When Joe Biden took office in January, he became the first U.S. president to make combating climate change a top priority. Yet, for years now, some of the largest companies in the country, including certain shopping center owners, already have been addressing the climate crisis, driven by the effects of global warming, market forces, the specter of regulation and a sense of corporate responsibility.

“Despite the fact that very little has happened from a policy perspective at the federal level for over a decade with regard to climate change, businesses have been quietly moving forward and leading the charge,” said Will Teichman, vice president of business operations for Kimco Realty, which set its first public emissions-reduction goal in 2015. In recent years, the company has made improvements in energy efficiency at its centers and substantial investments in renewable energy, including onsite solar power. Today, it’s among a number of firms throughout the industry that are stepping up their efforts to combat climate change. 

“I think we, as an industry, are past the point of indecision when it comes to addressing climate change,” said Teichman. “Moving forward, you will see significantly increased activity in the industry on climate change and at a level of seriousness not seen previously.”  

 In February, Kimco announced ambitious targets for mitigating its climate impact. In line with the Paris Agreement’s objective of holding global climate change to less than 3.6 degrees Fahrenheit above pre-industrial temperatures, the company plans by 2030 to have reduced its Scope 1 and 2 emissions by 30 percent from 2018 levels. Scope 1 covers direct emissions from properties, while Scope 2 covers indirect emissions from electricity purchases. Kimco also has committed to net-zero emissions by 2050, Teichman says. 

Kimco is hardly alone in its commitment to doing more on the climate front. Indeed, the roughly 45 member companies of the ULI Greenprint Center for Building Performance, an alliance of ULI members that work together to reduce the carbon footprint of their portfolios, have committed to a collective 50 percent reduction in emissions from 2009 levels by 2030. Some have gone even further, voluntarily committing to net-zero emissions from operations by 2050. That means their portfolios must be highly energy efficient and entirely powered by onsite and offsite renewable energy sources, such as wind and solar, as per the World Green Building Council’s definition of net-zero. Membership in Greenprint has more than doubled over the past five years, and many own retail real estate.

Bottom-line costs: property damage and insurance

The broader buildings sector is responsible for a nearly 40 percent of global carbon emissions, according to the Urban Land Institute, and carbon emissions contribute to extreme weather events like floods, wildfires and heat waves. From 2010 to 2020, according to a report on climate risk and real estate by ULI and Heitman, worldwide losses from extreme weather events like floods, wildfires and heat waves exceeded $3 trillion. That’s more than $1 trillion higher than in the previous decade.

Some major U.S. and European cities have sought to control carbon emissions through regulation, and more are expected to do so. Meanwhile, some real estate firms’ property insurance premiums have risen, a trend they attribute to climate change and the increased frequency of storms, according to the ULI-Heitman report.

In some high-risk markets, the pool of insurance providers has shrunk, and/or policy riders covering wind- or flood-related property damage have become harder to buy. “What you’re starting to see are markets where governments, whether state or federal, are having to step in and backstop, essentially assume the risk, for companies to continue underwriting policies,” explained Teichman.

Because electricity consumption is a big source of emissions for commercial properties, improvements in energy efficiency like replacing fluorescent-tube and halogen lights with LED lights and installing exterior lighting that adjusts automatically, can go a long way. They also can be relatively cost effective. “Energy efficiency tends to be a no brainer,” said global head of JLL Energy and Sustainability Services Matthew Clifford. “It usually has a great financial return,” he added, noting that lighting upgrades may pay for themselves within two to three years.

Reducing energy consumption is only one part of the equation. Another is transitioning from brown energy, which comes from the burning of fossil fuels, to green energy. Investing in onsite solar technology can accomplish that, as can buying carbon offsets. Money paid for carbon offsets support projects that reduce emissions, such as wind farms.

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“A shopping center that has an active program around sustainability — driving improvements in terms of upgrading lighting, solar on the roof or addressing organic waste from a food court — all of those things are going to be good from a sustainability perspective, but they’re also going to be good from a bottom-line perspective,” said Clifford. “They’re going to reduce the operating costs of that center, savings that potentially can get passed through to tenants.”

Some landlords already have made big investments in onsite solar and remain bullish on the technology. Federal, for instance, has invested nearly $38 million in solar at two dozen properties in six states over the past decade. Those installations generate more than 13 million kilowatt hours of electricity on an annualized basis, enough to power nearly 1,200 homes for a year. In 2019, the company ranked in the top five among real estate companies for onsite capacity in the Solar Energy Industries Association’s yearly Solar Means Business report — that with just 100 retail properties.

Federal, which also has installed LED lighting through much of its portfolio, uses solar to power common areas. Through power purchase agreements, it also sells the electricity directly to such tenants as T.J.Maxx and Nordstrom, often at a lower rate than those tenants would pay local utilities. “Having that direct relationship with the tenant is critical for us in all aspects of our business,” said Federal executive vice president and general counsel Dawn Becker, explaining why the company opted to own onsite solar rather than lease rooftop space to third-party providers.

Opportunities: consumer and investor sentiment

Public sentiment also is leading more companies to take climate change more seriously. Seventy-three percent of Americans think global warming is happening, compared with 62 percent in 2013, according to Yale’s biannual survey on Climate Change in the American Mind, released in April 2020. More than 60 percent of Americans believe climate change is mostly human caused. What’s more, 57 percent of consumers are willing to change their buying habits to reduce environmental impact, according to a recent global survey by IBM and the National Retail Federation.

“Even before COVID-19 raised concerns about shopping in safe environments, people wanted to know that they’re supporting businesses that are environmentally and socially focused,” said ULI Greenprint Center for Building Performance director Emily Pierce. “We’re seeing more shopping center landlords focusing on that and using that as a marketing tool.”

The appetite for environmental, social and governance — or ESG — investing has fueled the popularity of such assets as green bonds, according to ULI’s 2021 Sustainability Outlook. Many large investors plan to double their allocations to ESG assets by 2025, according to a recent BlackRock survey of 425 investors across 27 countries that manage $25 trillion in assets collectively. A whopping 88 percent said climate-related risks are a leading concern when it comes to their holdings.

Climate-related risks are factoring into some retail real estate firms’ decisions about capital projects and where and how to invest. In January, Regency Centers unveiled its first standalone Climate Change Risk Report, based on analysis aligned with recommendations of the Task Force on Climate-related Financial Disclosures, or TCFD. Chaired by former New York City Mayor Michael Bloomberg, the TCFD was established in 2015 by the Financial Stability Board, an international organization. Some consider its guidelines the gold standard for disclosing climate-related risks and opportunities to investors, insurers, lenders and other stakeholders.

Regency conducted its risk analysis last year, considering medium- and long-term risks, from brand reputation to physical centers, under two scenarios. The “sustainable growth” scenario assumes low levels of greenhouse gas emissions, and the “current trends” scenario assumes greenhouse gas emissions will continue to rise. Regency also identified opportunities, such as the potential competitive advantage of “meeting tenant and investor demand for sustainable operations.” The findings, which Regency will update as needed, will guide strategic planning, says Regency senior manager of corporate responsibility Kirrin Winning.

The tools are here

From onsite solar to green bonds to green leases, which seek to share the costs and benefits of sustainability investments equitably among landlords and tenants, shopping center owners have access to an array of tools for mitigating climate change. And more innovation surely will occur as businesses step up their efforts and policymakers consider financial incentives and other measures to encourage them to do so.

But some experts say the future is now. “There’s a bit of a myth in our sector that we need to wait for some new technology to come along to get going on solving for climate change,” said Clifford of JLL. “A lot of the technology like solar, LED lighting and building automation that we need to make buildings more sustainable already exists. What’s happening is: These tools are getting more cost effective as they become more widespread. It’s a bit like flat-screen televisions, which are more affordable today than they were 10 or 15 years ago.”