ESG and Zero Carbon – Managing Carbon Risk Thanks to ESG, Zero Carbon Buildings are finally hitting the mainstream as owners start to grapple with their “Carbon Risk”.

Brad White P.Eng, MASc President, SES Consulting Inc. Contributing Editor

 
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Over the last 2-3 months it has become clear to me that Zero Carbon Buildings are no longer a bleeding-edge, or even leading-edge, concept. Rather, they are something that every building owner must start to seriously think about. I’d like to share with you just a few of the things that have happened to me recently that have convinced me that this is the case.

One of the highlights for me at AHR Expo back in January was our session on “Retrofitting for Net Zero”, where we discussed the challenges and opportunities that come with trying to decarbonize the existing building stock. If you missed this session, you can watch the recording here. Compared to when we did a similar session a couple of years back, the enthusiasm and interest in the audience this year was incredible. The key takeaways from this session being that, yes, this transition has a huge set of challenges we must overcome, but the tools and expertise exist to make this happen. Further, the huge influx of investment capital into decarbonization projects presents an enormous opportunity for those businesses that can align their services with making the transition happen. I’ve watched this happen first hand in my own business over just the last 2-3 years, going from a consulting firm focused on energy efficiency where simple payback was king, to the majority of our work having a carbon reduction focus.   

More importantly, this is no longer a promise of big investment to happen at some undetermined future date, but we are seeing these projects happening now. In just the last couple of months, we’ve had clients take a number of large decarbonization retrofits into construction. These are projects to undertake major equipment replacements or retrofits with the main driver being GHG emission reductions. Indeed, these owners are spending significantly more money to implement low carbon technologies than if they just went with like for like equipment replacements. This extra investment is justified entirely by the opportunity to make a significant reduction in the building’s GHG emissions. Examples of the kinds of projects we see owners moving forward with include: converting the domestic hot water system in a large apartment building from natural gas to a CO₂ Heat Pump system, installation of heat recovery chillers, and installation of air to water heat pumps to supplement boiler systems.

At the same time, we are also hearing from our clients who are in the business of buying properties that zero-carbon planning is now becoming part of their due diligence when purchasing a new building. Like building condition assessments, low carbon planning reports are becoming an essential part of building ownership, with the assumption taken for granted that these buildings will need to be retrofit to be zero carbon buildings at some point in the near future. Technology startups are also emerging to plan and deliver decarbonization at scale, companies like Audette Analytics and BlocPower.

This flurry of private sector activity had me wondering, why now? What has changed? For the longest time, what decarbonization activity there was in the market, was largely in the public sector in jurisdictions where there have been longstanding carbon reduction mandates. Seemingly overnight, we’ve seen the bulk of decarbonization activity switch to the private sector. When you stop to think about it, the underlying motivation behind these aggressive corporate ESG goals becomes apparent: carbon emissions have become a significant risk to the real estate business. There are regulatory risks as jurisdictions around the world start to directly regulate GHG emissions from commercial buildings. There are financial risks as carbon taxes around the world start to increase dramatically, for example here in Canada up to $170/ton by 2030. The sudden onset of setting ESG targets related to significant carbon reductions are an effort to try and manage this risk.

The other answer to the question “Why now?” is simply the ceaseless march of time. The vast majority of corporate ESG carbon reduction targets start to really bite in the 2030s. That is now well within the lifetime of most major pieces of fuel burning mechanical equipment. The fact is, if you continue to do like for like replacements of fossil fuel burning equipment, you’ve missed your best chance to decarbonize for at least the next 15 years. With so many organizations aiming to be well on their way to zero carbon by then, there is real urgency to start the process of decarbonization immediately.

To paraphrase my friend Christopher Naismith from his conversation with James Dice, every building needs a carbon reduction plan. I would even go a step further to say every building needs a zero-carbon plan, one that is aligned with their capital renewal cycles. Not a single penny should be spent on new equipment, enclosures, etc. without consideration of how it fits in (or not) to the building’s low carbon roadmap. Only this kind of proactive planning and immediate action will be able to effectively mitigate the risk associated with future carbon emissions.  

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