Oxford Properties Decarbonizing its Portfolio One Building at a Time
Oxford properties has committed to bringing the emissions of our real estate portfolio to net zero by 2050. For two years, our Sustainable Investing and Operations team has painstakingly conducted audits and gathered datapoints so we can accurately forecast how we can decarbonize, building by building.
Bringing the carbon emissions of a single building to net zero is no easy feat.
A lot depends on the types of fuels available for heating and cooling. The equipment used to burn those fuels will impact performance, as will the materials that constitute the building itself. Technology is evolving rapidly, as are regulations, so investors, developers and managers must make decisions with incomplete information. Retrofitting is expensive, and interest rates in western economies are at 16-year highs. That’s before you consider the impact of location, climate, local politics, customer behavior, and more.
At Oxford, we must confront these uncertainties on a very large scale. Our portfolio runs to 147 million square feet, spans 4 continents, and we intend to bring its emissions to net zero by 2050. Setting the target was the easy part. Achieving it will require Oxford to execute a 360-degree approach unlike anything in our company’s 64-year history – one that dovetails the urgency of the task with the needs of our customers and our fiduciary duty to 620,000 OMERS pensioners.
“We’re very much focused on being net zero ready,” says Hala El Akl, Vice President of Sustainable Investing and Operations at Oxford Properties. “The aim is not to do everything all at once; it’s not feasible, it’s not aligned with our fiduciary duty and it’s not good for the planet. It’s about having credible, costed plans in place, and then using our creative minds to make sure it all happens.”
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It’s a complex process, but the make-up of our business gives us an advantage. Our end-to-end capabilities as an investor, developer and manager of real estate offer us a broader perspective, as does our presence in many global gateway cities. We try to ensure that information flows between our teams, so those tasked with investing capital understand the needs of customers, or that asset managers in North America can leverage the latest thinking from Europe.
For the past two years, our Sustainable Investing and Operations team has painstakingly conducted audits and gathered datapoints so we can understand the make-up of the carbon emitting from our real estate portfolio. We now have data for 96% of the buildings in our asset-managed portfolio, up from 90% in 2022*. These figures are enabling us to accurately forecast how we can decarbonize, building by building.
The team then hands the data back to our asset managers, who have an intricate understanding of how customers use our buildings, any lease events that might guide a retrofitting strategy, plus any changes in local market dynamics. “The data used to live in a black box with sustainability teams, but it was vital that we empowered our teams to see how their buildings were really performing… only they really understand how customers are behaving or can interpret the various peaks and troughs and how to manage them,” Hala says.
“Almost every lender and customer has questions about Oxford’s net zero plans,” adds Chad Remis, Oxford’s Chief Investment Officer: “It was vital that we started seeing this information so we could answer the various questions they had.”
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Oxford has published clear, metric-based performance targets and reported on progress annually since we began our sustainability program 20 years ago. Last year, we achieved a 20% reduction in our absolute carbon footprint, a 19% cut in carbon emissions intensity and a 10% decrease in energy intensity.**
To meet our 2050 net zero target, every building needs an achievable plan, or pathway, that will inform our decisions during the coming 26 years. A growing number of our assets now have concrete decarbonization plans mapped out, ranging from those just beginning the planning process to others where implementation is well underway. This wasn’t the case just two years ago.
Internal and external collaboration has been pivotal to our success so far. In 2022, for example, we began feeding our data into the Carbon Risk Real Estate Monitor (CRREM), a European Union-funded forecasting tool designed to help property owners understand how at-risk their portfolios are to ‘stranding’***.
CRREM harnesses emissions data and localized analysis of regulations to form feasible trajectory lines for cutting carbon emissions, tailored to each building. Asset managers can model interventions such as installing a heat pump or LED lights, which alter the trajectory curve. The tool is so granular that it accounts for the cleanliness of the fuels that power local grids, plus any planned upgrades.
“We put our whole portfolio through CRREM… and as a result we now have stranding years by sector, by region, by investment type and by asset type,” Hala says. “That has enabled us to do lots of analysis and cut the portfolio in different ways, and by gathering more, real data, we can refine it – that’s the journey.”
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Some types of assets present bigger challenges than others, and we are prioritizing those most at risk of stranding. Hotels provide services around the clock, so tend to consume a lot of energy, for example. Similarly, life sciences buildings have equipment running 24/7 and require more intense ventilation than other building types.
These assets play a vital role in the economy, provide huge social impact, and are smart, strategic investments. So the goal isn’t to simply rebalance our portfolio to feature only ultra-low emission buildings. Instead, we intend to use our knowledge and capital to modernize well-located properties that might once have been prime candidates for stranding. “We’ve very much not said that if an asset is ‘dirty’ then we’re going to sell it, because that would be irresponsible,” Hala says. “That asset, it still exists in the economy after all, so we compensate in other ways with renewables.”
Victoria House in Bloomsbury Square, central London is a good example. The building is heritage listed, which places tight restrictions on renovations, yet we intend to convert the property into a state-of-the-art life sciences hub. These two factors make cutting emissions much more challenging, yet we are targeting an Energy Performance Certificate (EPC) of A and are on track to secure BREEAM ‘Excellent’ certification.
“Protected buildings and labs are challenging when it comes to keeping emissions low, but we have something special here at Victoria House, a fully electric building with variable air flow provisions that greatly reduce energy consumption,” adds Abigail Shapiro, Oxford Europe’s Head of Life Sciences & Residential. “We are deeply committed to collaboration. Our North American colleagues are enhancing our understanding of Life Sciences operations and trends, while we in Europe are imparting our expertise on developing and operating ESG-friendly Life Science buildings. This mutual support strengthens our global capabilities and drives us towards a more sustainable future."
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Large redevelopments like Victoria House are in-part guided by regulation, which is steadily becoming more demanding. European governments are driving progress: all commercial buildings in the UK must have an Energy EPC of at least B by 2030, for example. In France, both firms and customers must disclose their energy consumption on a government platform and must cut emissions in half by 2040 compared to a 2010 baseline.
Bringing buildings up to scratch is expensive, but these benchmarks provide clarity for institutional investors that have a fiduciary duty to maximize returns: “It’s not always initially certain that improving environmental performance will show corresponding improvements in financial performance, but when the regulator makes it a requirement, it removes that uncertainty,” Hala says.
The pathways and plans that were the focus of 2022 and 2023 represent what our team calls “the foundational work”, which includes education, upskilling, creating tools and gaining a better understanding of what it really means to be net zero. This will continue into 2024 and 2025, but we intend to begin new studies, particularly into the risks associated with extreme weather events and how to maximize social value. That will herald a new phase of data gathering and information sharing, both with team members and Oxford’s broader network.
“We can create influence with our capital, whether with our customers, our partners or our supply chains,” Hala concludes. “It feels powerful to know that, when we ask a question, everyone in that supply chain starts to ask the question, and we can accelerate the market with our capabilities, with our capital and with our position. That's very exciting.”
*Specifically for our assets within the Oxford Asset Managed portfolio (doesn’t include assets that we have an third-party asset manager), and against our 2019 baseline.
** All against a 2019 baseline. The scope of data disclosures is limited to the Oxford Asset Managed Portfolio of buildings, which reflects the portfolio of real estate assets where Oxford has any operational control as defined by the GHG Protocol.
***An industry term used to describe assets that have become difficult or impossible to sell due to sustainability-linked changes in market demand or regulations.
A thorough press release which is very informative and strikes all the right notes.
I was quite impressed with Hala El Akl, Vice President of Sustainable Investing and Operations at Oxford Properties, as she provides excellent insights into the challenges and opportunities of achieving net zero in their massive real estate portfolio.
She's very clear about how Oxford is proceeding to decarbonize its buildings:
“We’re very much focused on being net zero ready. The aim is not to do everything all at once; it’s not feasible, it’s not aligned with our fiduciary duty and it’s not good for the planet. It’s about having credible, costed plans in place, and then using our creative minds to make sure it all happens.”
She also adds:
“It’s not always initially certain that improving environmental performance will show corresponding improvements in financial performance, but when the regulator makes it a requirement, it removes that uncertainty.”
No doubt, regulators are putting pressure on asset owners to decarbonize and while it seems intuitive that decarbonizing will attract better anchor tenants and improve financial performance, it's not always clear.
There are plans in place but as fiduciaries first and foremost they need to make sure they prioritize where they see the best bang for their buck.
Not surprisingly, this is a data-intensive project.
In 2022, Oxford began feeding its data into the Carbon Risk Real Estate Monitor (CRREM), a European Union-funded forecasting tool designed to help property owners understand how at-risk their portfolios are to stranding:
For the past two years, our Sustainable Investing and Operations team has painstakingly conducted audits and gathered datapoints so we can understand the make-up of the carbon emitting from our real estate portfolio. We now have data for 96% of the buildings in our asset-managed portfolio, up from 90% in 2022. These figures are enabling us to accurately forecast how we can decarbonize, building by building.
The team then hands the data back to our asset managers, who have an intricate understanding of how customers use our buildings, any lease events that might guide a retrofitting strategy, plus any changes in local market dynamics. “The data used to live in a black box with sustainability teams, but it was vital that we empowered our teams to see how their buildings were really performing… only they really understand how customers are behaving or can interpret the various peaks and troughs and how to manage them,” Hala says.
“Almost every lender and customer has questions about Oxford’s net zero plans,” adds Chad Remis, Oxford’s Chief Investment Officer: “It was vital that we started seeing this information so we could answer the various questions they had.”
***
CRREM harnesses emissions data and localized analysis of regulations to form feasible trajectory lines for cutting carbon emissions, tailored to each building. Asset managers can model interventions such as installing a heat pump or LED lights, which alter the trajectory curve. The tool is so granular that it accounts for the cleanliness of the fuels that power local grids, plus any planned upgrades.
“We put our whole portfolio through CRREM… and as a result we now have stranding years by sector, by region, by investment type and by asset type,” Hala says. “That has enabled us to do lots of analysis and cut the portfolio in different ways, and by gathering more, real data, we can refine it – that’s the journey.”
Anyway, the professionals at Oxford know what they're doing and they need to proceed cautiously as they decarbonize their massive real estate portfolio.
What I truly appreciate are these updates which are informative and give us a way to gauge how where they are in this massive undertaking.
Below, Sherif Masood, head of asset management in Canada for Oxford Properties, joins BNN Bloomberg to discuss their outlook for commercial real estate. He notes that they have shrunk their office portfolio from a 40-50 per cent share in 2018 to about 18 per cent now, but are outperforming the office real estate market due to their high quality holdings.
He states they are bullish on development assets, especially in residential real estate and credit where they see big opportunities. Great interview, take the time to watch it.
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