Building for Tomorrow: Real Estate, Construction, and Sustainability

Decarbonizing the built environment, which represents about 40% of global greenhouse gas emissions, is a key component to achieving a net-zero world. But for commercial real estate and construction firms, that requires a balancing act to meet both sustainability and business objectives.

We recently hosted a webinar discussion to explore why real estate owners and developers are increasingly committing to sustainable practices, and how builders are supporting these initiatives. They also discussed the tensions involved in managing climate risk against more immediate concerns, and how emerging technologies will play a key role in sustainability efforts. Our panelists of leaders in real estate, construction and sustainability included:

• 

  Angela Adduci, Senior Advisor, BMO Climate Institute

• 

  Ryan Poole, Global Sustainability Leader, DPR Construction

• 

  Nick Ryan, Technology Commercialization Manager, Department of Energy’s Building Technologies Office

• 

  Kathy Thurston, Executive Director, Director of Sustainable Finance, PGIM Real Estate

James Burrow, Director, BMO Sustainable Finance, served as the moderator. Following is a summary of the discussion.

Key takeaways

• 

  Sustainability choices make sense financially and can reduce your risk exposure.

• 

  Creating a company-wide sustainability mindset is essential to success.

• 

  Sustainability efforts are no longer separate from everyday business matters.

• 

  Making buildings future-proof requires taking a long view.

Sustainability Leaders podcast is live on all major channels, including Apple and Spotify

It’s easy to understand why sustainability itself is a laudable goal. The question for many firms is whether it also makes sound financial sense. Thurston acknowledged that some tension exists between those objectives, but she said PGIM’s business model is based on both aims being achievable.

"As one of the largest owners of real estate globally, we think that we should be doing the right thing for the communities in which we own and finance buildings,” she said. “And as a fiduciary to our investors, we want to protect our investors’ capital by maintaining lasting value in the buildings we own and operate. We focus on issues of sustainability like energy, water, waste reduction strategies and developing and operating efficient buildings because that, in turn, will attract tenants. And that, in turn, adds to lasting value.”

Along with a sound strategy, Poole noted that early and frequent cooperation with key stakeholders is essential. “We prioritize early and meaningful collaboration with our partners. This approach enables us to make informed, data-driven decisions that embed sustainable practices, materials and design features right from the start. By integrating sustainability into the foundation of our projects, we ensure that our contributions lead to a healthier built environment.” effectively.

From Ryan’s perspective, the business case comes down to how adaptable an organization is willing to be. “There’s a whole host of data and research that overwhelmingly tells us we’re going to have to make infrastructural considerations for how our world is changing,” he said. “The customer base is also dramatically changing. That’s forcing builders to ask, what materials are we building with? With those internal and external pressures, the sustainability mind frame is getting reinforced—this is how you adapt to the changing times economically, infrastructure-wise and material-wise.”

Also, keep in mind that there’s no one-size-fits-all approach to making a business case for sustainability. As Adduci noted, “Different types of businesses are going to have different answers, and different functions within those businesses are going to have a different answer as to why sustainability is good for their business.”

In the face of more pressing concerns, such as a backlog of deferred maintenance projects, managing climate change risk—the effects of which are more forward-looking—can seem like a lower priority for many businesses. Resolving that tension can be a challenge. For Poole, it’s a matter of leveraging data to make the decisions that serve your needs in both the near and long term.

“It’s about making sure we do the upfront planning to know that when we build buildings, they're built to last,” Poole said. “A crucial aspect of our approach is evaluating the initial financial investment against the long-term return. We must transition to efficient green technologies that are both economical and scalable. As demand for sustainable solutions grows, we will see a normalization of supply and costs, making these technologies more accessible. Additionally, the increasing availability of incentive programs allows developers to capitalize on integrating sustainable features that enhance resilience. By collaborating with lenders, insurance companies and other industry partners, we’re working to shift the mindset around risk management, offering better premiums and coverage for buildings that are built to endure, ultimately paving the way for a more sustainable built environment.”

On the real estate side, Thurston explained that it’s not about the distinction between business as usual and sustainability; it’s a matter of making sustainability part of an organization’s everyday considerations.

“What parts of our investment life cycle do we need to adapt to a different way of looking at things? Thurston said. “Once you ingrain that into the culture of the firm so that it literally touches every aspect of your business, [sustainability] becomes business as usual. When we sit down with our joint venture partners, we look at the world of opportunities for what that building could be. Where are you delivering that asset? What’s the future environment you’re delivering that into? It’s keeping a wide lens while also identifying where you need to operationalize in your business to have that sustainable thread run through the organization’s activities.”

How will the buildings of tomorrow look and feel different compared to today? Ultimately, Ryan said, they’ll be smarter and more adaptable. But there’s also a bigger picture to consider.

“The decarbonization of individual buildings is incredibly important,” Ryan said. “The broader game is what is the role that buildings play within the grid infrastructure. That’s where you get decarbonization of the energy economy at scale. This is a newer frame for how we're looking at buildings—not just what role do buildings play as a passive input into that system, but how do we make them an active contributor to that decarbonized grid in a more effective way.”

That includes incorporating emerging technologies like energy storage systems as well as changes to the utility infrastructure across the U.S. “More and more, as more electrified equipment comes on to the networks, it's not so much about reducing overall demand,” Ryan said. “But how do you manage the peak demand and then shift that off? This is where all these systems start to become greater than the sum of their parts. It’s the organization of your demand-reduction measures, your HVAC equipment, your energy storage systems, plus a smart system that can make all those other systems work in harmony.”

Ryan also noted that automation technologies, such as the Internet of Things (IoT) and artificial intelligence (AI), will likely play a crucial role in building decarbonization. He also cautioned that while these technologies will be essential to operating building controls, they’re still several years away from viability on a large scale.

“If you can take the human element out of having to operate your building and rely on a robust system of sensors and receivers that allow you to track consistency, the time of occupancy, the heat in a room—all these different factors—that is how you start to unlock some amazing efficiencies and performance capabilities from your building,” Ryan said. “And a lot of that ultimately is going to take in the form of an intelligent entity that can monitor while you're not actively in the room.”

But it’s not just a matter of adopting these tools. Collecting and analyzing the data behind your building’s requirements is essential to effective implementation. Ryan said that includes engaging with private consulting services that specialize in assessing a building’s energy consumption, as well as how that usage compares to similar buildings.

“Understanding your building’s usage is what informs a lot of these technologies in order to maximize the efficiency that they can then extract from your building,” Ryan said. “This information can inform how you start to model and plan what your building is ultimately going to look like.”

Given how quickly technology changes, it’s often difficult to parse which solutions will benefit the industry in the long term. Adduci said entities like the Department of Energy can be a valuable resource for all stakeholders, including financial institutions, to understand the risks and returns associated with various green-building technologies. “There's so much potential in the work that's coming out on this, and it will be fascinating to see what it leads to,” she said.

“We take the approach that we want to understand who the next owner will be, and who the next owner after that will be, because we're building assets that will last years and years or investing in assets for a very lengthy period of time,” she said. “It’s understanding how that asset stacks up in the market that it will be developed in, and its risk of potentially becoming immediately obsolete if we deliver the wrong product to the market. So, understanding those decarbonization initiatives and how your buildings are expected to perform gives us the best opportunity to study what our expectations are for that asset and focus on key deliverables.”