Joshua Kagan, senior fellow with the Carbon War Room and director of business development at the Clean Fund, joined REIT.com for a video interview at NAREIT’s 2015 Leader in the Light Working Forum in Reston, Va.
The Carbon War Room is an entrepreneurial non-profit organization intended to use market forces to tackle climate change. The Clean Fund, meanwhile, provides financing that allows energy efficiency, water efficiency and renewable energy projects to be repaid through a voluntary property assessment.
Kagan noted that because REITs own roughly 20 percent of the world’s commercial building stock, the industry is “ripe” for advances in lowering carbon emissions. According to Kagan, buildings generally account for around a third of global carbon emissions. Commercial buildings represent 40 percent of that portion, he said.
Kagan pointed out that commercial building owners generally understand the value of energy efficiency. The challenge, however, is that even building owners who have a lot of capital face pressure to use those funds on other projects, according to Kagan.
One solution, however, comes from local governments’ property-assessed clean energy financing programs and other third-party financing, Kagan noted. These sorts of programs enable building owners to finance 100 percent of the cost of an energy efficiency project that is amortized over 20 years and generates cash flow from day one, Kagan said.
Kagan also discussed research by the Carbon War Room on the impact of energy efficiency projects on REIT finances. The study found that each percentage point increase in a REIT’s Global Real Estate Sustainability Benchmark (GRESB) score corresponded to a 1.3 percent increase in its return on assets and an almost 3.5 percent increase in return on equity.
Looking ahead, Kagan said he expects to see an increase in the amount of disclosure of energy efficiency data, as well as more benchmarking metrics: “I wouldn’t be surprised if billions and billions [of dollars] of transactions in energy efficiency occur in the coming years.”