President-elect Donald Trump has proposed a broad reversal of federal environmental policies and regulations that have been active since the Carter Administration. However, the reality is that most regulations affecting the commercial real estate industry are driven by states and municipalities – as well as non-regulatory, investor-driven mandates – broadly immune to federal tampering. Here are major areas of the commercial real estate industry unlikely to change under a Trump (or any future) Administration.
Building Benchmarking & Disclosure
Benchmarking – disclosure of building energy and/or water use to assess operational efficiency relative to other like buildings – is required in dozens of major cities and states across the US (here’s a map). Building energy disclosure policies like CA AB 802 (formerly AB 1103) and NY Local Law 84 have advanced the energy and water efficiency requirements at the state and city levels; all utilize the EPA’s long-standing ENERGY STAR Portfolio Manager program as the mechanism by which disclosure is made.
The federal government does not have the authority to overturn these requirements made at lower levels. Even if the feds could change state and local policy, it would be wise to steer clear of such changes. Over a three year period, benchmarked buildings reduced their energy use by a national average of 2.4% annually; some areas, like Washington, DC, were able to cut back by 9%. By saving both money and energy, it’s safe to say existing disclosure policies are here to stay.
Energy Efficiency & Building Code Requirements
At the state and city level, building codes continue to demand more efficient building design and ongoing management. Again, these mandates are outside the federal government’s jurisdiction.
For example, California’s Title 24 is famous for aggressively mandating efficient electric and water systems. The latest version goes into effect Jan. 1, 2017; this rule change is expected to reduce statewide greenhouse gas emissions by 160,000 metric tons of CO2e, equivalent to taking 34,000 cars off the road each year.
Cities like San Francisco go further than state codes by requiring even more efficient water appliances, renewable energy use, and on-site recycling areas. In 47 states, public buildings are held to higher energy efficiency standards than nonresidential buildings.
Investor Demand for Sustainability
Investors and the public alike want transparency into sustainability. In fact, the Securities and Exchange Commission (SEC) opened the concept of requiring public disclosure of ESG information to comment earlier this year. They followed several trillion in so-called “SRI” (Socially Responsible Investment) funds like Arabesque who seek risk-adjusted returns through careful analysis of sustainability performance indicators.
Examples of this investor attention are third-party reporting standards like GRESB and CDP.
Since most sustainability initiatives have not been mandated by the federal government, the bottom-up approach will continue to shift this industry towards greater transparency. The momentum of responsible decision-making will not be stopped due to a change in presidency.
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