California Passes Corporate Climate Disclosure Package; Biden Administration Releases Net-Zero Emissions Principles for Financial Institutions

Recent government actions amplify the increasing focus by policymakers on climate laws and guidelines—and their heightened impact on CRE. The California legislature recently passed first-of-its-kind state laws that require companies to disclose their emissions, beating to the punch anticipated federal climate reporting rules from the U.S. Securities and Exchange Commission (SEC). (Politico, Sept. 17)

Meanwhile, the Biden administration issued voluntary principles this week for asset managers, banks, insurers, and venture capital companies with goals for “net zero” emissions investments, including real estate. (Treasury news release, Sept. 19)

California’s Climate Risk Disclosure Package

  • California’s legislature passed two bills (SB 253 and SB 261) last week requiring climate-related disclosures from certain companies doing business in the state. Most notably, the Climate Corporate Data Accountability Act (SB 253) would require entities with total annual global revenues greater than $1 billion to quantify and publicly report Scopes 1, 2, and 3 emissions.
  • SB 253 is estimated to regulate around 5,400 companies. Gov. Gavin Newsom (D) pledged to sign both bills, although he may request changes when the legislature reconvenes in January. The laws could be challenged in court before they take effect over the next several years. (Wall Street Journal, Sept. 20 and New York Times, Sept 17)
  • The California legislature “leapfrog[ged]” the U.S. SEC (Bloomberg, Sept. 12), which has yet to release highly anticipated federal rules that are expected to require registered companies to report to investors on material climate-related financial risks in 10-Ks and other filings. (See RER’s 2022 comments on SEC proposal | Roundtable Weekly, March 10 and June 10, 2022)

U.S. Treasury’s Net-Zero Emissions Investment PrinciplesU.S. Treasury’s Net-Zero Emissions Investment Principles -- publication imageThe Treasury Department’s Principles for Net-Zero Financing & Investment is focused on “financial institutions’ scope 3 financed and facilitated greenhouse gas (GHG) emissions.” It urges private sector financial institutions to align their GHG reduction efforts and net-zero goals with their “portfolio companies,” “portfolio of assets,” and “client base.”

  • The document notes that clients and portfolio companies should provide to their financial institutions their own net-zero plans, including “metrics and targets” for Scopes 1, 2 and 3 emissions. Buildings and real estate assets have long been considered part of a financial institution’s Scope 3 emissions “value chain.” 
  • The set of nine principles encourage greater adoption of emerging best practices for private sector financial institutions that have made net-zero commitments, while promoting consistent and credible implementation approaches.

A Sept. 12 podcast featuring Roundtable Senior Vice President & Counsel Duane Desiderio, and Nareit’s Senior Vice President of Environmental Stewardship and Sustainability Jessica Long, discusses the imminent SEC rule and other real estate policy priorities in the energy and climate arena. (Listen to Nareit’s “Real Estate Roundtable says CRE Playing Key Role in Success of Federal Climate Programs”)

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Roundtable Comments to EPA on Building Performance Standards, Electrification

EPA sign

The Real Estate Roundtable submitted comments this week encouraging the Environmental Protection Agency (EPA) to use its grant authority to foster consistent, practicable, and cost-efficient local building mandates and electrification programs. (Roundtable letter, Jan. 18)

Consistency Urged in Building Performance Standards

EPA letter image capture

  • In addition to clean energy tax incentives for the private sector, the Inflation Reduction Act (IRA) devotes billions in grant money for EPA to dole-out to states and cities for greenhouse gas (GHG) reduction programs. [White House Guidebook, Dec. 15]
  • IRA grants could support localities as they develop and enforce building performance standards (BPS) that mandate owners to reduce energy use and emissions. Dozens of BPS laws have emerged in jurisdictions across the United States. (EPA Policy Brief, Jan. 19) (Roundtable Weekly, July 1, 2022)
  • The Roundtable’s Jan. 18 letter urges EPA to use its grant authority to encourage consistency in BPS mandates. A “hodge-podge” of state and local laws complicates compliance by building owners with nationwide real estate portfolios and hinders responsible investment strategies, according to The Roundtable’s letter.
  • The Roundtable’s position is that EPA should not award IRA grants unless state or local recipients ensure their BPS laws offer uniform federal tools, data, and protocols for enforcement and compliance.
  • These federal standards include EPA’s ENERGY STAR Portfolio Manager, its GHG Emissions Calculator, eGRID factors that convert electricity use to GHGs, and metrics already recommended by EPA to support BPS efforts.

Tenant Energy Data and “Practicable Electrification”

EPA letter electrification capture

  • The Roundtable letter also advocates that utilities should be eligible for EPA grants to develop technologies that provide owners of multi-tenant buildings with “whole building” energy data. Owners need data on tenants’ energy use to meet BPS mandates and to attain the IRA’s new tax deduction for building retrofits. (Fact Sheet, updated Jan. 5.)
  • In addition, The Roundtable letter advocates that grants to help standardize corporate climate reporting should prioritize consistency in accounting for emission benefits from the purchase of Renewable Energy Certificates (RECs), and for embedded carbon in construction materials and building products purchased by real estate owners and developers.

IRA tax incentives and grant programs affecting CRE will be among the topics discussed during The Roundtable’s Sustainability Policy Advisory Committee (SPAC) Meeting on Jan. 25 in Washington, D.C., held in conjunction with Jan. 24 State of the Industry meeting.

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White House Releases Net-Zero “Road Map” as EPA Credits Strides in Building Efficiency

White House Climate Goals

The Biden administration this month released a “road map” to reach net zero emissions by 2050 by focusing on five key areas for research and development, including efficient buildings and grid decarbonization. (White House Fact Sheet)

Buildings Sector Emissions

  • One of the priorities in the administration’s net zero initiative is to accelerate innovation in “efficient building heating and cooling.” It notes that HVAC is responsible for nearly a fifth of commercial building energy use.
  • Innovation is required to reduce upfront costs to enable widespread adoption” of retrofits that replace traditional HVAC systems with heat pumps, automated controls that interact with the grid, and the switch to refrigerants with low global warming potential, according to the R&D report.

ENERGY STAR Commercial Buildings

ENERGY STAR - 2 Decades

  • The Environmental Protection Agency (EPA) released a separate report this week marking two decades of ENERGY STAR Commercial Buildings. EPA concluded that the overall stock of U.S. office buildings has become 30 percent more energy efficient since the turn of the century. Top-of-class “certified” office buildings decreased energy use by 30 percent in the last decade alone.
  • EPA’s “Two Decades of ENERGY STAR” study also found that owners and managers cite “operations and maintenance” as the most important factor to optimize building energy performance—more than investments in original design and construction, or to retrofit older buildings with new equipment.

Net-Zero Tracker

MSCI Net-Zero Tracker

  • New data show corporate emissions cuts still lag far behind their pledges. A Net-Zero Tracker by the investment research firm MSCI finds public companies’ emissions are out of step with global targets. (Axios, Oct. 18 and Nov. 3)
  • Additionally, an Accenture report shows that more than 90 percent of large companies that have made net zero emissions pledges will miss their goals at their current pace. (The Hill, Nov. 3)

Clean Energy Incentives

RER comments - image Nov4 2022

  • Various clean energy tax incentives in the Inflation Reduction Act (IRA) passed by Congress in August were the focus of extensive comments submitted by The Real Estate Roundtable to the Treasury Department and the Internal Revenue Service (IRS) earlier this month. [Nov. 4 letter and Roundtable Weekly, Aug. 12]
  • Stacking multiple incentives on the same buildings “must be encouraged for the real estate industry to strive towards net zero emissions,” The Roundtable stated in its comments.

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will discuss the IRA’s clean energy incentives during its Jan. 25, 2023 meeting, which will be held in conjunction with The Roundtable’s State of The Industry meeting.

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Biden Administration Plans to Cut U.S. Carbon Emissions in Half by 2030; Fed Announces Climate Threat Monitoring Effort

Flooding of mixed used building

The Biden Administration continued to work this week on an aggressive goal to slash U.S. carbon emissions in half by 2030, as the Fed announced plans to monitor climate change threats to the financial system. (Bloomberg, March 23 and E&E News, March 24)

A National Effort

  • White House Climate Advisor Gina McCarthy is leading a National Climate Task Force that will finalize U.S. goals and commitments before participating in an April 22 virtual global climate summit on Earth Day. (White House Readout of the Second National Climate Task Force Meeting, March 18)
     
  • The government-wide effort includes input from 21 federal agencies and industrial sectors, ranging from car manufacturers to aviation to the oil industry. (The Hill, March 22 and E&E News, March 23)
    • The prospects for both chambers of Congress to pass legislation that puts a price on carbon are still remote, even though key business groups such as the U.S. Chamber of Commerce and the American Petroleum Institute have now come out in favor of “market-based” climate policy. (Axios Generate, March 26)

    Climate Change and Real Estate 

    • Federal Reserve Governor Lael Brainard this week emphasized the impact climate change could have on real estate markets. She stated during a March 23 speech, “… the usability of real estate in many areas will be directly affected by the increased risks of floods, wildfires, severe storms, and sea-level rise associated with climate change.”
    • She added, “Sudden realizations of climate-related risks could cause rapid shifts in investor sentiment and shocks to asset prices.” (Financial Stability Implications of Climate Change speech by Gov. Brainard, March 23)
    • Brainard announced the Fed has established new oversight committees “to identify, assess, and address climate-related risks to financial stability.”
    • Fed Chairman Jerome Powell and Treasury Secretary Yellen also commented on their increased attention to the risks posed by climate change during a March 23 hearing before the House Financial Services Committee and a March 24 Senate Banking, Housing and Urban Affairs Committee hearing.
       
    • Secretary Yellen will lead the first meeting of the Financial Stability Oversight Council under the Biden administration on March 30 to discuss climate-related financial risks. (The Hill, March 24) 

    The administration’s climate policy plans and their impact on CRE will be a focus of discussion during The Roundtable’s Spring Meeting on April 20 (held remotely). 

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