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December 24, 2009

Investing in Energy-Efficient Buildings Can Reduce Emissions While Strengthening Portfolios
    by Robert Kropp

A new report from Ceres and Mercer identifies efficiency as a significant front in mitigating climate change, and recommends that investors focus on efficiency measures in their real estate holdings. -- Improving the energy efficiency of buildings has been described as “the lowest of the lowest hanging fruit” of efforts to reduce greenhouse gas (GHG) emissions. A new report, commissioned by Ceres and authored by Mercer, provides direction for investors who recognize that investing in energy-efficient buildings can simultaneously address their environmental concerns and increase the value of their real estate holdings.

The report, entitled Energy efficiency and real estate: Opportunities for investors, surveys recent findings on the potential created by energy efficiency, as well as regulatory and legislative actions that are likely to lead to more widespread energy-efficient measures in the construction and retrofit of buildings.

According to the US Green Building Council, "Buildings in the United States are responsible for 39% of CO2 emissions, 40% of energy consumption, 13% water consumption and 15% of GDP per year, making green building a source of significant economic and environmental opportunity. Greater building efficiency can meet 85% of future US demand for energy, and a national commitment to green building has the potential to generate 2.5 million American jobs."

Identifying energy efficiency as "an emissions-free energy resource," McKinsey & Company forecasts that, with a ten-year investment of $520 billion, an abatement of greenhouse gas (GHG) emissions of 1.1 gigatons per year, or "the equivalent of taking the entire U.S. fleet of passenger vehicles and light trucks off the roads," could be realized. Such a comprehensive national approach to energy efficiency would, according to McKinsey, lead to energy savings of $1.2 trillion by 2020.

And in an analysis of the Waxman-Markey climate bill that passed the US House of Representatives earlier this year, the American Council for an Energy-Efficient Economy (ACEEE) found that investment in energy efficiency could provide up to one-half of necessary GHG emissions reductions by 2050, and cost savings of about $2 trillion by 2050.

The report from Ceres and Mercer provides examples of large institutional investors, such as Teachers Insurance and Annuity Association, College Retirement Equities Fund (TIAA-CREF) and California Public Employees' Retirement System (CalPERS), that have already established energy reduction goals for their portfolios, and have realized millions of dollars per year in savings as a result.

The report contends that not only will direct property owners like large pension funds realize gains from energy efficiency measures in their real estate holdings; smaller investors who primarily hold real estate securities will realize them as well. The report recommends that as a first step, investors launch energy efficiency initiatives by developing benchmarks and then create achievable targets in the implementation of projects.

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