New Policies Further Obscure CRE Emissions, Sustainability Goals

President Donald Trump campaigned on a staunchly anti-ESG agenda, and his administration has held true to campaign-trail promises throughout its first 10 months back in office.

Analysts and stakeholders say political pressure and policy changes can be partially credited for big-picture changes like the collapse of the Net-Zero Banking Alliance. But what they will change within real estate companies’ policies and actions — and how that will impact actual carbon emissions from the built environment — is more opaque.

Real estate owners that have already invested in decarbonizing their portfolios are likely to continue those initiatives, though they may be less eager to share details.

“The volatility of the current regulatory landscape is causing a lot of people to just be very cautious in a way that they perhaps weren't before,” said Camilla Taylor, executive director of the American Sustainable Business Network.

“Businesses and markets don't like unpredictability. … So we're seeing a lot of slowdown of work, a lot of businesses pulling back on commitments, because the unknowns are just too large in forecasting.”  

More broadly, investors’ attention to the issue has dwindled. Combined with the difficulty of measuring real estate carbon emissions, that may throw a wrench in some plans. 

About five years ago, environmental, social and governance initiatives were a top priority for large corporations, said Daniel Ismail, co-head of strategic research at Green Street. Green Street began undertaking dedicated ESG research at the request of clients who were concerned about decarbonization, regulation and impact on building valuations.

“Over the past two years, it's been more muted than ever,” Ismail said. “It's not been top of clients' minds. What's been top of client minds has been interest rates, cap rate changes [and] insurance costs.”

Major real estate owners and lenders, including the Canada Pension Plan Investment Board and Wells Fargo, this year dropped their commitments to make their portfolios meet net-zero emissions standards by 2050. 

“The difficulty in meeting those, in practice, is high,” Ismail said. “It’s incredibly difficult to say, just with respect to commercial real estate, ‘Decarbonize a real estate portfolio.’”  

While politicians claimed credit for the mass exodus from the global Net-Zero Banking Alliance, corporate strategies are largely driven by investors and practicality. There are both regulatory and commercial imperatives driving the decisions on decarbonization, and those imperatives don’t necessarily align. 

Nationwide Policy

Trump’s second term began with a flurry of executive orders and a commitment to “unleashing American energy” by limiting states’ power to enforce climate change-related regulations. Many Biden-era climate policies were rolled back.

The Securities and Exchange Commission stopped defending its climate disclosure rule, which was challenged in court after being finalized in March 2024. The rule, which was never implemented, would have required public companies to disclose climate-related risks to help investors have comparable, decision-useful information.

During Trump’s first term, he expanded a 30-year-old resiliency program run by the Federal Emergency Management Agency. But three months into his second term, the administration canceled the program, calling it “wasteful” and “politicized.”

The One Big Beautiful Bill Act, which Trump signed into law in July, placed an expiration date on several energy- and resilience-related tax credits. The energy-efficient commercial buildings deduction — introduced in 2006 for new construction or retrofits and expanded by the 2022 Inflation Reduction Act — won’t apply to any buildings on which construction starts after June 2026. 

While these deadlines could spur some developers to seek use of tax credits before a deadline, business decisions are often delayed while policy shifts, the ASBN’s Taylor said.

Tax credits have been the main driver of profitability when assessing new construction, she said. Now focus is shifting to adding value across an asset’s life cycle by fortifying buildings against climate risk and making them insurable. 

“People are far more interested in the near-term reality of insurance expenses than they are in decarbonization,” Ismail said.

Continued Demand

Insurance costs alone make a case for energy efficiency, resiliency and decarbonization. Developers and owners wanting to build a building that will thrive in the foreseeable future also create demand for sustainability.

“What sustainability brings to a project, it brings risk mitigation, it brings transparency,” Taylor said. “So it just makes for better work.” 

Businesses that understand how to leverage the opportunities that sustainability and energy efficiency bring aren’t going to pull back, because that would be bad business practice, she said. 

There are also existing financial investments in decarbonization that would be wasteful to undo. 

“Rolling those back just doesn't financially make sense,” Taylor said. “Sometimes they're just too big of boats to turn around, even if they wanted to.” 

CBRE, for one, has significantly increased its investments in technologies and programs to help clients drive value creation while accelerating progress against their environmental commitments, CBRE Chief Sustainability Officer Rob Bernard said in a statement to Bisnow.

“Our investments at the intersection of sustainability and business are helping our clients accelerate investments, which improve their sustainability and business outcomes,” Bernard said.

CBRE validated its net-zero-by-2040 goal last year, setting new targets for 2030 to reduce its direct and indirect emissions by 50% and the intensity of emissions from properties it manages for clients by 55% from its 2019 baseline. 

ESG isn’t as in vogue as it was during the latter part of the last decade, but institutional owners of real estate know that tenants prefer newer, high-quality buildings, Ismail said. It may not be as easy to invest in decarbonization as it was during the zero-interest-rate period, but it still pencils. 

“That is synonymous with buildings that have more green features, that have better carbon footprints and so on,” Ismail said. “From just a strategic direction, I don't think it's changed much. … Landlords and tenants generally would prefer a greener building than a browner one.”

But it is hard to measure how much that is actually changing levels of carbon emissions in the built environment, which is known to account for about 40% of carbon emissions globally. With a lack of standardized metrics and knowledge of entire supply chains, exact carbon emission measurements remain unclear, making net-zero targets harder to reach, Ismail said. 

“The same problems today existed a few years ago. You're not getting apples-to-apples comparisons across all property sectors or markets,” Ismail said. “That's a problem that, regardless of who's in charge of the federal government, is still going to persist. It's just a very difficult problem to crack.” 

The vast majority of REITs still report the same level of disclosure that they did during the Biden administration, Ismail said. But some policy changes — like the Environmental Protection Agency’s move to no longer track power plants’ carbon emissions — could make tracking commercial real estate’s downstream impacts more difficult. 

Opposing Forces 

Despite a clear position from the federal government, state and local laws create a patchwork of regulations related to buildings’ carbon emissions, and it is these state laws that have been the major driver of sustainability regulation in the U.S. over the past decade.

New York City property owners began incurring fines over the past year under Local Law 97, which requires them to disclose greenhouse gas emissions for buildings 25K SF and larger to the New York City Department of Buildings.

Many landlords currently deem the penalties affordable, though Green Street estimates they will ramp up to about 1% of net operating income by 2030, Ismail said.

“The biggest pain point right now is just in meeting the law from a reporting and calculation standpoint,” he said. 

The law suffers from being overly broad and generic, but it may help other local governments implement carbon taxes going forward, Ismail said. Local Law 97 and the state’s ban on putting natural gas appliances and systems in new buildings — which was overturned in court in California but upheld in New York — make the city a good testing ground for these types of laws.

The regulations could nudge landlords to prepare their entire portfolios to meet regulations and reporting standards, since they could broadly apply systems used to track emissions in New York City. 

There is pressure from the other direction, though. Texas in 2021 began passing laws prohibiting state entities from doing business with banks that “boycott” energy companies.

The American Sustainable Business Council, an affiliate of the ASBN, is suing the state to challenge the law’s constitutionality. Texas, which has the world’s eighth-largest economy, can also present a replicable model for other states to roll back ESG legislation. 

“It's a good incubator,” Taylor said. “So I do think what happens in Texas is extremely important in the entire country.” 

Texas Attorney General Ken Paxton, who opened a review of Bank of America, JPMorgan Chase and other financial institutions’ status under the state’s anti-ESG law in late 2023, applauded the banks for leaving the United Nations-affiliated Net-Zero Banking Alliance.

“More and more financial institutions are taking a major step in the right direction by leaving the radical and anti-energy Net-Zero Banking Alliance,” Paxton said in a statement. “The NZBA seeks to undermine our vital oil and gas industries, and membership could potentially prevent banks from being able to enter into contracts with Texas governmental entities.” 

The mass exodus led to the organization officially folding last month, four years after its formation. JPMorgan, which said in its 2024 climate report that it doesn’t make decisions based on political or social agendas, said in a statement about leaving the NZBA that it would “remain focused on pragmatic solutions to help further low-carbon technologies while advancing energy security.” 

Subdued external communication about sustainability initiatives despite unchanged internal policy is a phenomenon being referred to as “green hushing.” 

“There has been a large attack on language and how people describe what they do,” ASBN President David Levine said.

The Trump administration scrubbed the words “climate change” from federal websites, including the Department of Agriculture and EPA sites, within a month of Trump taking office. A FEMA memo in February listed 34 words and phrases to be removed from its documents, including “changing climate,” “climate resilience” and “net zero.”

The Department of Energy added “climate change,” “green” and “decarbonization” to its list of words to avoid at its Office of Energy Efficiency and Renewable Energy in late September, Politico reported, citing a department email. 

The attack on language has stoked fear among the business community of being singled out, Levine said.

“At the end of the day, silence around these issues is not going to get us progress,” he said.