Charting the Path to Net Zero: BMO Real Estate Forum

Given the role buildings play in greenhouse gas emissions, it falls on the commercial real estate industry to take the lead in decarbonization. Whether it involves retrofits for existing buildings or designing new construction with sustainability in mind, developers and operators will have to navigate new and emerging regulations designed to meet Canada’s net-zero ambitions. For the industry, complying with tomorrow’s regulations means taking action now.

At the recent BMO Real Estate Forum, four industry leaders offered their perspectives on decarbonization regulations and their impact, as well as the tangible next steps developers and operators can take.

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  Peter Gilgan, founder of Mattamy Homes and CEO of Mattamy Asset Management. A leading advocate for housing affordability, Gilgan has received some of Canada's highest honors in recognition of his impact on Canadian society, including an appointment as an Officer of the Order of Canada.

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  Sean Pander, manager of green and resilient buildings for the City of Vancouver.

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  James Nowlan, Executive Director of environment and climate for the City of Toronto.

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  Sandrine Tremblay, Co-President and Chief Technology and Innovation Officer of Kolostat & Krome, which specializes in HVAC re-engineering projects to decarbonize real estate assets.

Kate Low, BMO’s Regional Vice President for Real Estate Finance, served as the moderator. Following is a summary of their discussion.

As Gilgan noted in Mattamy Homes’ inaugural sustainability report , “It’s been said that we are the first generation with the tools and technology to do something about climate change, and the last generation that can.” The trick for the industry is negotiating the tension between sustainability, affordability and making financially prudent business decisions.

“We look for the low-hanging fruit first—the things that are easy to achieve and with the highest impact—and then we keep chipping away at it,” Gilgan said. “Initially the industry is going to need some level of support from the government. Not necessarily writing checks, but some other form of incentives for the mainstream of the industry to want to adopt these things.”

Pander understands firsthand how governments can help real estate developers and operators consider carbon emissions in their projects. As he explained, Vancouver is unique in that it has its own building bylaw . The city also approved a Zero Emissions Building Plan that requires a majority of new buildings to have no operational greenhouse gas emissions by 2025, and all new buildings to be zero emissions by 2030.

Vancouver is also the first jurisdiction in Canada to set greenhouse gas and heating energy limits on existing buildings. Pander noted that the first greenhouse gas limits apply to large office and retail buildings and will take effect in 2026; the heat energy limits will take effect in 2040. While that sounds like plenty of time, Pander cautioned that the window of opportunity to act is smaller than it seems.

“There's only going to be one cost-effective opportunity to meet [those limits], and that's when your heating or cooling plant is coming to near end-of-life, and you only get one shot at it,” Pander said. “It's important for people with portfolios in those buildings in Vancouver to look at their gas usage and start to consider when those pieces of equipment are coming near end-of-life and to start planning to replace them. You still can use a little bit of gas; it's not a ban on gas. It's a large reduction in gas, and you need to start looking at heat recovery chillers, air source heat pumps or other common technologies that can do that heating and cooling function very efficiently.”

Toronto’s approach is similar to Vancouver’s. The Toronto Green Standard will require buildings constructed from 2030 onward to be near net zero . "The timelines are always challenging, whether we're talking about 2040 or even just in terms of making significant reductions in emissions,” Nowlan said. “It's critical for building owners to start planning early for those reduction pathways and to start building that into their capital plans at the earliest possible time.”

For developers and operators in other regions, Nowlan said the larger cities often set the tone, which trickles down to other municipalities. “Typically, Vancouver, Toronto or Montreal often leads the way in terms of policy development. The larger cities do the heavy lift, and then part of what we do is pass that on to other municipalities. We work very closely with Ottawa and our partners around the region to establish some consistency in how municipalities are approaching this.”

Developers should understand that a wave of net-zero construction regulation is coming, and now is the time to start investing in the people and technologies you’ll need to comply. But how are municipalities supporting developers and operators in planning for upcoming regulatory changes? Pander said Vancouver is looking to develop digital tools for smaller portfolio owners—who may not have access to the sophisticated tools available to larger operators—to assist them with their retrofit plans.

Nowlan said Toronto’s focus is two-pronged. First, providing resources such as integrated retrofit support to help building owners who may not have in-house energy consultants to help them determine the steps they can take to reduce their greenhouse gas emissions. They’re also helping developers lay the groundwork for the inevitable market transformation that sustainability and decarbonization will bring.

“One of the biggest challenges is going to be around the workforce that is needed for these types of activities,” Nowlan said. “Working with the installers and suppliers in the marketplace to ensure that there is the right pipeline for the technologies and the actions we want to happen. We are a fairly large jurisdiction, so we can play a key role in helping to provide some certainty to the workforce in terms of the activities and investments they'll make in training and in supply. That will then provide some certainty for the building owners—that when they come to actually take action, there's someone there to do the installations and support their work.”

Decarbonizing assets to comply with planned regulations can sound like an intimidating task. But as Tremblay pointed out, regulations exist to spur action. As an industry leader well-versed in developing solutions to comply with emerging climate and sustainability requirements, Tremblay said organizational buy-in is a key to success. Regardless of company size, the first step includes making sure all key departments are in alignment regarding how to approach carbon emissions as a financial risk.

Additionally, whether you have one or 100 buildings in your portfolio, Tremblay said you’ll need a 10-year roadmap that details how you plan to comply with existing and emerging regulations. When it’s time to replace a boiler, for example, new regulations will likely mean you’ll need a different solution.

“But in order to think outside the box, you need to have a fully aligned internal team and a good partner that can navigate those new regulations and a lot of the technical challenges that can come up,” Tremblay said.

For owners and operators of certain building classes in large municipalities, retrofitting should be on your list of priorities now to comply with planned regulations. That includes making sure you have the financing and partners you need to deliver the work.

Some owners and developers may balk at the initial expense associated with decarbonization efforts, but Gilgan explained why taking the long view is critical to understanding the financial benefits.

“When there's an energy saving, there's also a financial saving,” Gilgan said. “And that financial saving in the annual or monthly utility bill isn't for free. It comes at the cost of a bigger investment in sustainable features. And those sustainable features, while they cost extra money, can in some cases be easily financed by the savings in the energy bill. That's a part that a lot of us are missing—half of the solution is right in front of our face. The money is already there.”

“It's a matter of risk management for building owners now,” Tremblay said. “The big developers already have their plans in motion. When developers start to have cleaner portfolios, if you're left with a brown asset, the value is going to be impacted more and more down the line. So, it's a risk management issue to start to prep for it and do something about it. It's not even an environmental consideration anymore; it's financial. To secure the value of your asset, you have to do something now.”