Why Building Owners Don’t Want the EPA to Ditch Energy Star

Property owners and advocates are concerned about the potential discontinuation of the EPA's Energy Star program, which is vital for commercial real estate to gauge building energy use, a significant source of greenhouse gas emissions. Its demise would remove a key tool for property efficiency measurement, potentially impacting ESG compliance and operational cost management for institutional real estate portfolios.

Analysis

The potential discontinuation of the EPA's Energy Star program represents a significant operational and ESG-related risk for the commercial real estate sector. While known for its consumer-facing logo, the program's critical function for institutional investors and property owners is its role as a standardized tool for gauging building energy consumption—a primary source of urban greenhouse gas emissions and a major operational cost. The uncertainty surrounding the program's future, reflected in a moderately negative sentiment, threatens to remove a key benchmark used for ESG compliance, energy efficiency reporting, and operational cost management. Its demise would complicate the ability of property owners to measure and manage energy use effectively, potentially impacting asset valuations for portfolios where ESG performance is a core investment criterion.

Key Decisions for Investors

• Investors with exposure to commercial real estate should monitor regulatory developments concerning the EPA and the potential elimination of the Energy Star program, as it could impact operational reporting standards.
• For ESG-focused portfolios, it is prudent to assess how the absence of the Energy Star benchmark could affect the measurement and validation of sustainability targets across real estate holdings.
• Consider engaging with property management firms and real estate operators to understand their contingency plans for energy efficiency measurement should this widely-used standard be discontinued.