During the first week of July, the planet’s average daily temperature touched highs never before seen in modern records kept by climate agencies across the globe.

Experts predict 2023 will be the hottest year on record. And while skeptics argue we are experiencing a natural heating and cooling cycle, what can’t be denied is how recent decades of industrialized activity and associated greenhouse gas emissions are exacerbating the issue.     

So how bad is it? And why do we need to pick up the pace?

We know Canada’s current building stock accounts for about one-fifth, or 17 per cent, of the country’s total emissions footprint, of which roughly 75 per cent is related to heating and cooling a building’s space and water. For Canada’s built environment to achieve the federal government’s 2030 emissions reduction targets, the rate at which existing buildings decarbonize needs to dramatically accelerate. 

Retrofits critical part of decarbonization

The Canadian government’s 2030 Emissions Reduction Plan is a roadmap that outlines a sector-by-sector path for Canada to reach an emissions reduction target of 40 per cent below 2005 levels by 2030 — and net zero by 2050. 

While we won’t get there just through retrofits, they are a critical part of how we will decarbonize the existing building sector – but they're not happening fast enough. The current rate of retrofits of Canada’s commercial building floor area is 1.4 per cent, with retrofits achieving “shallow rather than deep energy savings,” according to a 2021 report by Efficiency Canada and Carleton University. 

At this pace, it’s estimated it will take 71 years to retrofit all commercial and public buildings. 

The battle to reduce emissions is worth fighting.

Colliers Real Estate Management Services in Canada manages 67 million square feet of commercial assets across the country. Front and centre is helping building owners achieve their goals for their assets, which increasingly include a desire to decarbonize their portfolios.

For those with ambitious net-zero targets, we help identify solutions to accelerate the transition; for those who don’t have targets in place, teams like ours can help them develop a tailored approach to decarbonization in line with their broader goals for their assets.

Here are three motivating factors that should be spurring property owners to prioritize retrofitting their buildings to achieve net-zero. 

Growing expectations for net-zero space

In Canada, 37 per cent of REALPAC members have now set a net zero target, and 75 per cent of members have integrated climate risks into investment decisions, according to the 2023 ESG Industry Report published by the property association. 

More broadly, 42 per cent of companies in the Fortune Global 500 have publicly committed to major climate targets by 2030, according to the Climate Impact Partners report, If Not Now, When?  

Sixty-three per cent of companies have set carbon reduction targets for 2050. That means there is a rising number of high-profile companies that have, or will have, policies in place to lease space that can demonstrate an emissions reduction pathway, or is certified to a net-zero standard like CAGBC’s Zero Carbon Building Standards. 

Through our work with clients in Canada, we're already seeing a shift that has ESG performance moving from a consideration to a key decision factor. Increasingly, ESG provisions are being included in lease agreements. We are also seeing more RFQs and RFPs include questions related to ESG performance.

For owners, it’s quickly becoming the new table stakes and if not already, they should be preparing to meet the needs and expectations of tenants who are looking for space that will not hinder the achievement of their own ESG targets. 

Valuations increasingly factoring in ESG performance 

Conversations around how to incorporate ESG in valuations are picking up.

The whispers from investors and occupiers are getting louder as they observe the monumental shift in other countries. The overriding sentiment: energy-efficient assets and those on a decarbonization trajectory present less risk.

Improving the ESG performance of an asset, with a focus on decarbonizing through retrofits, will enhance market appeal and, we expect over time, its overall value. 

Climate change will directly impact CRE assets and surrounding communities 

REALPAC’s ESG report emphasizes that current climate change rates will cause a global temperature increase of 1.5 C between 2030 and 2052.

That increase will boost the number of extreme weather events and disasters, bringing severe challenges to the Canadian commercial property market and the communities that surround these assets. 

The risks the industry faces by not embracing ESG and making progress to decarbonize are many, the report said. It highlighted flooding, extreme heat waves and wildfires.

It also noted the costs associated with insurance, repairs and capital investments will surge as climate change threatens the environmental and social stability in our communities.

Vancouver office tower conversion involving KingSett sets a good example

Building owners and operators need to position themselves ahead of the curve. We are seeing examples in Canada. 

KingSett Capital has made it a goal to achieve net-zero carbon across its core portfolio, Kit Milnes, vice-president of sustainability and resilience at KingSett, said.

The company acquired Arthur Erickson Place in 2019 with Crestpoint Real Estate Investments and Reliance Properties, and the team then focused on reducing carbon usage at the 1968-built Vancouver office tower. As a first step, they replaced its domestic hot water equipment with a heat pump system using carbon dioxide as the base refrigerant.

The goal is to achieve Zero Carbon Building – Performance Standard Certification of Arthur Erickson Place in Q4 2023.

"To achieve net-zero carbon at all of our buildings, we need to understand when and how each property can be electrified and if it can handle the cost of executing a decarbonization strategy," Milnes said. "Our team uses our custom in-house Building Decarbonization Modelling tool to model various decarbonization scenarios, the costs and overall impact on energy use and emissions."  

KingSett has a decarbonization pipeline of 5.4 million square feet to be completed by 2027 — that's a 35 per cent drop in carbon emissions from baseline. The company is also working to decarbonize Toronto's Royal York Hotel this year.

Milnes said there's nothing wrong with starting small with a zero-carbon retrofit strategy and then ramping up over time.

"Find the easiest property in your portfolio to decarbonize," he said. “That can provide the proof of concept and get senior and executive-level buy-in while managing costs.” 

We’re seeing progress, but greater pace and scale is needed

We're seeing an uptick in owners executing an ESG performance plan that prioritizes net-zero. We’re seeing greater recognition that it is good for the long-term viability of their business — helping mitigate risk, whether reputational, climate-related or financial — and creating value for occupants, investors and the community.

ESG, when done well, can further enable owners to achieve their broader goals for their assets. 

Across our managed portfolio in Canada, this year alone, we have supported 35 retrofit projects and more than one million square feet of office space have completed net-zero transition studies, with an additional 2.1 million square feet in the pipeline.

In the absence of federal regulation that limits transactions at assets that fail to meet a certain level of ESG performance, or significant financial penalties for missing emissions reduction targets, the government’s net-zero goals remain voluntary.

As a result, we aren’t seeing the scale and pace accelerate to where it needs to be — yet.

Editor's note: The CAGBC’s Zero Carbon Building Standards was incorrectly referred to as Net Zero Carbon. SustainableBiz regrets the error.