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New Report Shows How Far U.S. Trails Other Countries In CRE Climate Policy


A new report warns that the United States has not only lagged behind Europe in developing green regulations, but that investors in U.S. commercial real estate haven't adequately priced in the risk of incoming standards in their underwriting.

The U.S. has comparatively few green regulations on the books compared to Europe, especially given the lack of a federal greenhouse gas limit or carbon tax for real estate. But the report by market intelligence firm Green Street warns that such regulations are "not going away and likely to get more stringent over time."

"Green regulatory costs are not a far-off, low probability, 'stroke of the pen'-esque risk," Green Street analysts wrote. "The costs and impacts of regulations are taking place in real time and are getting more onerous, not less."

Green Street's report includes a six-category scorecard that rates countries and major cities in the U.S. and Europe from 1 to 100 based on their green regulations. The Netherlands has the most greenhouse regulations, scoring an 83, ahead of the UK, which scored a 78. Every other country rated scored at least a 48, except for the U.S., which was given an 11 rating.

Green Street's report, published Wednesday, noted that emissions targets or other green building standards are often imposed on municipal buildings before being applied to whole cities. And while just 18% of the top 50 U.S. markets have emissions limits for all commercial buildings today, 76% have limits on municipal buildings.

These targets are also spreading to new markets, as cities even in red states like Florida have begun to push toward cleaner energy.

Investors in the world of commercial real estate are increasingly recognizing the risk of climate change to their portfolios, even if they haven't fully metabolized the risk of regulations. 

report from real estate investment trust industry group Nareit found that the number of REITs setting greenhouse gas emissions reduction goals increased from 43% to 59% from 2020 to 2021. And despite political noise related to ESG investment, many in the world of commercial real estate are pressing forward with emissions reduction plans, and support proposed Securities and Exchange Commission rules that would set a framework for disclosure.

Those rules, which were alternately cheered by institutional investors and met with skepticism by real estate industry groups, are still in the final stages of revision but are expected to be implemented soon.

In a video shared with Bisnow Wednesday, JLL officials warned clients they need to be taking steps now to prepare for those rules, noting ESG reporting will attract investment.

"Investments will need to be made to meet the requirements," Cynthia Curtis, JLL's corporate sustainability officer, said in the video. "But our advice to clients now is if you haven't taken action yet, now is the time to start."

Among U.S. cities, the Washington, D.C., metro area has the most greenhouse regulation for commercial real estate in Green Street's system, achieving roughly the same score as cities like Rome and Milan.