The Costs of Ownership

Carbon

Certainly, buildings occupied by corporations have a significant role in contributing to carbon. For example, Architecture 2030 highlighted that buildings contribute approximately 40 percent of annual global CO2 emissions, and of this amount, building operations contribute 28 percent, and construction and building materials contribute 11 percent. They also noted that the floor areas of buildings globally are expected to double by 2060 (similar to adding an area the size of New York City every month).

Buildings contribute to carbon or carbon equivalents (greenhouse gas (GHG)) in many ways. The following chart is a sample of how buildings contribute to carbon emissions:

Table 1. Sample: Building Carbon

Carbon or Carbon Equivalent Category	Sample Use
Electrical or energy consumption	Heating and cooling, building operations, appliances, lighting
Natural gas consumption	Heating, cooking
Embodied carbon	Construction & materials
Other	Waste, transportation, chemicals used

 

A significant number of companies report their carbon as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard. According to GRESB, the most widely used accounting tool internationally is the Greenhouse Gas Protocol for companies to understand their GHG emissions. For example, according to the GHG, in 2016, at least 92 percent of the Fortune 500 companies that responded to CDP are using the GHG Protocol.

The GHG Protocol defines three scopes to report emissions as defined below:

Table 2. Emission Scopes

Scope 1	Direct Emissions	From a company's operations (e.g., gas use).
Scope 2	Indirect Emissions	Originates from the generation of consumed energy (e.g., generating and producing utility services such as coal, solar, etc.).
Scope 3	Indirect Emissions	From a company's upstream and downstream value chain (e.g., demand and supply-side consumption such as business travel, purchase of goods and services, waste from operations, transportation and distribution, employee commute, use of sold products, etc.).

 

In addition, the GHG Protocol suggests companies report Scope 3 areas that are relevant to the company (GRESB). It should also be noted that one company's Scope 1 and 2 emissions are another company's Scope 3 emissions, and vice versa.

The supply chain is a significant part of Scope 3. According to the Environmental Protection Agency's Emerging Trends in Supply Chain Emissions Engagement report many companies found that most of their GHG emissions reside in their supply chain when they assess their full environmental impacts. This report also references various initiatives companies have undertaken over the last 10 years to reduce GHG emissions related to their supply chain management.

The GHG Protocol also notes the following boundaries when reporting GHG:

Table 3. Operational Boundaries

Operational Boundary	Comment
Equity Share	Based on Share of Equity in the Operation (e.g., percentage of ownership in a joint venture).
Operational Control	A company has authority to implement or introduce its operating policies (e.g., control over implementing certain initiatives like an alternative energy project).
Financial Control	Ability to direct financial and operating policies.

Source Author: GRESB and Greenhouse Gas Protocol

Many organizations have advanced GHG or carbon tracking, measurement, and reporting processes and programs. There are also new, merged or legacy organizations looking to advance and unify the various efforts that have been managed within their business operations and corporate programs in a more aligned and unified approach.

Many organizations have advanced GHG or carbon tracking, measurement, and reporting processes and programs. There are also new, merged or legacy organizations looking to advance and unify the various efforts that have been managed within their business operations and corporate programs in a more aligned and unified approach.

Outsourcing contracts

In January 2021, The World Economic Forum released a report called the Net-Zero Challenge: The supply chain opportunity, co-authored with the Boston Consulting Group. The report takes a practical approach to guiding organizations in taking on supply chain emissions in a step-by-step guide through nine actionable initiatives. The importance of the report is that it makes the business case for the impact to be realized by an organization by taking a focused approach to managing supply chain emissions. An additional benefit is the halo effect that occurs throughout the organization's supply chain and in various global locations where climate action becomes a priority when it may otherwise not have been deemed important or even on the agenda.

Facility managers continue to focus on environmental, social and governance (ESG) areas. Supplier contracts can impact all three of these categories. For example, environmental includes GHG emissions, social includes labor relations or fair wage clauses in agreements, and governance includes ethics or having the appropriate anti-bribery clauses in supplier contracts.

According to the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting outsourced agreements such as janitorial, landscaping, administrative and maintenance and repairs are part of non-production indirect procurement. This can be considered in Category 1 of Scope 3 (called purchased goods and services).

CDP noted that the supply chain emissions are on average 11.4 times higher than operational emissions. For some organizations, their FM can be a large part of their overall costs, so ensuring they consider how their services providers operate and account for their Scope 1 and 2 emissions is becoming a business priority.

It is important to outline the currently expected carbon accounting between the organizations when developing outsourcing agreements. How is the data collected and reported? Is there a clear understanding of the outsourced provider's Tier 1, 2 and 3 suppliers and service partners? What is known about that supply chain? How much transparency and influence can FMs expect to have on the supply chain being engaged at their sites?

Outsourcing agreements for FM services should be reviewed to ensure the contract language addresses the sustainability goals and objectives of the organization. The Chancery Lane Project is a nonprofit organization that brings together international legal professionals to collaborate on a shared vision of "a world where every contract enables solutions to climate change." To this end, the lawyers work together to develop new contract language and clauses that organizations can use, and attorneys can align their work with a decarbonized economy.

Leased assets

Corporations either lease or own their facilities, and when gaining an understanding if it is the property owner or tenant carbon, the GHG Protocol suggests the following steps:

• Determine the type of lease in place: finance/capital lease or an operating lease. Ensure this aligns with audited financial statements, if applicable.

• Determine if emissions should be categorized as Scope 1, 2 or 3 based on the operational boundary (Table 2).

For example, if the lease is considered an operational lease and the lessee uses the equity share or financial control approach, "fuel combustions as well as with the use of purchased electricity should always be categorized as Scope 3 (indirect)." However, if the approach used is operational control by the lessee, "emissions associated with fuel combustion should be categorized as Scope 1 (direct), and emissions associated with the use of purchased electricity should be categorized as Scope 2 (indirect)."

Having the appropriate lease language is an important and operational consideration in the lease, such as separately metering the tenant's space. Companies should also coordinate with owners to ensure emissions are not double counted. As an example, Overcoming Seven Key Landlord-Tenant Hurdles to Make Ambitious Carbon Reductions a Reality, is a report that addresses the impact of New York City's Local Law 97 (LL97), which requires significant whole-building reductions in carbon emissions. The report tackles seven primary tenant-landlord hurdles that must be overcome to collaborate to reduce carbon emissions in commercial buildings materially. It also provides a list of resources for tenants to access to understand the issues and navigate this increasingly important and evolving area of landlord-tenant alignment in reducing whole-building emissions of carbon.

Conclusion

As more companies set science-based targets or include Scope 3 as part of their goals, outsourced services and leased spaces will have an impact and must be addressed in commercial service contract language, in lease provisions and clauses, and through increased collaboration with services providers and landlords. Ensuring that real estate managers understand the future impacts of the structures they put in place today and data reporting requirements will support their success.