There is more pressure than ever for businesses to set and meet decarbonization goals, such as net zero and science-based targets. To achieve these targets, a growing number of companies have found success by revising traditional leases. Use of these updated leases, called green leases, is growing rapidly among forward-thinking organizations. Green Lease Leaders sets the standards for these leases, and partners with the Department of Energy to recognize organizations that establish and implement them.
Here are the top three trends from our 2023 Green Lease Leaders and what they tell us about the state of green leasing.
Trend 1: Green leasing is becoming a best practice
Green Lease Leaders expanded by 31% compared to last year. Approximately 175 organizations have participated in Green Lease Leaders since 2014. This year, almost half of Green Lease Leaders winners are new to the program, demonstrating increased use of green leasing. This illustrates growing recognition that green leases apply to a variety of properties and ESG goals.
Green leasing is also being implemented in new property types and property types where it can be more challenging to implement ESG strategies. This year, Green Lease Leaders recognized our first military housing portfolio. There were more industrial winners, retail winners, and a healthcare winner. We were also excited to recognize our first Platinum multifamily winner.
One 2023 Silver Green Lease Leader has shared that their goal is to use the Green Lease Leader recognition to engage team members who may not typically support ESG activities. For example, green leasing necessitates the leasing team and ESG team to work together rather than silo ESG responsibilities.
Trend 2: Green leases are relevant around the world
28% of 2023 Green Lease Leaders winners are outside of the U.S. This is an increase of 80% from last year. These international Green Lease Leaders have portfolios that represent Canada, Europe, Australia, and Mexico and the same property types as their U.S. cohort.
The increase in international recognition indicates that green leases are pertinent to many geographies, which have a variety of building performance regulations and traditional lease structures with different landlord and tenant incentives to improve their building’s ESG performance. For example, according to JLL’s Green Leasing 2.0 report, “in Australia, owners typically pay for both operational and capital expenses and are highly incentivized to perform building upgrades. In the UK, occupiers pay for operating costs through service charges, and in the U.S., occupiers in triple net leases are responsible for operating expenses.”
Trend 3: Companies are ready to take green leasing to the next level
There was a 42% increase in Gold winners this year, demonstrating greater execution of green leases. We also recognized six Platinum award winners, who achieved more stringent award criteria. These statistics show the industry is ready to take green leasing up a notch.
The next evolution of green leasing is performance-based leasing. A performance-based lease aims to further clarify landlord and tenant responsibilities and holds both parties accountable for the ESG performance of their building. With the emergence of building performance standards and increased ESG scrutiny, a performance-based lease can be a powerful tool to help both the landlord and tenant comply with new stringent performance regulations and meet their own aggressive decarbonization goals.
Can you teach an old lease new tricks? Yes. This year’s winners show that green leasing is a flexible tool that can be customized to support many companies’ changing ESG needs across different geographies, property types, and regulations. Their achievements show us that green leasing is a valuable solution in a shifting real estate market, and an increasingly important part of business strategy and operations.