Electrification for Real ESG Impact (Colliers)

ESG savvy multinationals are in a tight race towards net zero by 2030. Many know that being a responsible corporate citizen is not only good for the planet—it is good for the bottom line. At the same time, investors are keen to unlock funds for those who not only talk the talk about reducing emissions but walk the walk with quantifiable solutions. And a sure thing is electrifying buildings through green sources.

It is well documented by climate experts that a significant proportion of emissions arise from commercial real estate, with carbon dioxide and methane gases typical byproducts from operating workplaces. Emissions spike in tropical and sub-tropical climes that require year-round air conditioning or northern climes that need to heat and illuminate workdays with short daylight hours. In its 2019 report, the World Green Building Council noted that “building and construction are responsible for 39% of all carbon emissions in the world, with operational emissions (from energy used to heat, cool and light buildings) accounting for 28%. The remaining 11% comes from embodied carbon emissions, or ‘upfront’ carbon that is associated with materials and construction processes throughout the whole building lifecycle. WorldGBC’s vision to fully decarbonise the sector requires eliminating both operational and embodied carbon emissions."    

Keeping corporate eyes on the renewable energy prize helps companies focus on combating reliance on existing power grids that historically burn fossil fuels. “Our buildings can definitely be powered by 100% renewable energy sources,” ascertains Lisa Hinde, Head of Sustainability | Asia Pacific, Real Estate Management Services. “Many existing buildings are currently cycling out equipment that consumes gas on site and committing to electrification as part of their development strategy. This is supported by industry frameworks such as Green Star Building mandating electrification as the only pathway to a 6-star rating.  

While most Asia Pacific countries have a percentage of sustainable energy sources in place—wind in Thailand, geothermal in the Philippines and Indonesia, and hydro in New Zealand are a few examples—Rick Thomas, Managing Director | Emerging Markets, explains that they are all at varying stages of maturity. “The real estate industry should find a common rating system and governments should mandate or implement a policy that part of the power supply has to be green,” he suggests. “It is always a combination of policy plus sentiment and appetite. If multinationals demand 5-or-6-star rated buildings, developers will have to build them.”

Lisa notes that as renewables become a larger percentage of the grid, buildings powered by electricity will naturally decarbonize. “Our reporting systems are now set up to recognize this transition,” she notes. “They allow organizations with net zero targets to capture cost savings associated with electricity-based consumption.” In Australia, the National Australian Built Environment Rating System (NABERS) has recently announced changes to emissions factors in 2025 and 2030 that will reflect the growing presence of renewable energy in the grid. This will make it increasingly difficult to maintain existing NABERS ratings in buildings that retain gas systems.

According to NABERS, a 4.5 star rated building today that is 100% electric will improve, whereas a building with 50% gas contribution will fall incrementally. 

This may impact access to green finance and meeting obligations under green lease schedules, putting buildings with gas systems at higher risk in these categories than 100% electric buildings. 

On the operations side, Rick advises for asset managers to be one step ahead to exceed the expectations of occupiers. “They should have solid green programs in place that outlines how the majority of electricity can come from green sources,” he states.

Electrifying buildings through green sources is universally beneficial. Landlords and occupiers that get on board now reap huge dividends in the long run as sustainable energy sources become more widely adopted to combat climate change. “This is not just a nice environmental initiative to pursue,” says Rick. “This strategy, if executed during the appropriate time frames, will be far more cost effective in meeting or exceeding net zero targets. By working with market forces and understanding occupier demand, landlords can turn this trend into a lucrative investment strategy for their portfolio.” 

Colliers' client DOMA has recently completed the 13,200sqm office for the ACT Government in Dickson (pictured) as the first all-electric HVAC system for Canberra and is continuing their push for all new office developments being fully electric with two new CLT offices in Canberra and Newcastle set to commence construction this year. “Removing the dependence on gas systems is not only the best decision for the environment and in line with our best practice agenda, but also reflects the expectation of our future occupiers to be operating out of a building powered by 100% renewable electricity,” said Gavin Edgar, General Manager, Development, at DOMA.

Demonstrating its commitment to promoting sustainability in the built environment, Hines' 600 Collins Street office development in Melbourne will be fully electric as part of its 6-Star Green Star environmental certification. "ESG and reducing our industry's carbon footprint are the pressing issues of our time, both for tenants and investors," said Simon Nasa, Director and City Head for Hines in Melbourne. "Hines is leading the way globally in decarbonising new developments - 600 Collins will be at the forefront of sustainable design and construction, and will provide an example to the industry here in Australia of how the next generation of office space will operate to benefit its occupants and environment."

This article was originally published in https://www.colliers.com/en-xa/news/e22-expert-talks-electrification-for-real-esg-impact