1. Integrative design, efficient use of materials and space, prioritization of retrofits, and circular construction paired with climate-aligned procurement, reporting, and marketing can reduce embodied carbon while creating business value.
2. Some embodied carbon reduction measures cut development costs.
3. Other measures can provide developers with a competitive advantage in the emerging low-embodied carbon construction sector.
4. Embodied carbon actions are most valuable when combined, rather than deployed individually.
5. Late adoption of low-embodied carbon construction practices could strand assets.

Zero embodied carbon construction: a technology transition with a climate deadline

Embodied carbon, the climate pollution associated with material production and construction activities, is responsible for an estimated 11% of global emissions. Embodied carbon can make up 50% of the life-cycle emissions of a building. This proportion will increase as building operations become more energy efficient and electricity grids switch to clean energy sources. Like the energy transition generally, achieving zero-embodied carbon construction is a technology transition with a climate deadline. This industry transformation must be achieved by 2050 to avoid the worst consequences of climate change and secure a livable future for all.

Like any corporate real estate sustainability initiative, tackling embodied carbon poses its own set of hurdles. However, research shows that overcoming these hurdles is not only achievable, but also holds potential economic, competitive, and environmental advantages for developers, asset managers, and other market actors. Multiple pathways to zero emissions have been established. For example, the Science Based Targets Initiative (SBTi) has developed climate-aligned paths to net-zero embodied carbon construction by 2050. The US Federal Buy Clean Initiative has also called for zero-embodied carbon construction by mid-century. This investment guide provides further guidance on strategies, business opportunities, and key actions to track and reduce embodied carbon.

Embodied carbon is a transition risk

Developers face increasing pressure from investors, tenants, and regulators to disclose Scope 3 emissions. Embodied carbon makes up a substantial part of commercial real estate developers’ Scope 3 emissions, which in turn comprise as much as 90% of developers’ Scope 1–3 emissions. Investors’ capital allocation decisions, tenant leasing preferences, and government regulations increasingly penalize high embodied carbon construction practices. Reducing embodied carbon can increase access to investment dollars, attract tenants, and future-proof business practices against government regulation. Below we explain how investing in embodied carbon reduction can reduce the cost of capital, attract tenants, and future-proof business practices against future regulations.

Embodied carbon as a business opportunity: nine investments developers can make today

Embodied carbon, sometimes referred to as “capital carbon,” is often correlated with capital costs. Reducing embodied carbon can cut development costs. Strategic action on embodied carbon can also help developers position themselves for competitive advantage as the global real estate sector’s transition to low-embodied carbon practices advances.

This guide outlines nine strategies for developers to reduce embodied carbon while creating business value. These measures can increase developers’ portfolio profitability per unit of embodied carbon. Combining measures can reduce embodied carbon and increase profitability more effectively than deploying them individually. Many of the actions presented also drive virtuous cycles which accelerate the commercial real estate sector’s transition to low-embodied carbon materials and practices. The recommended strategies are organized into two broad categories: building strategies, which are deployed at the asset level, and corporate strategies, which can inform portfolio-wide initiatives.

9 investments to reduce embodied carbon and build business value in commercial real estate.

Tunneling through the cost barrier

Used in isolation, a single measure to reduce embodied carbon in a building could both increase costs and provide diminishing returns on carbon emissions cut per dollar. However, the right combinations of measures deployed in the right order could make reducing more embodied carbon cheaper than reducing less. Developers can use early-stage integrative design to “tunnel through the cost barrier” when reducing embodied carbon.

Embodied Carbon Reduction:

The surest way to reduce embodied carbon is to reduce material quantities. As much as 80% of the embodied carbon of multi-story buildings is associated with their structure. Structural systems are often sized substantially over safety requirements. Major architectural geometry choices, such as building form and column locations may be the greatest drivers of material inefficiency. Structural elements are also often oversized to facilitate logistical simplicity and add redundancy in the event of construction error. Reducing structural material quantities while achieving architectural objectives without compromising safety or speed of construction is most effectively achieved through close interdisciplinary coordination.

Integrated project delivery contract models can facilitate interdisciplinary collaboration and optimization, especially on large, complex, and unique projects. Engaging and empowering structural engineers in early-stage design can support outsized material quantity reductions. Software tools such as PANDA, PreOptima, and One Click LCA can allow for rapid exploration and evaluation of materially efficient design options.

Business Opportunity:

Reducing material quantities through integrative design may require increased up-front investment in design fees and collaboration technology. Integrated project delivery may also incur legal fees for contract drafting. However, these costs are likely to be more than offset by reductions in material costs during construction, resulting in net savings in development cost. As much as 40%–60% of embodied carbon in building frames could be eliminated with 10%–20% frame cost savings by choosing simpler building forms, appropriate decking systems, and optimized beam sizes. Using materials efficiently also reduces the proportion of project costs spent on materials, making it cheaper to switch the remainder to low-carbon alternatives.

Actions:

• Direct design team to seek material quantity reductions.
• Engage structural engineers in conceptual design phase. Empower them to participate in key decision-making on building layout and structural grid.

Consider integrated project delivery, especially on large, complex, and unique projects.

Embodied Carbon Reduction:

Many buildings are chronically underutilized in both space and time. As developers face pressure to decarbonize, the fixed embodied carbon liability associated with their buildings increases the penalty of underutilization. Conversely, increasing utilization of assets can increase profitability per unit of embodied carbon liability. Where local markets can support them, co-living, co-working, and multi-use programming can increase the utilization of buildings with minimal additional embodied carbon compared to conventional programs.

Business Opportunity: 

Designing for multiple and flexible programs can result in higher and more consistent occupancy rates through reduced exposure to shifts in tenant behavior. These effects could lead to more stable revenues. This could be leveraged to reduce debt service costs and negotiate more favorable terms with lenders. Co-living has been shown to have fast lease-up rates, expected yields as high as 4%–5%, and can result in substantial reductions in operational emissions. Design for flexible programs can also improve asset value by increasing the likelihood that the space will be suitable for a new use with minimal modifications, saving embodied carbon by preventing future demolition and reconstruction.

Action:

Consider measures to increase building utilization, such as: co-living, co-working, and multi-use programming.

Embodied Carbon Reduction:

Near-zero embodied carbon construction will not be possible without switching from conventional building materials to low-embodied carbon and carbon-storing alternatives. Developers can reduce the embodied carbon of their buildings by procuring low-embodied carbon products.

Business Opportunity:

Some low-embodied carbon materials, such as mass timber, offer inherent advantages over business-as-usual alternatives, including faster construction and improved occupant health and wellbeing associated with biophilia. Mass timber buildings may also support higher lease velocities and rents. When the value of these benefits is counted, switching to mass timber can be cost-negative.

Other forms of material switching can offer 19%–45% embodied carbon savings with a premium of less than 0.5% of total project cost. Switching to recycled steel produced using electric arc furnaces can reduce emissions, and is generally cost-neutral with conventional virgin steel. Where available, supplementary cementitious materials can replace cement (the most carbon-intensive ingredient in concrete) at negative cost. Some emerging and future low-embodied carbon materials could have a relatively large cost premium (e.g., 20%–25% for very low-carbon steel), but potentially offer long-term savings when their environmental attributes are valued by tenants and investors. Use of bio-based products, especially those incorporating fast-growing agricultural crop wastes or underutilized wood waste, offer carbon storage benefits, which are increasingly valued by both tenants and investors.

The Sycamore & Oak retail village demonstrates the use of both mass timber, and design for deconstruction (DfD). The mass timber structure is built using screws and bolts so that it can be demounted and rebuilt elsewhere.

Embodied Carbon Reduction:

Reusing structural elements in new buildings can reduce the embodied carbon of new construction by as much as 20%. Where inventories are available, developers can use existing building components in new structures to reduce their embodied carbon. Developers can also facilitate the circular economy by deconstructing rather than demolishing, and making deconstructed elements available for use in new buildings by supporting efforts to catalog these elements. In the absence of direct reuse of components, facilitating source-separated waste through deconstruction will promote material recovery, recycling of construction waste, and reduction of embodied carbon from new product manufacturing.

For tenant spaces, furniture can comprise as much as a third of the construction and use phase of the embodied carbon of commercial office spaces. Developers can encourage their tenants to use platforms such as Rheaply in fit-outs to save both embodied carbon and cost.

Developers can also design buildings for disassembly at end of life. Thoughtful detailing and reversible connections can ease deconstruction. Mass timber and steel structures are particularly amenable to design-for-disassembly (DfD). Software platforms are emerging to track building components available for reuse in new buildings.

Business Case:

Today, deconstruction is limited by high disassembly labor costs and low landfilling costs. However, landfill costs are rising, and could increase sharply in the future. The United States could run out of currently permitted landfill capacity as early as 2036 without reductions in waste or changes in waste management practices. New landfill capacity can take years to permit and bring online, raising disposal costs in the interim. Urban Machine is automating fastener removal from reclaimed wood using robots. These trends and further innovations could reduce future disassembly costs relative to demolition.

DfD likely results in higher design fees, and could mean slightly higher up-front material and assembly costs. However, developers can take a total life-cycle cost approach to model DfD against business-as-usual practices. Firms can test for sensitivity to higher landfilling costs and the impact of deconstruction ordinances, which may require as much as 75% landfill diversion. Building elements not sold to secondary markets can yield tax deductions in the form of charitable donations assessed at their “fair market value.” Taking into account deconstruction liability, buildings designed for disassembly may have increased net asset value which more than offsets their higher up-front costs.

In addition, improved tracking of building material quantities and corresponding monetary value through the life cycle of a building, with tools such as material passports, can translate to increased asset valuation and support the business case for design for disassembly. For example, developers can track the commodity price of construction materials as part of the asset valuation. Particularly innovative life-cycle costing methods might treat building components themselves (as opposed to buildings) as revenue-generating assets, complete with acquisition, debt service, maintenance, and re-installation costs.

For interiors, design using reused elements and furniture is limited primarily by a lack of logistical connections between inventories of components and new construction projects seeking to use them. However, because they require little to no remanufacturing, reused elements have low associated cost. As reuse inventories and sharing platforms grow, building with reused elements and furniture could reduce hard costs in excess of the increases in design and contractor fees needed to incorporate them in buildings, resulting in net reductions in total development cost.

Actions:

• Design using reused structural elements.
• When removing a building, disassemble rather than demolish. Catalog building components and connect these with a building material inventory platform or service.
• Design for disassembly.
• Encourage tenants to reuse furniture using platforms such as Rheaply.

Think portfolio

Reducing the embodied carbon of individual buildings is essential. However, developers’ profitability and embodied carbon transition risk are measured at the corporate level. By taking a portfolio view, developers can fairly compare diverse investment opportunities by their profitability per unit of embodied carbon incurred. Portfolio-scale action also allows developers to leverage economies of repetition by deploying embodied carbon reduction investments across many projects. Developers can use corporate sustainability reporting and marketing to ensure maximal value capture from embodied carbon reduction investments in buildings.

Embodied Carbon Reduction:

To reduce embodied carbon, developers can invest in institutionalizing embodied carbon reduction practices across their organization. Firms can start with “low-hanging fruit,” such as performance-based specifications, procurement policies, and integrative design guidance, using resources from the Carbon Leadership Forum and others. Developers can hire, train, and support employees or external consultants as necessary to enable this. Simple steps, such as instituting a policy of requesting environmental product declarations (EPDs) — the “nutrition labels” for embodied carbon emissions — from suppliers can lay the groundwork for measurement and reduction of embodied carbon at a company scale.

Business Opportunity:

Institutionalizing embodied carbon reduction practices amortizes their fixed costs across as many revenue-generating projects as possible. This makes reducing embodied carbon on any given project cheaper. Furthermore, scaling embodied carbon reduction measures, even incremental ones, across an entire organization can achieve paradigm-shifting institution-wide benefits. These include changing culture, signaling authentic sustainability commitment to investors, tenants, and prospective employees, and creating company-scale marketing opportunities. As more developers make incremental reductions in embodied carbon, company-scale decarbonization can drive deeper embodied carbon reductions that can act as market differentiators. Bold institution-scale investments also unlock value by laying the foundation for data harmonization. This can reduce administrative burdens associated with embodied carbon reporting. Company-scale investments also facilitate collaboration and knowledge sharing, which can help to conquer learning curves more quickly than siloed problem-solving.

Action:

Institutionalize embodied carbon reduction practices across the entire organization.

California State University’s Student Services building was retrofitted in 2019 for improved thermal comfort, daylighting, and energy efficiency. The retrofit used 78% less embodied carbon than an equivalent new build. The operational energy savings recouped the embodied carbon in two years.

Embodied Carbon Reduction:

New builds add two to four times the embodied carbon to a portfolio than retrofits because they use much more material. Deep energy retrofits can pay back their embodied carbon through operational emissions savings immediately if they use carbon storing materials, or within seven years using conventional materials. Before building new, developers can explore opportunities to maximize profitability and minimize the emissions of their existing properties with energy retrofits, adaptive reuse, and vertical additions. Portfolio planning tools such as Zero Over Time can be used to optimize the timing of energy-related investments in existing buildings. As much as 90% of residential dwelling units in the United States, including multifamily buildings, must be retrofitted to be “zero-carbon aligned.”

Business Opportunity:

Retrofits have lower capital costs, and can be completed faster than new builds. Today, there is a vast need to retrofit existing buildings to meet market demands and reduce operational greenhouse gas emissions from energy use. Retrofitting existing buildings can support lower embodied carbon outcomes by meeting market demands for space without the need for new construction. In addition, investments in existing buildings can support deep energy retrofits to achieve zero operational emissions. Consider current market conditions, for example. There is increasing interest in commercial to residential conversion projects in urban areas, where office vacancies have ballooned since 2020. These projects provide opportunities for embodied carbon mitigation and business value creation.

Beyond their reductions in operating cost and emissions, energy retrofits offer improved occupant health and thermal comfort while reducing employee absenteeism. These can further contribute to green rent premiums and higher occupancy rates. As municipalities move to regulate building emissions, energy retrofits can also reduce regulatory exposure. Finally, energy retrofits can increase the resilience of existing assets to physical climate risks such as extreme temperatures, storms, and wildfire smoke, a major source of financial risk for owners and tenants. Combined, these factors mean that it’s a great time to retrofit first.

It is important to note that this strategy, and embodied carbon mitigation through building reuse, should not be used as a tool for displacement. There is a well-documented cycle of real estate speculators pursuing existing building purchases, implementing cosmetic “property flips,” and displacing tenants through rent hikes in the interest of short-term returns. This speculative behavior is not covered by this strategy, which is focused on improving underutilized, underperforming assets with high vacancies.

Action:

Consider retrofitting existing properties, starting with those with the poorest operational energy performance, before building new.

Embodied Carbon Reduction:

To maximize the return on investment for reducing embodied carbon, real estate firms can market their embodied carbon wins, no matter how small. Developers can dedicate marketing budget to highlighting embodied carbon to investors and tenants.

Business Opportunity:

Marketing embodied carbon successes ensures maximal value captured on any investments in embodied carbon reduction. Developers can join climate action networks such as OwnersCan and publish case studies on low-embodied carbon projects. These actions can build a reputation of climate-consciousness and highlight the sustainability credentials of a property, attracting sustainability-oriented tenants and capital.

Long term, marketing helps to create an enabling environment by influencing the behavior of other developers, providers, tenants, government, and civil society. When manufacturers believe developers care about embodied carbon, they invest in decarbonization of production. When tenants see developers marketing low embodied carbon, this becomes part of their decision-making criteria when selecting property to rent. When other developers believe embodied carbon is worth investing in, they create more business for providers, making low-embodied carbon products and services cheaper and more available through economies of scale and learning curves. This drives a virtuous cycle that accelerates the embodied carbon transition.

Actions:

• Market embodied carbon success stories through case studies and other publications.
• Make public commitments to reduce embodied carbon, such as adopting voluntary Buy Clean standards and including emissions benchmarks for key construction materials.
• Join industry climate action networks such as OwnersCAN.

Embodied Carbon Reduction:

Investors and governments increasingly expect businesses to disclose their climate impacts. Climate disclosure communicates climate transition risk to investors and the public. California recently enacted a first-in-the-nation law that will require large companies operating in the state to disclose their annual greenhouse gas emissions, including Scope 3 impacts.

Developers can deploy consistent embodied carbon measurement across their portfolios and build this into annual Scope 3 reporting. At present, however, there is no industry consensus on Scope 3 accounting rules for commercial real estate. Guidance from entities such as RMI, UKGBC, and Lendlease have started to fill this gap, but more work is needed. Developers can participate in efforts to secure industry-wide consensus on Scope 3 emissions to facilitate trustworthy sustainability comparisons between properties and companies.

Business Opportunity:
As many as 69% of investors are likely to increase their stake in companies that successfully manage sustainability issues. 42% have already divested from companies that haven’t demonstrated sufficient action. Reporting embodied carbon in annual Scope 3 disclosures will position real estate businesses to attract sustainability-oriented capital, and chart realistic climate-aligned pathways to zero emissions. Companies that adopt robust emissions reporting practices will also reduce their regulatory exposure as more governments move to adopt climate disclosure mandates.

Actions:

• Report embodied carbon within Scope 3 impacts.
• Participate in industry-wide efforts to standardize Scope 3 reporting.

Embodied Carbon Reduction

Like many nascent products, low-embodied carbon building materials face a “chicken and egg” problem. Apparent lack of demand (in part due to high costs) limits investments in production capacity, which could increase supply and drive down costs. Developers can overcome this obstacle by aggregating demand for low-carbon materials through buyers’ coalitions. Coalitions can use off-take agreements to provide the demand certainty necessary for producers of low-carbon and carbon-storing materials to secure financing for the big capital investments needed to decarbonize production at scale. Aligning with government buy-clean procurement policies can multiply the benefits of this demand aggregation to support further investments in production of low-carbon materials.

Business Opportunity:

Real estate firms can differentiate themselves from the market by taking the lead on investing in and adopting deeply decarbonized building materials. Emerging low-embodied carbon products are likely to be available in small production runs. For developers who want to access deep decarbonization and high environmental attribute value, competition for access to emerging low-embodied carbon products can quickly go from non-existent to fierce. To secure the reputational boosts, institutional learning head-starts, and relationship-building opportunities of first mover’s advantage, developers can form early offtake agreements with low-embodied carbon suppliers.

Action:

• Join buyer’s coalitions for low-embodied carbon materials and create off-take agreements for low-carbon materials.

Virtuous cycles

By making targeted investments in reducing embodied carbon, developers can reduce their climate transition risk and increase their long-term profitability. Many of these investments also influence tenants, governments, civil society, architecture, engineering and construction (AEC) firms, and other developers. This drives virtuous cycles (Exhibit 1) which accelerate the low-embodied carbon construction transition as a whole.