A business-first approach to decarbonizing commercial buildings
A recent report, titled Decarbonizing Canada’s Commercial Buildings, released by the Canada Green Building Council and the Real Property Association of Canada, underlines the need for collaborative action to tackle emissions in commercial buildings. mihailomilovanovic via getty images
Gone are the days when green building was merely a feel-good initiative. It is now becoming a vital component of risk management and a competitive advantage in commercial real estate, and it is achievable. The business and policy environment has evolved around new energy efficiency measures, advanced building materials and smart technologies.
However, shifting climate policies and expectations, growing market uncertainties and escalating costs have hindered widespread adoption. Without a clear business case for decarbonization, it’s easy to stay with a business-as-usual approach that prioritizes short-term financial returns. In contrast, decarbonization requires a forward-looking mindset, where today’s investments can mitigate future business risk.
“Properties should have decarbonization plans, otherwise they may face greater challenges around lower valuations, evolving disclosure requirements as well as more stringent regulations and penalties,” says Thomas Mueller, president & CEO of the Canada Green Building Council (CAGBC). “While lowering GHG emissions presents financial challenges upfront, it ultimately opens doors to market competitiveness and enhanced asset value.”
Recognizing these market realities, CAGBC and Real Property Association of Canada (REALPAC) have established a groundbreaking partnership aimed at helping the real estate sector navigate this shift toward decarbonization. As Canada’s premier real estate industry association representing over $1-trillion in assets under management, REALPAC brings together the nation’s top executives and decision-makers in commercial property. CAGBC, meanwhile, represents the green building sector leaders and supply chain, supporting accelerated decarbonization through advanced building standards and certification.
The two organizations were part of a joint report titled Decarbonizing Canada’s Commercial Buildings: The Owner & Investor Perspective. Drawing from extensive consultations with industry leaders and building experts, the report outlines three strategic priorities to accelerate industry transformation and recommends a suite of solutions to “make the math work” for the industry: enhanced market intelligence through better access to data; capital innovation through new financing solutions and appraisal methods; and scaling up the use of technologies to achieve efficient operations and lower utility costs.
“This report reflects the collective insights of Canada’s leading building owners and investors,” says Michael Brooks, CEO of REALPAC. “The commercial real estate industry is ready to lead, but success will depend on strong partnerships across government, utilities, tenants, the appraisal community, financial institutions and the private sector.”
According to the report, the most critical priority is the need for data access. Industry leaders require comprehensive energy use data to optimize building performance and prioritize investments in building upgrades. The collaboration between industry, utilities, tenants and government is essential in establishing standardized data that informs decision-making and investment risk assessment.
“Data-driven decisions are really at the heart of sustainable financing and investments,” says Mr. Mueller. “As our report highlights, financial institutions have a huge role to play in enabling net-zero construction and retrofits. Long-term, low fixed-rate financing designed specifically for these projects can have significant impacts. And it’s not just about the big players – there’s a real opportunity to create tailored financial products that help smaller building owners make the shift to lower emissions.”
This push for industry-wide transformation is also backed by global market projections. A recent report by JLL, which caught the attention of the World Economic Forum, highlights a projected 70 per cent supply shortfall in low-carbon buildings by 2030.
“This is a significant potential business opportunity for commercial real estate investors and financial institutions to anticipate and meet market demand,” says Mr. Brooks. “But, to make the math work, government and industry should engage the appraisal industry to update traditional valuation methods and more accurately recognize the value premiums of decarbonized assets. Canada can’t lag behind emerging international valuation best practices if it wants to continue to attract private domestic or international capital for commercial buildings.”
Mr. Mueller agrees, adding that investing in decarbonization can also result in lower operating costs that ultimately deliver higher net operating income. Equally important is the growing risk of the “brown discount” – a market depreciation factor – that will increasingly impact properties lagging in environmental performance. Technologies to decarbonize commercial buildings already exist, but the sector needs support from governments to implement them at scale.
One area Canada could improve in is the availability of Canadian-made green building technologies, such as heat pumps, which are often imported from the U.S., Europe or Asia. This reliance creates supply chain bottlenecks that delay construction timelines. Incentivizing domestic production would not only reduce delays but also create Canadian jobs and spur innovation. These technologies help reduce energy consumption in buildings, freeing up electricity for other sectors of the economy.
By addressing these key priorities, Canada can position itself as a global leader in the low-carbon economy. But as the CAGBC/REALPAC report underscores, success is going to require a unified effort.
“Canada’s commercial real estate sector needs collaboration across stakeholders to succeed,” says Mr. Mueller. “This report provides a clear roadmap for aligning government incentives, leveraging innovative technologies and driving market demand to achieve net-zero emissions at scale.”
To view this report on The Globe's website, visit globeandmail.com
To view the full report as it appeared in The Globe's print edition Strategies for sustainability