When people think about cutting emissions, the focus is usually on reaching net zero by 2050 in order to keep global warming within 1.5° Celsius. What often gets overlooked by companies setting Paris-aligned greenhouse-gas (GHG) reduction targets is that significant reductions need to be achieved by 2030, not just net zero by 2050. Real estate is a key but often overlooked area for companies seeking to hit those 2030 goals.

Real estate accounts for about 40% of all GHG emissions. In our experience, real estate (both new construction and existing buildings) can account for more than half of the emissions that most companies can practically reduce between now and 2030. In other words, you can’t get where we want to be without real estate. 

So, targeting real-estate emissions is crucial. But delivering all the emissions cuts that are possible isn’t easy. Most companies with significant real-estate holdings face three key complexities, I’d say.

First, few real-estate owners have a high-fidelity baseline for what their emissions actually are. For a company to say, “Dear shareholder, we’ve reduced our emissions by 40%,” that company has to have some kind of baseline, as well as some kind of mechanism for tracking interventions, which could be as simple as swapping out five light bulbs, replacing a heating system, or shutting off the floor of a building at night. If you’re not actually adding these things up, you can’t prove to anyone—whether that means your shareholders, your lenders, or your tenants—that you’re doing what you said you’d do. Even if companies have developed some form of baseline based off of submeter readings, they often lack real insight into the right abatement activities that can help them reduce emissions and improve on that baseline. In other words, owners may fixate on the starting point but not on the solution.

The second complexity involves having a holistic view of your real-estate footprint. It would be great if companies could, say, cut their emissions in half by taking one bold action, like putting solar panels on the roofs of every building they own. But we’ve seen time and again that this doesn’t happen. The far more likely route is that a real-estate owner may have hundreds of buildings with enormously different profiles, different amounts of sunlight, different underlying generation mix from the local utility, and different tenant attitudes. To make a real dent in emissions, owners have to look at all the possible levers they have, building by building, and then build a cost curve that shows what’s going to help reduce emissions, what’s going to have an acceptable payback, where is it worth spending the capital, where is it prohibitive. Without that holistic view of your entire real-estate system, you might spend the whole budget and still fall short of your target. One of the most promising benefits about starting on the decarbonization mission early is that tenants are already demonstrating a higher likelihood of lease renewal (and at higher prices) with landlords who are able to offer a lower-carbon facility (or else demonstrate a pathway to a lower-carbon facility). This “green premium” (which has been quantified by academics) can create a positive ROI for many carbon abatement efforts. 

The third great complexity of reducing real-estate emissions is that owners have to work through a big ecosystem. Very few companies that own these buildings are equipped to do the actual decarbonization work themselves. Who installs the HVAC system? Who are the vendors, the service providers, who are the tenants in each of the buildings? What can you offer the tenant that is going to help them meet their decarbonization objectives (in a way that improves their tenant experience)? All these actors play a crucial part. So, we see owners pressuring the service provider that’s got, say, the five-year contract managing 50 of their buildings in the US to start swapping out high-emission boilers for heat exchangers with much lower emissions.

Owners aren’t just applying the pressure—they’re feeling it, too, on at least three fronts. Investors, of course, are making this an imperative. Regulatory institutions are weighing in. And tenants are increasingly demanding. We see them coming to landlords and saying, “Hey, I’m in this building that you said was very green, but in fact it’s a large part of my emissions footprint. So, what can you do? And by the way, I might even be willing to pay a premium if you can help me meet my own decarbonization commitments in other ways.” 

That’s the thing about this moment. It can seem daunting to a lot of organizations. But most real-estate owners are already sitting on top of the data they need to figure this out. It’s within their walls, even though it may be four layers down in the organization. Companies that make a rigorous effort to get a handle on that data are likely to find lots and lots of ways to start making a serious dent in their emissions. But they need to get started. Time is precious, and 2030 is right around the corner.

ABOUT THE AUTHOR

Alastair Green is a partner in McKinsey’s Washington, DC, office.

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