More than ever, CRE firms are embracing the crucial importance of green, clean, and smart buildings. It’s a commitment that should pay off in a myriad of ways — from significant cost savings, carbon neutrality, the attraction of top talent, and fostering the loyalty of customers — for decades to come.

Gen Z and millennials have very specific priorities when it comes to their job searches, and they’re gravitating to companies that take environmental, social and governance (ESG) fundamentals very seriously. But it’s not just prospective employees. Investors and consumers are also looking for companies that “walk the walk” when prioritizing environmental awareness and sustainability.

According to a NASDAQ analysis, Gen Z and millennials account for 43% of the U.S. population and 49% globally. The youngest Gen Zs are only 10 or 11 years old and the oldest are 25, so only a fraction are of professional working age right now.

Millennials are currently the largest workforce in U.S. history. When combined with emerging Gen Z, they are poised to be on the receiving end of a wealth transfer as high as tens of trillions of dollars. This is a market that can’t be ignored, and they have very clear ideas about what they want in ESG.

• According to Nielsen, 75% of millennials are eco-conscious to the point of changing their buying habits to favor environmentally friendly products.
• A Pew Research Center survey finds that millennials and Gen Z stand out for their high levels of engagement with the issue of climate change.
• 90% of millennials are interested in pursuing sustainable investments.

Now let’s take a deeper dive into the variables and how they can be expanded to the benefit of developers, brokers, landlords, tenants and employees.

ESG centers on sustainability and the societal impact of a business or investment as the cornerstone of a company’s mission, factoring into all decision making. These priorities are not just important to attract and retain talent and customers, but they’re becoming increasingly important to stakeholders and potential investors.

ESG principles, which are designed to model how to do the right thing for the planet, people and profits, are not mutually exclusive. In fact, making commitments in the short and long term can result in more efficient buildings and processes, which aids in retention and saves on expensive turnover. Amazon alone loses more than $8 billion a year to attrition, so small changes that make employees happy can make a huge difference to the bottom line.

According to Schroders Wealth Management, companies that focus on the reduction and neutralization of carbon emissions will be better positioned to transition to a sustainable economy, and this will create revenue going forward. Businesses with low- and neutral-carbon profiles will be better protected against risks involving lack of access to unsustainable sources, such as fossil fuels, and won’t have to contend with high carbon taxes, which can drive higher financing costs.

The United Nations campaign, “Carbon Neutrality by 2050 — the World’s Most Urgent Mission,” has already received commitments from 110 countries, including the U.S. (China has agreed to the year 2060 for its carbon neutrality deadline.) The unexpected economic impact of the war in Ukraine, however, may severely alter each country’s commitment to sustainability.

Converting buildings, infrastructure, consumption, and products produced within the next 28 years will be a challenging feat, so the sooner companies and organizations get started, the less likely they’ll experience expensive overhauls as the deadline approaches. Businesses that launch their energy efficiency and low-carbon initiatives now will be on the forefront and more likely to attract forward-thinking investors, consumers, and a progressive workforce.

According to Blueprint for Better, a coalition of architects and civic leaders committed to reducing emissions in the built environment to help improve communities, “Buildings contribute nearly 40% of all fossil fuel carbon dioxide emissions (CO2), and nations around the world are on schedule to double the current building stock by 2060.” To ensure they meet zero-carbon standards, architects need to find innovative ways to improve and reuse existing structures.

Smart CRE agrees, noting that real estate continues to be a major contributing factor to global CO2 emissions and energy consumption and is responsible for 40% of global energy consumption and more than 30% of greenhouse gas emissions. To really spearhead these numbers, buildings need not just to be green or healthy, they need to be “smart.” A smart building leverages technology such as temperature and lighting sensors, building management systems, computerized HVACs and even artificial intelligence and augmented reality to automate environmental systems to maximize energy efficiency.

When it comes to evaluating and ranking green buildings in the U.S., LEED certification is the gold standard. LEED is an acronym for Leadership in Energy and Environmental Design; it’s the most widely used green building rating system, run by the United States Green Building Council (USGBC). Buildings can earn LEED certification by accruing LEED Points. The higher the points, the higher the rating, with Platinum being the highest. Other levels are Gold, Silver and Certified.

LEED certification is achievable by accruing points based on several key classification categories. These categories address carbon, energy, water, waste, transportation, materials, health, and indoor environmental quality.

The pandemic drove demand for healthy building certifications, such as the UL Verified Healthy Building Program. This is a certification that owners can pursue when they want to provide their building occupants an environment that’s as healthy as possible. UL offers three levels of Healthy Building Verifications: Healthy Building for Indoor Air, Healthy Building for Indoor Air and Water, and Healthy Building for Indoor Air, Water, Hygiene, Light and Acoustics.

KBS is committed to furthering its industry leadership through ESG and is being proactive about office well-being efforts. In March 2022, the company announced it had already completed the successful verification of 14 million square feet of Class A office space in its portfolio, achieving the UL Verified Healthy Building Mark for Indoor Air.

“The World Health Organization (WHO) defines a healthy building as a space that supports people’s physical, psychological, and social health and well-being. This interest in a more holistic approach to real estate has been implemented in a wide range of design strategies, certifications, and verifications. While there has been research done to reflect the potential economic impacts of Smart, Connected, and Green, there has not yet been research done to reflect the impacts of Healthy-Certified Buildings,” as cited by the Massachusetts Institute of Technology.

According to Conserve Energy Future, the top Sustainable Tools and Technologies in Green Construction include the use of solar power and biodegradable materials to water efficiency technologies and use of smart appliances.

Additional factors that work to support both green and healthy buildings include: premium air and light quality; greater access to nature, such as gardens and outdoor areas; convenient locations close to community; walkability; increased activity-based spaces; and improved energy efficiency.

So, what are the costs and benefits of smart, healthful, and green buildings? According to Smart CRE, there’s a misconception of what they cost to build compared to “traditional” structures, their materials and construction.

According to the USGBC, green buildings cost 2% more on average to build — but they save 14% to 19% in operational expenditures. Sustainable CRE investments can make back their return in a couple of years, if not sooner, depending on the efficiency and size of the project.

Smart CRE estimates the compound annual growth rate of the green building market will be about 14.3% until 2027. The materials market alone was valued at about $280 billion in 2021 and is expected to reach $520 billion in 2027 — less than five years from now.

Also, innovation in design and technologies — such as on-site renewable energy supplies, like battery technology and solar — allow buildings to more efficiently use resources to reduce energy consumption. And when coupled with healthy building technologies, they can improve occupants’ health, well-being, productivity, and overall quality of life, which can benefit the surrounding communities.

In short, ESG is an investment in CRE’s well-being and bottom line. For companies wanting to attract top talent and loyal consumers — as well as run at the highest levels of energy efficiency and emissions neutrality — commitment to a comprehensive ESG program has become a business necessity.

Learn more about the latest in commercial real estate, visit KBS.com/Insights.