A multi-dimensional approach to net zero reporting

Earlier in January, Goby hosted a webinar about reducing carbon emissions and achieving carbon neutrality across your real estate organization. Our guest speakers, Marta Schantz from ULI and Natalie Teear from Hudson Pacific Properties, shared their experiences and provided insights into planning for 2021 and beyond, best practices for setting attainable, effective net zero carbon goals, and strategies for achieving net zero targets both at the portfolio-wide and at the asset level. You can read the transcript of the webinar below or click here to view the recording.

Michelle Winters: Hi, everyone. Thank you so much for joining us today. We're going to give everyone another minute or two to join into the webinar and then we will get started here. All right. Well, like I said, we’ll go ahead and get started. Welcome, everyone, to our webinar, “Pathways to Net Zero: A Multi-dimensional Approach to Carbon Neutrality.” My name is Michelle Winters. I’m VP of Solutions at Goby and I’ll be the moderator for today.

Our webinar will focus on reducing carbon emissions and achieving carbon neutrality across your real estate organization. Our speakers will share their experiences and provide insights into planning for 2021 and beyond, best practices for setting attainable, effective net zero carbon goals and strategies for achieving net zero targets both at the portfolio-wide and the asset level.

So before we begin, I'd like to introduce our speakers for today’s webinar. So Marta Schantz leads the Urban Land Institute GreenPrint Center; a worldwide alliance of leading real estate owners, investors and strategic partners committed to improving the environmental performance of the global real estate industry, including measurement, benchmarking, knowledge-sharing and implementation of best practices. GreenPrint and its members strive to reduce greenhouse gas emissions by 50% by 2030. And Goby is very proud to be a ULI partner.

I also have joining with us, Kylie Ford. She’s one of our principal ESG consultants here at Goby where we are focused on helping businesses establish, monitor and communicate ESG initiatives through our ESG platform. Kylie has over a decade of ESG management consulting and program experience and is an expert at bridging multiple roles focused on employee engagement, strategic business development and process improvements.

And last, but certainly not least, we have Natalie Teear, VP of Sustainability and Social Impact at Hudson Pacific Properties; a real estate investment trust with a portfolio of office and studio properties totaling 19 million square feet. Hudson Pacific recently achieved 100% carbon neutrality across all of their operations in 2020. I’m personally excited to hear more about that today.

So we’ll be starting with brief presentations from Kylie and Marta and then an interview with Natalie and then questions for all of our speakers. So the last thing I’ll mention before we get started is please feel free, in the bottom-right corner, to submit any questions throughout the entire presentation and we’ll get to them, as many as we can, at the end. Thank you so much and Kylie, take it away.

Kylie Ford: Thank you, Michelle. If you’re on the line now, you probably have already heard a bit about net zero, but we thought it was important to just establish what the background is and what we mean when we’re talking about net zero.

So truly, we’re talking about a math problem here. We're talking about the amount of greenhouse gas produced and the amount removed from the atmosphere. So trying to balance the equation, we reach net zero when the amount we add is no more than the amount taken away. But amount added of what and taken away from what? This hearkens back to what I'm sure you’ve seen before, the greenhouse gas effect.

Our planet has unique properties in that it has a very nice atmosphere that allows us to keep a lot of the sun’s warmth and energy that comes in so that we have a habitable planet climate. But the thing is this is done via a layer of greenhouse gases in the atmosphere that sort of act as a blanket. Now, because of human activity, we also produce energy in a way that emits greenhouse gases. And basically, the blanket that we have now is just a little bit thicker than it’s supposed to be and it’s heating us up so that’s what global warming is.

But when we say greenhouse gases, you hear a lot about us talking “carbon offset,” “carbon neutrality,” “net zero carbon,” we’re talking about more than just carbon dioxide itself. There are several different greenhouse gases. The Kyoto Protocol in the ‘90s outlined six major ones. You’ve probably heard carbon dioxide, methane and nitrous oxide are the three most common. There are also the HFCs, the hydrofluorocarbons, sulfur hexafluoride and so on, but why do we only talk about carbon then?

Well, it would become really complicated if we were trying to say okay, we need exactly this level of methane in our atmosphere, exactly this level of carbon. What we’ve done in the industry and across the board is we look to compare the two. You’ve maybe heard that methane is 25 times more warming than carbon. That’s true in the sense of it has the capacity to capture and retain heat 25 times better than carbon dioxide does. So what we do is rather than saying, “Okay. Here’s your methane emissions, here’s your nitrogen trifluoride emissions.” We justify that all in terms of what is its global warming potential as carbon dioxide. Let's pretend it’s all tons of carbon dioxide or carbon dioxide equivalency. So when we say net zero, we are talking about the whole greenhouse effect. And when we say carbon, it’s really this conception of carbon as sitting in our atmosphere.

When we’re looking to actually reduce what we’re doing as in making the blanket the appropriate level of thickness to keep us the appropriate level of warm so that we’re not increasing the global temperature too much, there are really four dimensions, aspects to consider. You can avoid emissions. And when I say carbons, I mean greenhouse gas in general, but avoid emissions entirely means let’s say you own a corporate jet. Avoiding it, you don’t use it on this day. Maybe this meeting that you thought you had to have in person, you can look to have virtually. That's one example of avoiding it. You just don’t even engage in the activity that would emit carbon into the atmosphere or the greenhouse gases.

You can reduce. This is where we talk about a lot of efficiency operations. For instance, if you have better building insulation, you don’t need as much energy so that you can keep your building as warm and comfortable to be in in the winter. That's one example of reducing.

You could also look to switch. So maybe you’re utilizing a fuel source that’s a bit more intense. A car that utilizes gasoline to run produces more greenhouse gases than an electric car. Similarly, you could look to switch entirely to something that is carbon neutral such as solar or wind energy off of a traditional electricity source.

And then finally, the last aspect to consider is offsetting. And this is really the case for emissions that cannot otherwise be reduced or avoided or switched in any way. Maybe your market doesn’t support exactly what you want to do or you don’t have the capital funds to immediately get away from all of your emissions. What is offsetting? Well, it means that as you continue to produce emissions, you can purchase offset units that then cancel out these emissions. That is to say your dollars fund projects that engage in activities that reduce the greenhouse gases in our atmosphere.

So an example of a project that it might fund is efforts to restore forests or maybe fertilized soil efforts. These things act as carbon sinks. We know that trees eat carbon dioxide and breathe out oxygen, for instance. So that might be the type of project that your dollars are going towards. And there’s some very complicated math behind understanding exactly what dollar contribution you would need to do to offset your level of emissions to equal out to what you’re funding, but that’s generally how offsets work.

So that was very specific, “science-y” talk for what we even mean when we’re saying carbon neutral. Why are we talking about it here and what does it mean for your business? What we’re seeing is that across the board, there’s an increased interest from investors. It’s not good enough anymore just to say here’s what our carbon footprint is. You have to now say here’s what we’re doing about it, here’s what our ultimate goal is and what our vision is for reducing the carbon emissions. We’re seeing this crop up too on voluntary ESG disclosure frameworks. Things like GRESB, UNPRI, there are questions that are not just about what your usage is, what are your emissions, but how do you assess climate risk and where do you see this going, what do your policies do to support your efforts.

We’re also in a changing regulatory environment and we’ll get to exactly why in just a second, but there’s emerging legislation where you might be required to be reducing your carbon emissions. Maybe at the municipal level, maybe at the national level. And then finally, we’re seeing a competitive advantage. It's not just investors that are asking about your carbon neutral efforts. Tenants would prefer to lease in spaces that are carbon neutral. Even prospective employees would want to be joining companies that have made this part of their business strategy.

So just drilling a bit into our changing regulatory environment, a lot of what is happening now hearkens back to the Paris Climate Accord. It was an agreement in 2015 that was basically meant to be a binding international treaty on climate change. And it has been ratified in 188 countries as of November with the U.S. of course slated to rejoin the end of this month. And the idea behind the Paris Climate Accord is that we cannot allow the global temperature to rise more than 2°C over pre-industrial levels with the real target being only a 1.5° increase. That is what we see as being necessary to prevent a lot of the more disastrous things that you’ve probably heard about climate change, rising sea levels, disappearing countries entirely, water shortages, all that kind of stuff.

So a growing number of countries have made a commitment on to the Paris Climate Accord. So EU ministers, for instance, have determined that they need to hit carbon neutrality by 2050 to make sure the goals of the Paris Climate Accord are realized. There are other countries too. We’re not just talking about the European market. Japan has 2050 net zero goals. I think Canada has a legislation in draft form right now that’s going to be targeting this. We’re also seeing cities join the call. New York City, Boston, they also have net zero targets set for 2050.

And then, in addition, businesses are beginning to support on their own right. So businesses using science-based targets initiative which again is centered around making sure we don’t see a global temperature increase of more than 1.5°C have used that to set the framework for their emissions reductions. So whether you’re a business, you can see your activity actually impact and fall in line with the Paris Climate Accord.

And just to show you an idea of the amount of steam that this has been gaining, we’re seeing voluntary targets crop up more and more. None of these companies are required by regulation yet to be setting these, but we do see big player names and utility companies racing to declare net zero targets particularly with that 2050 date as being the agreed upon crucial time period.

So that was the very broad strokes of why we’re here and why it’s important. I'm now going to turn the microphone over to Marta who’s going to be discussing a little bit more about strategy and projects in particular.

Marta Schantz: Wonderful. Thank you, Kylie, for setting up that excellent background on net zero. I think it’s just the right place to have me talk a little bit more about net zero and specifically for real estate. So again, my name is Marta Schantz. It's great to be here today. I’m the Senior Vice President for ULI’s GreenPrint Center for Building Performance. And for those who aren’t familiar, ULI or the Urban Land Institute is a global real estate industry group. We have over 45,000 members across the world with the mission of responsible use of land through creating and sustaining thriving communities. So naturally, green buildings fit into that quite nicely and I lead ULI’s research arm focusing on the business case for green buildings. We cover topics ranging from city and real estate climate policy to sustainable tenant fit-outs to embodied carbon to net zero and everything in between. So here we can go to the next slide. Oh, I have control of that.

And in addition to our research work, ULI GreenPrint, as Michelle mentioned, is a network, a community of practice with leading real estate owners, investors and partners committed to reducing the impact of buildings on the environment with that 50% by 2030 reduction goal. And newly announced in net zero carbon operations by 2050, just like Kylie was saying, another group attaching to that 2050 target date to align with what science is telling us. So we have over 45 real estate members who are part of the GreenPrint community of practice across the globe and we also partner with data providers like Goby to enable tracking and measurement and improvement towards the goals listed here. And so we work with our members on all sorts of wonky topics and we take those best practices and promote them to the broader market.

So on this next slide, I wanted to show some of our GreenPrint members where we continue to grow. And you can see, Natalie, your company is listed here, Hudson Pacific Properties. She's also speaking on the webinar, of course. Over the past 10 years since GreenPrint has been founded, our members continue to find that reducing carbon, driving energy efficiency in their real estate portfolios, it just makes good business sense. The financials are sound. And so to date, toward that 50% by 2030 goal, year over year, our members have reduced 34%. So we are on track to meet it. And based on that, you know that 50% by 2030 isn’t enough. Based on where we’re at today with what the market is telling us, we needed to raise the bar. So we set that net zero goal for net zero carbon operations by 2050 for our collective portfolio. It’s a longer-term goal and it continues to show how these sustainable changes can add value to properties. It aligns with the Paris Agreement, as Kylie was talking about, from the IPCC report to limit global warming to 1.5°.

Beyond just the fact that the time is now, I wanted to reinforce what Kylie was saying about why net zero is important. First and foremost, there’s always that financial business case. You've lowered your operating expenses, lowered your maintenance and repairs, increased your net operating income and increased asset value. So at the building level alone, the financial business case is there. Additionally though, investors are valuing this. Tenants are asking for it. There's a need for grid and energy reliability, improvements and confidence. And also, regulations are coming. Whether it’s, as Kylie was saying, at the municipal level or at the state or countrywide level, this is on your radar. So for risk avoidance and to be proactively preparing for what’s coming. For the real estate market, net zero was important to be thinking about.

So we set this goal, this net zero by 2050 goal and 11 of our members so far have publicly aligned with that goal. In total, they represent over 215 billion dollars in assets under management over 500 million square feet, almost 3,000 properties across 20 countries. So it’s a big starting group and we expect a lot of fast followers. Natalie, I figured I would tap your shoulder. Do you want to chime in on Hudson Pacific being a part of this?

Natalie Teear: Yeah. It was funny. Right around this time that Marta was developing this call was exactly when we were finalizing our carbon neutrality. And so we were trading phone calls at the same time of like, “Hey, I’m going to be announcing this; just FYI.” And she was like, “Well, perfect timing because we want to do this ULI movement.” And so from our perspective, this is so great. A lot of what Kylie and Marta have been talking about around the science that’s aligned with the Paris Agreement, that’s really important, but you have to think about it from the macro level. That’s an accomplishment the world needs to move towards and there are going to be leaders and laggards in there. It’s just we know that when we have a goal, some people don’t meet it which means other people have to go above and beyond in order for us to land where we need to land. And we, because of who we are as a business and our values, we felt a real responsibility to lead and I know that all the other companies on this page share that feeling.

Marta: Awesome. Thanks, Natalie. So when we think about achieving net zero, at first blush, it seems like this insurmountable, huge challenge. But when you break it up into its components, it’s actually quite doable and, as Natalie I’m sure will talk about, feasible as well in today’s economic environment.

First and foremost, when we think about a roadmap to portfolio-wide net zero carbon, energy efficiency. It is the most cost-effective solution for carbon reductions and we stand by that. From there, we move to thinking about on-site renewable energy so that it’s immediately on-site and you have that direct value to offset the usage that you have which Kylie was talking about with that definition of net zero.

From there, we start thinking about green utility power and sourcing off-site renewables from the utility grid directly while also electrifying buildings so that you don’t have to rely on natural gas to skew your work there. And then we balance the remaining emissions with off-site renewables, renewable energy credits and other carbon offsets.

With that total, that’s how ULI GreenPrint is looking at net zero. However, we don’t want to ignore the other facets that play into net zero and overall building emissions. Like tenants comprise well over half of any building’s carbon emissions and to ignore them forever is missing part of the problem. So we know that tenants are important and we continue to focus on that. And we also are thinking about embodied carbon because the embodied emissions of building materials themselves and materials from fit-outs throughout the life cycle of a building are also a significant portion of the building’s life cycle carbon emissions. And so thinking about how the real estate community can eventually reduce those as well is part of our scope.

Now, when we think about zero carbon and net zero for real estate specific, there are some tricky nuances. First off, tenants, right? In real estate, you don’t occupy your buildings, you have tenants. And so there is that natural separation in terms of those operational boundaries. So when we’re thinking about net zero, we calculate it in terms of what’s under operational control of the owner. So definitely Scope 1 and Scope 2, that’s under your control. So we don’t include triple net tenants, for example, in our baseline definition.

It’s also tricky because in real estate, there are a number of acquisitions and dispositions that complicate your totals. And so when we think about what is net zero, at any point in time, depending on what the building make-up is of your portfolio, your totals could be different. So the way that we calculate it and we do have that 2050 deadline, at any point in time, we look at if a building has been acquired, we get a 24-month grace period to get it before it gets included in the calculations to give time for the new owner to spruce it up and get it a little more efficient and more carbon neutral. And for dispositions, as soon as their sale date hits, it’s removed from the total. And that’s how we’re calculating that too.

Additionally, this is an absolute goal. It’s not like a certain percentage reduction. So no matter how much a portfolio grows or reduces in size, we just want the tally to hit zero. We want to hit that zero and that’s what we’re looking at.

And then lastly, there is a bit of a chicken and egg situation when it comes to the greening of the grid. Do you wait and just assume that your utility grid will be all renewable? And hats off to you. Or do you do the work early on, get you building prepared so it doesn’t need as much energy in the first place and it can have lower carbon emissions overall? We say both is the answer and so we encourage action on energy efficiency and renewables, no matter the grid quality across the portfolio.

Really quickly, I wanted to give two examples from some of our GreenPrint members who have done some great work on this. And the first is a single net zero building as opposed to a full portfolio. The property is called Boulder Commons. It's a two-building, multi-tenant office property in Boulder, Colorado. It has new construction and it is net zero. It has normal tenants. There’s a hair salon in there. There’s also a mission-driven nonprofit, but nonetheless this is a multi-tenant net zero building and it was done with only a 12% incremental cost to get to that net zero achievement. It has a number of off the shelf components like narrow floor plates, variable volume refrigerant system, composite steel structure, triple glazed windows, a good thermal envelope, LED lighting. And then it also has really creative solutions like solar cladding. The bottom two photos here and even the one on top, you can see that on the side all those kind of black-looking items, those are solar panels on the side of the building which Natalie has at one of her buildings as well. But doing the solar analysis and saving money by putting solar panels on the wall instead of siding, it actually changes the financials of the project.

And additionally, there are some interesting creative solutions for tenants. Because it is a multi-tenant, triple net building, each tenant has to sign a green lease with a plug load allowance where if they use more energy than they are committed to, they have to buy renewable energy credits to balance their totals out so that the building can stay true to its net zero goal. This is a commercial asset. It was developed on spec with only one tenant confirmed out of the hole and I think we’re going to see a lot more of this over time.

And lastly, I wanted to talk about a portfolio example. Another one of our GreenPrint members is Tower Companies. Here’s just a sample of their many buildings. They’ve got about a little over 5 million square feet of mixed-use commercial building types in the DC, Maryland, Virginia area. Back in 2010, their C-suite made a commitment to annually offset 100% of their commissions. That’s Scope 1, that’s Scope 2 and that’s Scope 3 travel. So it’s a significant piece there and they have not stopped there. They think they can do more so they’ve been pushing on energy efficiency to make their buildings as efficient and reduce those carbon emissions on site. They've been adding on-site renewables to existing buildings where it makes sense with roof space. And they’ve been thinking about other ways to prioritize and deepen and be more aggressive on sustainability with buying local RECs as opposed to winds from Texas to thinking about utility green power, exploring off-site PPAs and more.

So they’ve been able to do this for the past 10 years and I think we’re going to be seeing a lot more companies drive on this as well. So with that, I'd love to pass it back to Michelle and Natalie to talk about what’s going on at Hudson Pacific.

Michelle: Awesome. Thank you so much for that, Marta. That was a really fantastic overview. And I think just for the time being maybe, Chris, are you able to stop sharing your screen? We’ll get our pictures up. Okay, there we go. I think that worked. So, perfect. So for the next few minutes, I'll be interviewing with Natalie here and asking her a little bit more about the work that she has done for the carbon neutrality with Hudson Pacific. Specifically, Natalie, I realized the other day that I wasn’t aware of this, but your original goal was to be net zero by 2025. And you managed to move that ahead five years which is pretty amazing. So I'd love to, maybe just for the rest of our viewers, first question is really like how did you get started? How did you bump that up there to make that happen way ahead of schedule?

Natalie: Sure. Well, it’s probably helpful to start with a little description of who Hudson Pacific is because we have an advantage, to be totally frank, over a lot of other owners and operators in that we are a west coast REIT. We focus on urban centers from L.A. up to Vancouver. We serve primarily creative media and tech tenants who share our commitment to sustainability. So because of that, the clients we serve and the markets we’re in and the type of talent that we’re seeking to attract all the time, sustainability is really key. And so where many people who have my job at other companies, it’s an uphill battle to prove business case for sustainability. For us, I think our leadership from the board and the CEO and all the way down really sees that it’s a virtuous cycle that the more we invest in sustainability and lead on sustainability, the better it helps us achieve our business objectives. It helps us attract the tenants we want, to attract the talent we want, get ahead of the regulations, all the business case items we’ve all just been discussing which is great.

So we have about, as you mentioned, about 19, 20 million square feet from across our portfolio. We’ve gone along the journey across that portfolio; the journey that Marta laid out. Those six steps and really the four that lead up to net zero, carbon and then two more. We’re doing work in all of those and we started with energy efficiency. And our portfolio, for the most part, is a relatively modern portfolio or they are buildings from the ‘70s or ‘80s that we have refurbished. And so we’ve got pretty great energy use intensity and energy performance across the portfolio. I think our latest numbers are at somewhere near 70% of our square footage is ENERGY STAR certified and 80%, as of last month, is LEED certified which is like way higher than most companies. So that this is just the investments we’ve made are just part of the business. We have invested a lot of capital and operating attention into being as energy-efficient as possible. We also have direct contracts with utilities for green power at some of our properties. For example, we own the ferry building in San Francisco and that building has been 100% green power for years, well before we even purchased it. We have other buildings similarly that are on green power agreements.

We do have on-site renewables specifically in our L.A. portfolio, several buildings there, but there was still a lot of room for improvement. And so what happened, our real journey started about two years ago when we said we really want to start moving towards net zero. And the first thing we did was convert the entire portfolio. Anything that wasn’t already on green power, we converted it to 100% renewable electricity by purchasing RECs essentially which are renewable energy credits. Ours were from a wind farm in Texas. We did that in 2019. That brought our carbon footprint down by about 80% because most of our emissions were Scope 2.

And then we had a five-year plan to tackle the other 20% which is all from natural gas and the large focus on electrification which can’t happen overnight. It's going to take time, but then frankly what happened is: A. Wildfires in California where we’re headquartered. We're getting at it was a truly personal wake-up call for a lot of us and our leadership team. And then COVID. And we realized that to keep our buildings safe, we were going to have to run the HVAC systems longer and harder than we ever had before. We upgraded all of our filters. We were trying to pull in outside air which means you have to do more conditioning. And now, we’ve converted to renewable electricity. We’ve made this big investment. We have this plan for our carbon emissions to keep going down over time, but what happens if our energy use skyrockets? We can’t have our carbon footprint go up. Like that’s just a non-starter.

So we said let’s just pull that strategy forward, Let’s just get there faster. And so the way we did that, because that’s the only way to get there really quickly, is through offsets. We purchased offsets, carbon offsets from a landfill gas to energy project. We can go into details about why we chose that project, but we liked it for a number of reasons. It was certified by VCS which is the leading certification program. It was from North America so we knew it was a high-quality project. It was a recent vintage year, we felt good about that. And it was landfill gas, meaning it was natural gas-based emissions which aligned with our objective to offset our natural gas emissions. So we closed that deal, that brought us to net zero which we feel really excited about. But frankly, it is a really big milestone and we do want to celebrate it, but there’s so much work still in front of us; so much more that we still want to do. That’s a bit about how we got to where we are.

Michelle: I mean it’s really interesting too. And we’ve talked about this on a previous webinar recently, but just the impacts that COVID had had, I felt like in terms of just putting more of a tangible, real-life example of the impact that ESG can have positively from a business standpoint. And that it has brought to light more of the S and the G, but also to your point with some of the other natural disaster components that did happen this year like the Australia fires were still in 2020. It’s crazy in my mind. That seems like five years ago, but there’s still the E side as well so that’s a really interesting perspective on that front.

I’d be curious to know too. You mentioned there’s still so much that you want to do. What are those next steps? Like what are your key things for 2021, we’ll say. Since you’re already ahead of your 2025 goal, what does the next year or two look like in this journey?

Natalie: We have kind of three key work streams in our carbon strategy now. One is around reducing our reliance on RECs and offsets and converting more to continuing to invest in energy efficiency, on-site renewables in the direct contracts with utilities. We are working to set a science-based FPT-aligned target that will essentially reflect our goal on how to reduce our greenhouse gas emissions before you take RECs and offsets into account. So we’re really focused on how do we tackle those absolute emissions and the technical term is our location-based emissions, not our market-based emissions.

Second is around technology and prop tech. Half of my job is leading ESG, the other half is I lead innovation and technology for Hudson Pacific. And we are very interested and have a very active pipeline of various innovation pilots underway across the portfolio. Everything from smart glass and window film to leak detection technology to boiler electrification to things like a tenant app that we rolled out last year that allows us to engage with tenants more and drive energy efficiency and behavior change that way. So we define our approach to innovation technology pretty broadly. We’re not only piloting the technologies in-house, we’re also making direct investments in companies we think are exciting and we want to see scale because we think they have solutions that are relevant for the entire industry. And we’re doing that directly and through our partners at Fifth Wall. It's a venture capital firm that many real estate firms are invested in.

And then our third work stream around carbon is really focusing on embodied carbon which Marta mentioned, but we see that as so critical and still a really emerging area where the science is still very new and the industry in general is still really coalescing to understand what it means and how to tackle it. We, for the last year, year and a half, have required all of our developments and major repositioning projects to measure embodied carbon so we could get a baseline. And through that process of really partnering with our architects and designers and general contractors, we’ve gained some initial learnings that make us think it’s going to be possible to set an embodied carbon reduction target for those projects so that through sustainable design and really intentional material selection, we can basically do much lower carbon development than the traditional approach.

Michelle: And then, Marta, since you were kind of called out here a little bit which I think is perfect timing, I'd love to hear you kind of expand on that. What has been your experience on that component and any other suggestions you would have for kind of exploring that further that you’d want to comment on?

Marta: On embodied carbon in particular?

Michelle: Yes.

Marta: Absolutely. So embodied carbon, for folks who weren’t familiar with the term, it’s still a pretty emerging term, as Natalie mentioned. It's the embodied emissions from the materials themselves that are going into the creation and the transportation and installation of the construction of those buildings. So steel and concrete are the two biggest offenders when it comes to embodied carbon of materials. And so there are some really creative and low-cost ways to address that. Whether it’s using recycled steel, thinking about green or low-carbon concrete and there are tools in the market. Like there’s an EC3 calculator and HUD Community has a practice like the carbon leadership forum where practitioners can go to learn about how to compare materials, how to get cost comparable options, how to do so in a way that’s not so overwhelming and new, but actually feasible and quite simple. And so, we’re following that as well.

Our GreenPrint Center put out a report on embodied carbon just last year. I'm going to plug it now because, Michelle, you brought this up. uli.org/embodiedcarbon, there’s a public report on how real estate can make the business case for reducing that in their building materials. So we continue to see some opportunity there. And it’s going to be very interesting as we think about benchmarking. It’s one topic that’s very new to think about how to calculate the overall embodied carbon of the development and of any building. So as folks currently benchmark their operational emissions through energy, waste, water and the like, I think we’re going to see more and more embodied carbon of building materials being benchmarked too which data providers, I'm sure, are preparing for.

Michelle: Takes it to a whole other level. I'm on board. Well, fantastic. So I'm going to kind of circle back a little bit too and just some generalities of kind of each of you and what we’ve seen. In really best practices or lessons learned, is there anything if you were to go back and do it again, you might approach slightly differently? Or something for those that are just getting started that are listening to the call that you might recommend? And maybe, Natalie, I’ll let you start and I’d love to hear too from Kylie and Marta as well.

Natalie: I guess, reflecting back, there are so many technical considerations to take into account at every step along the journey and we are a lot smarter on them now than we were two years ago when we started. So for anyone else starting the journey, I would advise try to do as much of the research to be really clear on your objectives and do the research on them what the technical criteria mean for those beforehand.

So for example, we’re members of RE100 which is an alliance of many global, large companies that are committed to 100% renewable electricity. The technical criteria to comply with that commitment that we hold dearly and we want to meet is actually really different than the criteria to reach net zero carbon. We use Ernst & Young, our financial auditors, to audit out carbon figures. And so we work closely with them on that accounting process and that as to what an example is.

To reach net zero carbon under the Greenhouse Gas Protocol, you can take credit for the green electricity that is already on the grid. So for example, in a place like Vancouver where 97% of the electricity on the grid is carbon-free, our greenhouse gas emissions are relatively light. However, under RE100, you cannot take credit for green electricity that is already on the grid. So we needed to purchase RECs to meet the RE100 criteria even though it really didn’t help us on our carbon journey which was fine. We were able to do all of that, no problem, but that wasn’t immediately apparent to me, at least, at the beginning of the journey. That was something I learned along the way. There are countless examples of things I learned along the way that I probably should’ve known upfront.

Marta: Yeah. When we think about the definition of net zero, it’s one of those complicating, complicating questions that there is no perfect answer to. Everyone has a slightly different definition and what I've settled on is that that’s okay. We are all working in the same direction, we are all striving to reduce our carbon emissions, become more energy-efficient, reduce our impact on the environment. And if everyone has a slightly different definition, but it’s moving in the same direction, that’s what matters most.

So whether it’s the World Green Building Council definition or GreenPrint definition, ASHRAE is coming up with a new 228 standard, any of those is great. And that’s something to keep in mind.

Natalie: Totally. And our approach is just to try to be as transparent as possible. And we publish our definitions and our numbers in our CR report and we disclose through CDP and we’re not trying to mislead anyone. And we’re trying to do the best we can and you can’t meet all of the definitions at once so the best you can do is kind of pick your lane and then be open and honest about it.

Michelle: Absolutely. And the thing I specifically learned I mean that I thought was even more prevalent in our conversation today is that there’s really like no singular path to achieving it either. It’s kind of a combination of different components that it will get pulled together and, Marta, to your point of that’s okay. The goal is to get there. It is better to kind of keep the needle moving forward so couldn’t agree more. And Kylie, anything to kind of add from your end as well on that side?

Kylie: Yeah. I mean I think just building off what Natalie was saying about show your work, show your math, I think that’s the most important part. One of the biggest stumbling blocks, honestly, is determining what your carbon footprint is. What’s your direct footprint? What’s your indirect footprint? It can be complicated to be talking through financial control, operational control. I’ve worked with clients where I have to get into the question of, “Okay, who actually sets the number on the thermostat in this particular building space?” so that we know whether that can be calculated.

So my advice is really just try and get your arms around that first. Determine what your scope is of your full inventory. And then from there, you can begin even just measuring okay if we change this one project, what’s that result in the carbon? You’re going to find that you can set targets and understand how much you’re able to move it. It's pretty much proportional to energy targets as well too, but really just get that baseline down. That's my engineering background speaking, but show as much work and as much math as possible.

Natalie: You brought up a point that’s near and dear to my heart. And for anyone on the line who’s interested in understanding what companies are doing and is looking at the math and reading the footnotes, that is such a key point to look at. Because many landlords, I mean there is discretion depending on the financial or operational control approach you take on doing the accounting, you can include tenant emissions in your Scope 1 and 2 numbers or you cannot. You can push them into Scope 3. That is a huge like many orders of magnitude difference. We include them.

We feel that like look, we don’t control that thermostat in the tenant space, but we control the building. We control the core infrastructure. It’s our responsibility and so we felt like it was important to be more conservative. We took those emissions on which make our numbers look bigger. It means there are more emissions for us to manage, but we feel pretty strongly that that’s the right thing to do, but that’s not necessarily something that all the landlords will do going forward. So as we see more and more moving to net zero, that’s going to be a really important thing to pay attention to.

Marta: I would love to add in that just getting started is so important. You were asking, Michelle, what do you do? It’s never too late to get started on a net zero journey and to join the leaders who are already on that path. The thing that holds some folks back is cost. They think, “Ugh! Buying all those offsets, it must be exorbitantly expensive.” It’s actually not that bad. Natalie, do you want to talk about that? From Hudson Pacific’s perspective? Or can you?

Natalie: We don’t release our actual numbers publicly, but what I will say is I was shocked at the range of numbers available in offsets. So there are some you can purchase that are really expensive. There are also others you can purchase that are a fraction of the price and frankly are the same quality, if not better, depending on what you value. So a lot of the reforestation projects, for example, which is really great. And I would love to support reforestation., but most of them are happening in other countries where your insight into the quality of the project and permits is more questionable as opposed to American-based North American projects which often tend to be a lot cheaper. So, yeah. It’s definitely worth looking into the pricing. There are ways to do it pretty cheaply.

Michelle: Natalie, you’re going to get a couple emails, I feel like, after this like, “All right, give me the inside information under the table.”

Natalie: We used 3Degrees to help us with that deal and I highly recommend them. They were really easy. They got us a lot of quotes and helped us through that process.

Michelle: Awesome. Fantastic. And the only other comment I was going to make too is the other thing that I think is really beneficial, Natalie, for you and your company is that because you’re on the west coast, you also have additional accessibility to that tenant data that you can then compare against to which I think has been beneficial. And I do think too just in the growth that we’re having of making that tenant data more accessible through additional benchmarking ordinances, it all kind of falls in line so that you can do those calculations more effectively. So I just thought that was another nice like west coast like you guys are lucky in that perspective, but there are other ways too for those that aren’t all on the west side...

Natalie: The Tower Companies example Marta gave was a great one although they have benchmarking too. I’m not sure of the jurisdictions.

Michelle: But, yeah. And the nice thing is like I said, hopefully, we’re seeing benchmarking is really increasing. Utility providers are getting that aggregate data more readily accessible. So it’s all going hand in hand for multiple benefits. So I was going to comment really quickly. Actually, we’re somehow getting close in the time so I’m going to find some of the key questions that we started to get here. Marta, there was a question specifically for you. And I'm going to read it for the first time out loud so hopefully I do so appropriately, but it was saying that this specific company which is an urban mixed-use real estate developer and manager conducted comparisons between natural gas and electric heating. In terms of first and operating costs, we find that natural gas comes out ahead. What are some argument strategies to support a switch to electricity under these circumstances? If you could comment on that. That was a pretty good question.

Marta: I would love to. Electrification is something that my team is looking at. We'll be putting a report on it in the first half of the year so keep an eye out for that. There are a couple of different ways to think about the business case for converting from natural gas. First is risk avoidance. We're starting to see regulations, especially up and down the west coast, but even in the suburbs of Boston, we’re seeing municipalities set natural gas bans on new construction. And that will eventually apply to existing buildings too. So if you’re thinking about future-proofing your buildings and preparing for a long-term hold or just making sure that a future disposition is favorable, natural gas is going to start looking not so great. So there is that inherent risk of long-term regulations pushing natural gas that way.

Additionally, there’s an equity play. When it comes to natural gas where there are health concerns. Right now, burning of fuel on a property has poorer air quality than an all-electric building. And so if you think about those value pieces, having healthier space with fewer literal burn natural gas on-site, there’s benefit there as well.

Additionally, when we think about just the overall challenges with natural gas heating versus electric heating, luckily, there have been some great technology advances where even though natural gas is incredibly cheap, electric heating is so efficient that it’s starting to prove out where it’s becoming more comparable. And so those technology advances are proving out really nicely with heat pumps and the like. And then, I can keep rambling about electrification. I’m curious if Kylie or Natalie, you want to add anything into that?

Kylie: No. I mean I think you really hit the nail on the head in terms of the direction regulation is moving. A lot of the barrier to acting on any of this in the past and especially the past decade when this became sort of more prevalent was that environmental degradation or the carbon intensity of these have been external to the market price. And that’s where regulations come in to kind of make a way of a market-based approach for accounting for these environmental externalities. So we’re seeing the trend away from natural gas through regulations, yes. And then also through the fact that natural gas companies themselves know what’s coming and want to be switching too. Utility providers, they want to reduce the amount that they need to provide to you. It lowers their operational costs. And most natural gas companies are being very future minded in terms of well, we want to be delivering energy of some kind, but it might not look like gas in the future because we can see the direction that this needs to move.

So I really think that’s the main dynamic supporting electrification. And then even just in terms of it doesn’t have to be an outright ban, but sometimes you’ll find that there are energy efficiency programs via the utilities that you can participate in. There are more of those on the electricity side of things than on the natural gas side of things and usually a little bit more bang for your buck in terms of funding some of these projects.

Natalie: Well, I would maybe have a slightly more cautious viewpoint on it. I think electrification is in many cases still a hard case to make. I agree with all of the things that you’re talking about, but today, in most of our jurisdictions, it’s a really hard thing to make the numbers work. That’s changing. That will change, for sure, but it’s going to be a long road so I agree with the comment that was submitted. I think it’s a really challenging topic.

I mean perhaps the solution is Vancouver, it’s going through its draft climate action plan right now which has really interestingly a carbon tax on building the same way that New York has implemented. They also have natural gas requirements as part of that, but they do. In the draft plan, they are allowing for clean gas essentially that their utility is ramping up on. And the pricing for that is going down. So the answer for that may not necessarily be 100% electrification. There are perhaps options to reduce absolute Scope 1 emissions that you know there’s a hybrid approach to get there.

Marta: Scientifically, there is that drive to if we completely want to off-site energy digit buildings with clean renewable power, technically you can really only do that with electricity. The natural gas heating doesn’t have a renewable energy coming into a building to address that. We could get into nuances of clean gas, but that is a small market right now. So when you think about it...

Natalie: Yeah, but it’s important to think about the technology, Marta, as opposed to electrify today. It’s a really important project right there.

Marta: Yeah. And we’re seeing a lot of barriers. I mean a lot of restaurant tenants aren’t ready to switch away from their gas top stoves. A lot of multi-family or condo owners aren’t ready to get rid of their gas fireplaces or their gas stoves either. So by no means is there a big market sway right now, but we see it coming. I think 10 years from now we’ll look back and see how that’s going to change.

Michelle: Are you telling me I have to figure out how to cook on an electric stove?

Natalie: No problem on that front. Yeah. I agree.

Michelle: No, I think that’s perfect. And actually, there’s quite a few questions associated with like how we’re leveraging technology and new solutions that maybe have been coming out. And there were a few questions associated with I think I saw others like new solar technology, new coatings technology. I know, Natalie, you had touched on that a little bit. Marta and Kylie, I’m curious to hear if you have anything else that you would add to kind of throw out there that’s worth commenting on. Or Natalie, anything else specific you wanted to mention also?

Natalie: Go ahead.

Marta: In terms of exciting new technologies for building sustainability, I would say gosh it’s somewhat invisible, but really sophisticated building automation systems are proving to make a huge difference in the efficiency and optimization of a building’s energy consumption. And there are some really impressive algorithms, machine learning, AI type of tie-ins with sensors and all sorts of gadgets that bring together a very sophisticated building. And I’m very excited about where that’s going and how that’s going to change the way buildings are run and operated.

Kylie: Yeah. And even just a, I guess, more macro view of that too is that utility companies are getting a lot better at metering. Metering, in general, is getting a lot better so we have more insight into data. We understand best how to distribute things. The way our energy grid is set up right now, if every single person woke up at 3:00 a.m. and decided to flip on their lights, they could. That’s obviously over-serviced. We do not need that much energy being distributed at all times. So this metering technology, in addition to building automated systems that are sort of increasing it, the efficiency on the user end allows us to be smarter in terms of making a smart grid so that we don’t need to have so much energy at all times. And that’s also moving in a positive direction and lowering what the utility companies need to provide.

Michelle: Yeah. Well, and interesting too. Because kind of maybe on top of that as a quasi-segue, but with different incentives to try to implement either some new technologies or specifically, there were questions associated with this, incentives for tenants. One of the questions asked, and, Marta, maybe I'll throw this to you because you talked about one specific use case with tenant engagement, if there are any incentives that tenants use less than building average amounts of electricity. Maybe with reduced rates that you’ve seen, as an example, or any other kind of specifics.

Marta: What I've seen on utility incentives with tenants, if the tenant is the name on the utility bill, they get the incentive dollars. So a lot of times, tenants don’t necessarily realize that there’s an opportunity for the owner tenant to have some sort of cost share for improvements in their space in a way that benefits both parties. So that’s one thing that can be helpful. Otherwise, when it comes to encouraging tenants and incentivizing them to reduce their usage and have behavioral change. I'm actually going to pass it to Natalie since she mentioned the app that Hudson Pacific has. Do you want to talk about that?

Natalie: Yeah. That has been really fun actually. So last year, we rolled out a mobile app across all of our entire multi-tenant portfolio where you can download the app and you can see all of the amenities at your building and you can get notifications for the health and safety protocols that we’re putting in place due to the pandemic. That’s really why we actually accelerated our rollout was due to health concerns. You can get push notifications also. First for safety. So for example, when there were really large protests outside our properties last summer right after the George Floyd murder, we were sending push notifications letting people know this gate is closed, that gate is open, there’s extra security over here, we’re closing early.

So we use it for all sorts of different ways, but it has proven to be a really great tool for sustainability as well. So we’ve done things like secure deals with RECs, a REC provider, consumer-facing REC provider. And they agreed to give 30 bucks off the first month off a REC contract with anybody who signed up through us. And so we promoted that through the app. So people have been able to convert their homes to renewable electricity based on the incentive that we’ve been able to broker for them.

We’ve sent tips about zero waste and waste sorting and composting and things that are general and also very specific to the building. So it’s a very fun way to engage people and especially critical right now. And most of our people are not actually in the office. We have to engage them virtually.

Michelle: It’s a whole new way of engagement, that’s for sure.

Well, I know we’re getting close to the end of time. There was one other question that I actually thought was really interesting that I wanted to throw out there. It’s a little bit of a switch in mindset. And Kylie, maybe I’ll throw it over to you because you talked about it a little bit, but someone had mentioned, “Is it true that no country is meeting the Paris Agreement goals at this time? And can we expect them to in the future?” So kind of a sad statement, but maybe there’s something positive we can end with it on to be encouraging to get an idea.

Kylie: Sure. Sure. This is in reference, I believe, to the CCPI 2021 Report. That’s the Climate Change Performance Index. They do an annual report where they assess those that have signed on to the Paris Climate Accord and rate their findings. And yes, they did rate that not a single country was doing enough to be considering that it would meet the necessary changes to only have global temperatures rise by 1.5°C. That is a very strict definition. They looked at policies, top three performers were unsurprisingly Sweden, Denmark and, I think, the UK. Morocco was up there. There are a lot of performers up there. And yeah, that sounds a little dire, but at the same time over half of the countries that they surveyed had had a reduction in emissions so things are moving in the right direction. What they’re really trying to make sure is that there are robust policies behind it, less on the greenwashing, that there’s more scrutiny. And we already are seeing actions on the country level to help support some of that.

So the EU, for instance, has new ESG disclosures that are going to be required. That’s the kind of thing to make sure performance is moving in the right direction. Also, everything that we were talking about of what the market is shifting, what it’s going to look like. As Marta said, in 10 years, this conversation is going to be completely different. So we’re going to see just more prevalence of green utility options that you can switch to. Right now, it’s really hard to make an impact when you’re kind of hampered by maybe a very regional approach. So what’s on the west coast, that’s going to be across the board for instance and then certainly in other markets as well too.

So I think the future is bright. Yes, there’s not nearly as much being done right now, but I also don’t think it was ever going to be a linear progression. I think it was always going to be this is the time that we’re investing in new technologies. We’re understanding full impact and then we’ll pay the dividends a lot more in the future. So, hopefully, that’s an optimistic enough note to end things on.

Michelle: No, I think that’s perfect. And maybe just as a final kind of closing statement then of maybe from both Natalie and Marta. I mean, Natalie, you were able to, like we said, you took us from 2025 to 2020. It can be done. Any other kind of closing thoughts to keep in mind? We’ll start with you and then maybe, Marta, you’ll be last here.

Natalie: Well, perhaps. You kind of mentioned the term “greenwashing.” I think a lot of people in my position are concerned about moving too quickly and then perhaps getting accused of greenwashing. Or setting goals that perhaps they can’t meet and then is there backlash for that? And I will share that, personally, I had so many of those concerns and stayed up awake at night the night before we announced going carbon neutral. Just not knowing if we were going to have any pushback and there was none. Nothing. Nothing other than like complete positive feedback for doing our best even though it’s not a perfect strategy yet. So I think hopefully that’s comforting to others in a similar position.

Michelle: I think that’s a great comfort at the end of the day so I like hearing that. And Marta, maybe here with our last few seconds, any other thoughts on your end?

Marta: I would say that more and more real estate overall is paying attention to ESG. They’re investing in ESG, they’re setting ambitious goals on ESG and so the future is bright in that sense as well. We are no longer seeing real estate as a small, small percentage paying attention to sustainability. Now, the folks who aren’t paying attention are the minority. And so seeing that shift is certainly heartening for the future.

Michelle: Yeah, absolutely. And I personally thought this was a great conversation, great information to share. We appreciate everyone that joined us today. And there were a few people that asked about access to the slides so we will be sharing that with participants as well as recording as well, but thank you, everyone. We appreciate the questions and the time and have a great rest of your day and start to 2021.

ESG materiality assessments

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An ESG materiality assessment empowers you to easily report on your current state and outline future initiatives while taking into consideration your business goals and risks. Download our guide to creating and extracting the maximum strategic value from an ESG materiality assessment.

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