Will Green Leases Facilitate The Collaboration Call From COP26?

Will Green Leases Facilitate The Collaboration Call From COP26?

COP26 saw the first day dedicated to commercial real estate and the built environment on November 11th 2021. The discussions highlighted a well-known problem: the decarbonizaiton of buildings is being hamstrung by a highly fragmented sector where tenants and landlords are often working towards different agendas. The key conclusion from the day was that collaboration between landlords and tenants will be critical for driving the decarbonization of buildings. But what does collaboration between tenants and landlords look like in reality? One way that collaboration in the real estate market is starting to play out is through green leases.

Green leases aim to facilitate collaboration between tenants and landlords to achieve shared environmental goals, often sharing strategies, data, innovations, and costs to decarbonize and mitigate risk. The concept dates back to 2006 when the Australian government sought to improve the sustainability performance of buildings it occupied. Green leases have varying degrees of strength, from ’light green’ leases that are not legally binding, to dark green leases that can contractually obligate measurable goals. While green leases are not a new concept, the renewed focus on decarbonization is poised to drive a paradigm shift towards the standardization of green clauses in tenant agreements.

There is a growing appetite for green leases across the market, with 42% of respondents to the Verdantix North America Commercial Landlord Survey 2021 survey already offering green leases and 92% planning to offer in three years. On the global scale, research from RICS found more than 40% of real estate professionals in its 2021 sustainability report noted an increase in the provision of green leases in the previous 12 months. However, penetration of green leases into the total building stock still has some way to go, with only 34% of occupiers currently having green leases globally, according to research from JLL.

So will green leases facilitate the collaboration call from COP26? While green leases do not guarantee environmental improvements, they do represent a critical step to facilitating the collaboration in real estate required to achieve net-zero. Occupiers setting up long-term lease agreements should push for green clauses and consider more ambitious net zero energy leases for flagship buildings. Firms locked into long term lease agreements, should use the decarbonization momentum from COP26 and upcoming energy efficiency regulations to help build a case for lease amendment as in the case of M&S who have been greening new and existing leases since 2013. As green leases continue to permeate the real estate sector, the framework for collaboration will begin to take shape.

For more insights into this topic, read our recently published report North America Commercial Landlord Survey 2021: ESG Strategies.