Home Office The rise of the net zero tenant

The rise of the net zero tenant

  • April 17, 2024
  • by Property Australia
For many organisations, emissions relating to their leases (e.g., commercial offices) are a material part of their overall emissions footprints and net zero ambitions.

As more and more tenants adopt net zero goals, emissions relating to their leases are becoming more important. 

For many organisations, the emissions associated with their leases, such as commercial offices, represent a significant portion of their total emissions footprint and their aspirations for achieving net zero. 

In a new paper, called The Net Zero Tenant, Deloitte said for the majority of organisations, the predominant portion of emissions stemming from their occupancy in a building originates from purchased electricity (scope 2) and purchased goods and waste (scope 3).

Consequently, the report said an organisation’s total footprint is greatly influenced by whether the purchased electricity is renewable or non-renewable, and whether the organisation incorporates the embodied emissions of purchased goods into its scope 3 assessments.

Partner, Deloitte, Climate & Sustainability Sarah Kinsela said many tenants, especially in the premium and government segment, are connecting their leasing decisions to their net zero goals. 

“From a developer point of view, it’s incredibly important to be building product that supports their tenant’s Net Zero ambitions.”

As part of its Net Zero in Government Operations Strategy, the Australian Government in December 2023 unveiled updated Green Star and electrification mandates for buildings under government ownership.

This strategy is designed to assist the Commonwealth in meeting its pledge to achieve a net-zero Australian public service by 2030. It involves prioritising all-electric buildings for new office leases and striving to attain Green Star certification for upcoming office buildings acquired or built for the government.

Tom Yankos, Senior Manager at Deloitte (Sustainability and Climate Change), said from a Scope 1 perspective for tenants, emissions mainly stem from refrigerant leaks and the combustion of natural gas and other fuels, especially for heating.

The report recommends when tackling Scope 1 emissions that organisations should prioritise buildings transitioning from fossil fuels to all-electric options and implementing green lease clauses for electrification strategies. For existing leases, the report recommends engaging with building owners to replace natural gas systems with electric alternatives and renegotiate green lease terms. 

A ‘green lease’ is a lease between the landlord and tenant which aims to ensure that the ongoing use and operation of the building minimises environmental impacts.

Mr Yankos said while there’s a rise in on-site renewable generation and renewables in the broader electricity grid, varying across locations in Australia, a significant portion is still generated from fossil fuels, contributing to associated emissions.

Scope 2 emissions are those arising from purchased energy and efficiency. In buildings, this is typically made up of tenant electricity and base building electricity.

The report said while locked into leases, tenants have avenues to embrace renewable energy. 

The report said tenants can opt for accredited GreenPower from energy retailers or engage in Renewable Energy Direct Power Purchase Agreements (PPAs). The report said state-level schemes like NSW’s Energy Efficiency Saving certifications (ESCs) and Victoria’s Energy Efficiency Certificates (VEECs) offer similar opportunities.

The report also recommended upgrading to LED lighting and considering low carbon office equipment for tenants of existing leases. For those looking for new leases, the report recommends considering efficient glazing and shading, green roofs and HVAC systems that increase efficiency and reduce emissions.

Finally, Mr Yankos said Scope 3 emissions encompass various sources, including the manufacturing of the building materials used by a tenant such as furniture, equipment and paper, as well as waste disposal, water consumption and electricity generation for the base building.

The report recommends when fitting out an office in a new lease to use circular economy principled to reduce embodied carbon.  This could include reusing materials through upcycling and prioritising materials made from recycled content or materials that can be recycled in the future. 

Ms Kinsela said negotiating a green lease is an important way for tenants to meet their net zero pledges through their leases. 

“There’s still opportunities in existing leases to make a difference. The more tenants ask for, and push for green lease type approaches, the more they’ll be offered in the market.

“There’s always areas that tenants can negotiate on.

“Even if there is an opportunity for a refurb, or they’re looking at updating furniture, there’s potential in those decisions to reduce embodied emissions, even though the influence isn’t as big as when you’re looking at designing a whole new building.”