How Amazon HQ2 Developer JBG SMITH Decarbonized Its Portfolio
After a nearly biblical summer of climate disasters, talk of sustainability in the real estate industry has taken on a new urgency.
The real estate industry emits 40 percent of all greenhouse gases, and while some local governments are inching forward with climate regulation on the industry, many real estate companies are taking the initiative themselves.
Currently, the holy grail of climate action among real estate companies is going carbon neutral.
Real estate investment trust JBG Smith (JBGS), best known as the developer of Amazon (AMZN)’s HQ2, announced that it had achieved carbon neutrality across its entire 16.1 million-square-foot operating portfolio this week.
The company first made a commitment in 2020 to go carbon neutral by 2030, but decided to move up the timeline by purchasing carbon credits, while it moves towards operational carbon neutrality.
“At JBG SMITH, we recognize climate change and social injustice as the most pressing and important issues of our time. We also believe it is our responsibility to take immediate actions to ensure our business positively impacts the communities we serve,” Kim Pexton, vice president of sustainability at JBG SMITH, told Commercial Observer.
Around the real estate sector, many companies are working to achieve similar net-zero results through a combination of energy reduction, on-site and off-site renewables, as well as carbon credits.
Los-Angeles-based real estate investment trust Kilroy Realty Corporation achieved carbon neutral operations at the end of 2020, thanks to on-site renewables (including solar photovoltaics installed at 15 of its properties), plus off-site renewables, renewable energy certificates and verified emission reduction credits.
Vornado Realty Trust (VNO), an office REIT with significant holdings in New York, reported it was on a path to have all of its buildings carbon neutral by 2030. Its plan includes reducing energy usage; converting its buildings’ steam, gas and oil-sourced consumption to electricity; and obtaining electricity from 100 percent renewable sources.
PGIM Real Estate has committed to reduce carbon emissions of its global portfolio of managed properties to net zero by 2050, and has accelerated those efforts with deep energy retrofits, on- and off-site renewable energy, green utility power, and climate risk assessments.
Regulators categorize carbon emissions into one of three scopes. For the commercial real estate community, Scope 1 involves direct emissions associated with on-site natural gas consumption. Scope 2 is associated with indirect emissions from electricity usage at the site. Scope 3 refers to direct emissions by a property’s occupants — office tenants, residents and retailers, who are separately metered and pay their own utility bills.
“One of the elements that sets our effort apart is that it actually covers office tenant consumption in all but a few isolated cases,” Pexton said.
As part of its efforts, JBG SMITH purchased verified carbon offsets for Scope 1 carbon emissions and renewable energy credits (RECs) for Scope 2 electrical consumption. In particular, JBG SMITH purchased carbon offsets in the form of hydrofluorocarbon reduction in spray foam insulation, and the RECs are from a wind farm in Oklahoma.
“This commitment needs to be viewed as the start — rather than the finish — of our journey,” Pexton said. “We have set aggressive performance targets that we expect to achieve by 2030, and are in the process of determining what we can do to facilitate reductions in the amount of energy consumed by the employees, residents, retailers and other visitors who occupy our properties on a daily basis.”
As more companies set carbon reduction targets, including commitments to get to net zero, a growing number of them are using carbon offsets to address their hard-to-abate sectors, including those like Amazon, Delta Air Lines and Nestlé. It only makes sense the real estate industry would follow their lead.
JBG SMITH’s next step toward long-term sustainability includes the development of an off-site renewable energy strategy, which is expected to replace a significant portion of annual REC purchases and bring additional renewables to the national electrical grid.
This will involve decreasing energy consumption across its entire portfolio, reducing anticipated energy consumption and embodied carbon for its development pipeline, deploying on-site solar when possible and exploring off-site solar opportunities as well, and addressing the remainder of carbon emissions with verified carbon offsets and renewable energy credits.
One of the critical elements to JBG SMITH’s effort is considering sustainability from the get go in all future projects.
“To do that, we must address issues of sustainability and emissions from the outset of our design discussions for all projects in our development pipeline,” Pexton said. “One great example is 1900 Crystal Drive, where we have integrated design elements that we expect will reduce the energy consumption of the building by nearly 25 percent.”
The building will consist of 811 apartments and 40,000 square feet of street-level retail, divided between two towers. Integrated design elements include high-performance glazing, a high efficiency tier for HVAC equipment, a real-time energy monitoring system; and the use of smart home technology.
And more efforts in the industry are on the way.
Owen Thomas, CEO of Boston Properties (BXP), just donated $1 million to launch the Net Zero Imperative, designed to help members of the Urban Land Institute develop ideas and strategies for decarbonizing the built environment.
“Real estate is responsible for 40 percent of global greenhouse gas emissions,” Thomas said in a company statement. “We must take immediate action to mitigate emissions and stem the devastating impacts of climate change.”
Keith Loria can be reached at firstname.lastname@example.org.