Real Estate's Role in Net-Zero Targets

Sustainability has evolved from just being about the environment to becoming a crucial financial concern, especially for CFOs.

In Australia, where the real estate sector contributes significantly to emissions, it holds a vital role in achieving net-zero targets.

New reporting standards, aligned with international guidelines, are now making CFOs and leaders of audit committees responsible for driving sustainability efforts. EY's recent study, "Zeroing in on Net Zero Buildings," highlights how sustainable buildings can improve financial performance. Despite many corporate tenants and property companies committing to net-zero goals, organizations like the Science Based Targets initiative are checking if companies are actually making real plans to cut emissions, not just talking about it.

Until recently, the property industry mainly saw cutting energy use and emissions as a way to save money. Now, the spotlight is shifting towards seeing eco-friendly buildings as valuable investments. A survey found that most business tenants prefer green buildings and are willing to pay extra for them. This matches market data, which shows that buildings with top sustainability ratings earn more rent and have fewer empty spaces, bringing in better profits. Yet, there's still work to be done in making sure companies see how aiming for net zero emissions can directly boost their bottom line.

Building with Green Star ratings v the market (%)

*Green Star Design and As Built certified assets ** Weighted average lease expiry

Source: EY

A smart net zero plan doesn't just cut risks; it boosts brands and profits too. Take the Commonwealth Bank, which picked its new Melbourne location because the building's owner promised to slash carbon emissions. Or Stockland, now making money by trading solar energy between its shopping centers. These success stories show where the industry is headed. Tenants now care about carbon footprints and upgrades, not just ratings. And simple tech like heat pumps and LED lights can make a big difference. The report suggests five main areas for improvement: going electric, using energy smarter, linking to the grid, embracing renewables, and cutting embodied carbon. As rules tighten and tenants demand more, green buildings are set to become even more profitable. The gold rush for green is just beginning.

Source: https://www.afr.com/property/commercial/going-green-can-deliver-gold-for-landlords-20240405-p5fhpf