (A&Ds, contractors, subcontractors, distributors and dealers, and finally to the manufacturers).? More frameworks, such as Mindful Materials Common Material Framework are emerging to provide a common language for this ask. But a common language is just one step of many needed for success.

Ecomedes has a unique view into the real world terrain that?this “ask” traverses, typically landing going through many emails and landing at the feet of a distributor or manufacturer.??By understanding the segments of behavior today, we can understand and optimize what will happen in 2024.

This year, we gathered enough data to classify building owners into a maturity model that we wish to share with the ecosystem.?The point of this mapping is to help all stakeholders advance a green building movement faster than ever before, at the pace required to limit climate change, biodiversity loss, and harm to humans.

Before diving into a definition of these segments, a few new years caveats!? Few organizations are prepared, in terms of staff education, tools, technology, and policies,?for the amount of change that we need, in the timeframe that we need it.? So, while we will point out the leaders who we see at the forefront of maturity, few of them are able to scale sustainable procurement and building to every project.? So, ANYONE can rapidly catch up and join the early adopters! If you want help, contact us! Second, our classifications are generalized, not precise.? Within each category of buildings sits another maturity curve, with leaders and laggards. Our classifications are intended to give examples of categories that we see. There are outliers in both directions!?

And now, on to the segments of building owners as they relate to sustainable, low-carbon materials:

1.Visionary Innovators

At the forefront of adopting sustainable buildings and specifically? sustainable material practices. They are cutting the ice for other ships to pass through by defining standards, processes and engaging with NGO (like the Green Science Policy Institute Buyers Club, and Mindful Materials Building Owners Forum, and the Sustainable Purchasing Leadership Council) to open source their learnings.?

The “ask” from this group sends manufacturers into a scramble! They have custom forms, grids, and it’s constantly changing (since the science is still coming in!).??

They tend to certify all of their new buildings, often multiple certificates, some getting a “trifecta” of three? certifications from three building rating systems. So how do they do it?? Typically they are able to be comprehensive and leading edge with a lot of consultants (such as Brightworks, Stok, Arup), plenty of iteration, and some ethos from senior management (which alone is not enough!).???

Here is an example of a trifecta from UC Berkeley, Chou Hall, that achieved LEED Platinum, WELL, and TRUE Zero Waste Certification at the highest possible level.? As a frequent visitor to this building as a lecturer, I can testify that it feels different, better than the average building at my alma mater Lehigh.? Another fascinating example from this segment? is the Yale Divinity School currently building a Living Building Challenge (the most advanced regenerative building standard) for affordable student housing. As they ponder creation, they believe that we are part of nature, not lords over it!? Powerful stuff.?

?The types of buildings in this segment include:??

• West coast-based big tech (specifically:? Google, MSFT, Meta, Stripe, Salesforce, Apple)
• Federal Government Agencies (NASA, DOE)
• Higher Ed (specifically: University of California, Harvard, Cornell, University of Florida, Yale)

This group is a small percent of the # of building owners but a meaningful percentage of dollars, possibly as much as 25% of the dollars spent. So, ignoring them limits the market size.? But, serving them takes an educated team and tools so many manufacturers choose to ignore them.??

2. Early Adopters

Incorporate sustainability into their brand differentiation. They typically start with green technologies that make immediate ROI like smart building systems, renewable power, passive design principles that save energy.? They view sustainability as a competitive advantage and want to be proactive about it.? They believe that their constituents (inhabitants, investors, staff, and their kids) will reward them (financially) for this investment, over the long term.??

Many of the companies in this segment have made voluntary declarations for Net Zero, Zero Waste, Low/Zero Toxins, and Fair Labor.? In pursuit of these public (and perhaps soon to be regulated by the SEC) they realize that much of their footprint comes from their physical presence, buildings.??

An example of a classic early adopter, Avalon Bay. They are publicly tracking carbon emissions, water, and toxins.? They have set SBTs (Science Based Targets, goals for emission reductions) and belong to the trade organization MIndful Materials Owner’s Forum, to share their findings.??

This types of buildings in this segment include:??

• Healthcare
• Hospitality
• Multi-family REITs (like Avalon Bay)
• Banks
• Professional Services (Banks, consulting)

3. Majority

I’m going to combine the next two segments (*Opportunists and the Conservatives) into one bucket here because to the supply chain, they look very similar.? Another name for this segment is “box checkers” because when they do ask for sustainability, they are not nearly as comprehensive as the first two categories.??

This segment has been accused of greenwashing but in my every-optimistic view of the world, I think of it more like piloting. They are putting a toe in the water to see how it goes.? If their customers and investors reward them, I believe they will invest more, and join the innovators.? This is the segment that makes or breaks the green building movement.? The more green building solutions can address this segment, the better!

The things that hold these companies back in sustainable procurement and materials practices are the same things that hold them back in any area of sustainability, well described by ING Bank here:

This types of buildings in this segment include:??

• REITs
• Low income housing
• Logistics
• Retail

4. Dismissives

This category includes many different views of why sustainability does not matter.? They simply don’t care and don’t think sustainability will impact their business. Some property owners still think that climate change is a hoax!??

It is amazing for me to see how many (well educated) professionals still think this. It is well understood by most in the CRE space that buildings that ignore sustainability become Stranded Assets (as defined by GREBS) .? As buyers put a premium on more sustainable and resilient buildings (7% premium according to CBRE!), the market for less or non-sustainable buildings shrinks, less liquidity, less value.???

This types of buildings in this segment include:??

• Multi-famly Developers
• REITs
• Industrial
• Small companies

Predictions for 2024

We are seeing movement to the left of this model. There are powful network effects and FOMO makign this happen. in 2024, we expect to see:

• The Innovators continue pushing the envelope, setting standards (have you see Federal Government Green Procurement Compilation or the Gensler Product Sustainbilty Standard V1.0 yet?) that ripple to the early adopters, saving time and consulting fees for the whole movement. The public companies will grow weary of the consulting bills and start to operationalize sustainable procurement with tools and systems.
• The Early Adopters will demonstrate that sustainability can increase market size, occupancy rate, rents, access to lower interest rate green bonds, and therefore profitability. More statistical evidence (such as this report from CBRE ) of green buildings driving profit will emerge and become commonplace, and accepted.
• The Majority will see the feel pressure to get in the game from a "discount" being applied to some of their less-green assets. They will draft off the leaders, taking best practices from the Innovators and FOMO from the Early Adopters.
• NGOs and Trade Organizations such as the Sustainable Purchasing Leadership Counsel, Mindful Materials, and the Green Policy Science Institute will move beyond best practices and frameworks to help companies operationalize at scale. They will adopt, recommend, and built tools to make it possible for every project to be sustainable.

Summary

IF you have feedback on this model or want to contribute, we welcome your input!?

“What if every act of design and construction made the world a better place?”