Decarbonizing Building Operations Is Doable—And Can Be Cost-Effective

Building operations are one major cause of environmental emissions. As such, the commercial real estate industry is attempting to step up to work toward carbon-neutral building operations. But is doing so economically feasible?

According to McKinsey partner Brodie Boland, yes. In a recent interview with McKinsey Global Publishing’s Katy McLaughlin, Boland said that, on the one hand, most carbon emissions come from building operations versus construction. On the other hand, “it’s often possible to get full operational net-zero emissions in a financially neutral or positive way,” he said.

Nor was Boland discussing new or unobtainable technologies. “I’m talking about things like heat pumps, the electrification of heating, cooling and cooking elements,” he said. Also helpful is paying attention to insulation, on-site renewables and automation.

Planning is Key

But getting there cost-effectively involves more than installing automatic timers that turn lights on or off. Boland pointed out that implementing these initiatives requires a well-designed plan. “There may be more upfront investment,” he said. “But subsequent lower costs can ultimately mean that the total cost is lower.”

One example he used was the building owner who spent time—and resources—on insulting a building. “Then they probably will need only a smaller heat pump, and they won’t need to spend as much on ducting upgrades or electrical panel upgrades,” Boland said.

While upfront planning is important, Boland acknowledged that the process remains a sticking point for commercial real estate owners. “Having someone physically go into a building, conduct an energy audit, and develop a transition plan takes time and costs money,” he said. “Given owners’ constraints on capital and their obligations to investors, if transitioning a building has a significantly negative ROI, then many won’t do it.”

Decarbonization—Increasingly Important

Even if building owners do not want to go into every structure and figure out a plan to reduce carbon emissions, it might be out of their hands. Boland explained that there are more regulatory pressures toward decarbonization (while increasing energy efficiency). Tenants are also exerting their clout—Boland pointed out that they want space to meet their own net-zero commitments.

Then there is investor demand.

“Many major investors have made net-zero commitments, and so their capital goes to those with the ability to meet those commitments,” Boland explained. “These investors ask building owners, operators, and managers what their emissions are and about their plans to decarbonize.”

But decarbonization isn’t as difficult as it once was. Boland mentioned that technology—including AI—is proving to be helpful. Furthermore, decarbonizing approximately a quarter of global emissions in financially neutral or positive terms with technology is good news.

Boland’s parting advice was to create forward-looking plans to signal vendors to scale their supply chains. “It’s just deploy, deploy, deploy,” he added. “Generate the plans, remove all the obstacles and make it happen.”