The Canadian commercial real estate community is making significant progress in reporting Scope 1 and 2 emissions, reducing its carbon footprint and actively pursuing net-zero targets.

That is one of the findings contained in the 2024 REALPAC (Real Property Association of Canada) Sustainability Industry Report, which tracks the performance of this country's real estate sector with respect to decarbonization.

According to the study, 68 per cent of REALPAC members are now reporting Scope 1 and 2 emissions, a substantial improvement over the previous year's 48 per cent reporting level.

The report also states 49 per cent of Canadian commercial real estate companies have established net-zero targets for their operations by 2050, compared to the 2023 figure of 37 per cent.

The data highlights the industry's growing commitment toward sustainability despite prevailing sectoral headwinds. 

"This report recognizes the progress (in sustainability performance), provides useful benchmarks, and also identifies opportunities and challenges for the industry," Darryl Neate, vice-president, sustainability at REALPAC, said in an interview with Sustainable Biz Canada.

"It reflects REALPAC's commitment to support its members and foster a greater understanding of climate risk, sustainable finance, and sustainability reporting. And practically speaking, this a report that professionals from across different business groups can use to help get up to speed on a range of key issues."

Need to deploy 'winning' low-carbon technologies

The industry is making slower progress, however, in the reporting of Scope 3 emissions: only 49 per cent of companies surveyed are also tracking Scope 3 emissions, as compared to 37 per cent last year.

The report also revealed that 75 per cent of investors (across all industry sectors) want companies to provide a road map as to how they intend to achieve their sustainability goals and the costs involved.

Another takeaway from the REALPAC report is the growing awareness within the real estate sector of its responsibility to the greening of the built environment and the attendant need to ramp up efforts to deploy what the report describes as "cost-effective technologies to support their decarbonization efforts." 

At present, natural gas consumption accounts for between 65 and 95 per cent of carbon emissions from buildings located in four of Canada's largest cities: Montreal, Vancouver, Toronto and Calgary. 

According to the REALPAC report, there are three impactful, cost-effective technologies described as "proven winners" and three additional "ones to watch" that will shift buildings away from natural gas and toward renewable energy sources including heat pumps and energy recovery systems.

In the former category, the installation of heat pumps can act as a prime low-carbon driver to help lower commercial buildings' natural gas consumption and "must be a top priority for the industry" with respect to the need to electrify buildings.

The report also identifies the use of low-carbon concrete in new building construction - offering a 20 per cent to 30 per cent potential reduction in embodied carbon emissions - as well as the implementation of exhaust/internal gain heat recovery systems as two technologies expected to have a major impact in lowering emissions.

"Building owners are looking for impactful, cost effective technologies to support their decarbonization efforts," Neate, who earned his B.A. in Environmental Studies from the University of Waterloo and an MBA from York University, explained.

"We divided low-carbon technologies that are broadly applicable to buildings across Canada in our report into two groups. The first group of 'Three Proven Winners' are technologies delivering strong and cost-effective decarbonization impacts which have been de-risked in the market.

"The other group of 'Top Three Ones to Watch' - mass timber, energy storage and sewage heat recovery - are technologies that also have a strong carbon reduction impact but are still being de-risked in the market."

New tech costs vs. end of equipment life cycle

Amplifying on the findings of the report, Neate provided insight into factors likely to inhibit the pace at which the real estate sector decarbonizes.

"Digging down a little bit deeper, owners are feeling a lot of pressure from current market conditions, particularly in the office sector. The industry is facing increased cost of capital, often resulting in deferring capital expenditures, high vacancy rates, high construction costs, mortgage renewals - all these factors are making owners anxious and often crowding out or pushing decarbonization efforts down the list."

REALPAC members are also finding it difficult to justify replacement of existing equipment in advance of life cycle expiry.

"In a difficult economic climate . . . the timing of HVAC equipment renewal is tied to the end of the equipment's (life cycle) . . . The upfront capital cost and investment required is significant and operational savings are not significant enough to justify equipment being replaced in advance of the end of its useful life."

Founded in 1970, REALPAC is a nationwide body of top-tier executives from Canada's commercial real estate industry dedicated to advancing the long-term prosperity of the sector. 

Members include publicly traded companies, real estate investment trusts (REITs), pension funds, private companies, fund and asset managers, developers, government agencies, lenders and other groups representing in excess of $1 trillion in assets under management.

Net-zero momentum

"In terms of momentum . . . many of our members continue to make good progress on developing and executing net-zero carbon portfolio plans and asset level net-zero carbon transition plans . . . although I would also offer that there is considerable progress to be had.

"In terms of net-zero carbon transition plans, most of our members are still in an early stage of developing or executing on them. So there continues to be a significant learning curve for everyone and an opportunity to execute on those net-zero carbon transition plans."