To reach net zero goals, stronger tenant engagement plans are a must

Real estate owners and their tenants often have different views and priorities when it comes to the operations, maintenance and user experience of the buildings on their books.

Throw the growing corporate priorities of sustainability and energy resilience into the mix, and the picture becomes even more complex.

In many ways, we’re all in the same boat; for any company with net zero commitments, now is the time to implement plans to decarbonize their real estate.

In today’s interconnected world, no one’s going to get there alone. Through networks of supply chains and leased buildings, we’re all dependent on others to make progress.

In commercial real estate, landlords need tenants to cut their carbon footprint to reduce their own Scope 3 (indirect) emissions. Tenants need landlords to help make buildings more energy efficient to lower their Scope 1 (direct) emissions.

But there’s no single route to net zero, with companies of different sizes from different sectors with different plans all focusing on their own priorities and timescales.

What’s needed is strong collaboration to progress towards net zero goals, especially with ever-evolving legislation tightening the screws and the challenge of ongoing acute energy price crises. And that’s going to require some changes to existing ways of working.

Understanding tenant – landlord differences

Tenant engagement plans have been around for years – even those specifically targeting ESG goals. But while they’ve evolved, most still reveal a noticeable disconnect between building owners and tenants. Here’s why:

• The right people aren’t talking to each other

We often hear occupiers say building owners aren’t paying due attention to their sustainability targets, while landlords feel it’s the occupiers who aren't listening. Sometimes good intermediaries like property managers can help, but at other times, it’s an extra layer in the communication chain.

• The starting point is too narrow

Most tenant engagement strategies struggle because of where they start. Typically, engagement programs focus on data collection around energy use, driven principally by owners to understand their asset’s operational carbon impact. This data is used to address investor and government concerns around risk and transparency and set tough energy use reduction targets.

Yet adopting a narrow lens on carbon, energy and data often isn’t a sensible starting point for tenants. While many have their own targets to cut energy use, they’ll also be using renewable energy purchasing as a big part of decarbonizing their buildings.

What’s more, tenants’ sustainability strategies are often not grounded in their real estate; the risk or opportunity lies somewhere else in their value chain. For a retailer, the sustainability impact is in the product supply chain, which dictates the metrics they prioritize. In this case, focusing on where both the synergy and the landlord role is clearer, say providing pooled waste management solutions at shopping centers, could be a better option. 

A better approach is therefore to pinpoint where the initial synergies are, and what the benefits are for both sides, especially for easier early wins and mutual cost savings.

Keeping tenants and landlords working together

As sustainability targets get closer, ESG issues will become a bigger part of the ongoing dialogue between owners and tenants. That’s on top of existing topics from health and wellbeing to regulatory compliance. It’s important to address all openly to build trust and ensure constructive collaboration.

• The right forums are needed to solve challenges collectively

Some sectors do this well; multi-let office where landlords typically have a significant responsibility for servicing the space were early leaders. There’s also a huge amount to be learned from sectors like hospitality, which champion customer satisfaction, and logistics, where leading asset managers have progressed rapidly through shared lighting and on-site renewable investment.

• In many sectors, more – and better – communication is still needed

It’s about having those strategic conversations about sustainability from the start before setting clearly defining roles and responsibilities, crystallized through ambitious but realistic performance commitments.

• Ongoing discussions can help to maintain momentum

There’s value in creating a playbook covering the most common scenarios, such as around data collection and sharing, to help stay on track and outline measures when things go off-plan.

Scaled-up thinking

It isn’t just a building-by-building conversation; there are opportunities to scale discussions with occupiers by utilizing technology and partnerships to coordinate across the right people and strategically align common goals. We’re starting to see industry standards like science-based targets facilitating alignment and awareness. That will make a big difference going forwards.

Incoming regulations will also force the issue around who's responsible for what. In France, for example, there’s a significant legislative drive for whole building performance with shared responsibilities across landlords and tenants. Such moves could establish better engagement with smaller tenants who tend to lag larger companies in their sustainability plans.

And with economic headwinds gaining strength, these could drive more collaboration to cut costs and manage risk across portfolios, rather than just focusing on head offices.

Momentum around making real estate more sustainable will only increase. Given that no single organization has a ready-made solution on net zero, effective engagement plans will be a huge strategic advantage to tenants and landlords.

Market leaders in this space recognize this. They’re already looking beyond green lease clauses and fitout standards to fully embedding ESG across the leasing transaction process, and developing playbooks to scale the synergy across tenant types, asset classes and countries. Others now need to follow suit to build resilience in the current energy markets and decarbonize real estate as quickly and effectively as possible.

Contact our team of experts today to find out more.

Contributors:
Paul Stepan, Head of Client Sustainability Solutions, EMEA