Notable News at the Nexus of Commercial Real Estate and Energy

April 03, 2024

New SEC Rules Heighten Real Estate Industry Disclosure of Emissions

The U.S. Securities and Exchange Commission (SEC) recently approved new rules that aim to reduce carbon emissions (indirectly) by heightening corporate disclosure of emissions, including by the real estate industry. The new rules require large publicly traded companies to specify their so-called Scope 1 and Scope 2 greenhouse gas emissions. The SEC defines what needs to be reported.

Real estate companies have direct control over Scope 1 emissions, which are produced by sources owned or controlled by the company in the course of building operations, such as boilers or furnaces. Scope 2 emissions result from a company's indirect activities, such as the purchase of electricity to power a building. The SEC’s Scope 3 would have required reporting on greenhouse gas emissions resulting from occupants’ use of their independently controlled space as well as emissions from other activities including building construction. Scope 3 was dropped from the final reporting requirements.

“The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements,” said SEC Chair Gary Gensler in an SEC statement on March 6, 2024. “Further, they will provide specificity on what companies must disclose, which will produce more useful information than what investors see today.”

Many commercial real estate building owners (public and private) already track and report related data as they do their part to minimize climate impacts, and because it typically makes business sense. Increasingly, institutional investors and lenders are requiring as much to better understand the risks and opportunities associated with property operations.

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What Is a Zero-Emissions Building? The White House Lays Out a Definition

The Biden Administration in partnership with the U.S. Department of Energy recently proposed to define zero-emissions buildings in hopes of getting government and industry on the same page. Policymakers say three pillars are key, namely that buildings be:

Highly energy-efficient,
Free of on-site emissions from energy use, and
Powered solely by clean energy.

One-third of the United States' annual greenhouse gas emissions is produced by commercial and residential real estate, including electricity end-use, according to the U.S. Environmental Protection Agency.

Policymakers’ proposed definition is intended as a foundation for the building sector to coalesce around “a standardized, consistent, and measurable basis for zero operating emissions buildings,” according to the Department of Energy.

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Renewable Energy Use at All-Time High

In 2023, a quarter of the United States' power demand was met by wind, solar and hydroelectric plants, marking a historic achievement in the use of renewable energy in America.

According to BloombergNEF's "Sustainable Energy in America 2024 Factbook," which documents the evolution in energy production, delivery and consumption, zero-carbon power consumption reached an all-time high of 41% in 2023. Additionally, energy consumption decreased by 1.4% year over year. Energy consumption last year was 5.8% lower than the 2007 peak.

Commercial building energy consumption decreased by 3.8% from 2022 to 2023.

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