Speaker 1: Financial markets can no longer ignore the impacts of climate change,
Speaker 1: shifting consumer expectations and increasing regulatory scrutiny. These forces are
Speaker 1: reshaping industries, redefining risk, and creating new opportunities for long
Speaker 1: term value creation. Through conversations with industry leaders, investors, and
Speaker 1: subject matter experts, we explore where sustainability is translating into
Speaker 1: measurable financial outcomes. Welcome to Sustainability Currents, brought to you
Speaker 1: by Bloomberg Intelligence.
Speaker 2: Commercial real say is facing growing pressure from rising insurance costs,
Speaker 2: more frequent extreme weather, and increasingly stringent building performance standards.
Speaker 2: As these pressures affect operating costs, financing, and asset values,
Speaker 2: investors are paying closer attention to how buildings perform their
Speaker 2: full life cycle, not just energy efficiency, but also resilience
Speaker 2: and long term asset performance. Today we'll discuss how building
Speaker 2: performance is measured, which metrics matter most to investors, and
Speaker 2: where resilience investment is reshaping the economics of the built environment.
Speaker 2: Joining me today is Brando Wheeler, director of operations for
Speaker 2: bram USA. Briannau. Welcome to the show.
Speaker 3: Thanks so much for having me our pleasure.
Speaker 2: So perhaps we can kick off with setting the stage
Speaker 2: for listeners who may be less familiar with BRAM, could
Speaker 2: you briefly explain what it is and the role that
Speaker 2: plays in today's commercial real estate market.
Speaker 3: Yeah, sure so. So BRIHAM was the very first green
Speaker 3: building certification program we launched in nineteen ninety and we
Speaker 3: are completely about building science, right, So the certification initially
Speaker 3: was about understanding how buildings were performing against you know,
Speaker 3: kind of the star of sustainable development. But ultimately what
Speaker 3: brand certification does now is provide transparency on sustainability risks
Speaker 3: and opportunities at the asset. So developers or owners measure
Speaker 3: their asset or project's performance against the standard and certification
Speaker 3: provides the transparency to their stakeholders about that performance. So,
Speaker 3: in development, it reflects the developer's decisions made during the
Speaker 3: design process and during construction of the asset that ultimately
Speaker 3: set the performance trajectory of that asset. In operations, for
Speaker 3: existing assets, it reflects the asset as built and how
Speaker 3: it's being operated. And for renovations or fit outs, it
Speaker 3: reflects the extent to which the work is optimizing the
Speaker 3: asset to continue to perform or improve performance over time.
Speaker 3: So Bram's ratings really allow a wide performance spectrum anywhere
Speaker 3: from the highest performance achievable in a building for our
Speaker 3: current time to projects that have incorporated sustainability maybe on
Speaker 3: a smaller scale. All those projects represent risk and opportunity,
Speaker 3: and the certification can inform investors, owners, and future buyers
Speaker 3: about the asset itself.
Speaker 2: Thank you. That's helpful to hear, and perhaps a bit
Speaker 2: telling too, would be to talk a little bit on
Speaker 2: market evolution. So one trend we've been following is that
Speaker 2: resilience is showing up in many different conversations, from insurance
Speaker 2: and financing to building performance standards and physical climate risk.
Speaker 2: I'm curious how that compares with what you're seeing directly
Speaker 2: from clients. You know, what are the biggest changes maybe
Speaker 2: you've seen in the conversations you're having over the past
Speaker 2: few years.
Speaker 3: Yeah, resilience has been a really interesting topic and one
Speaker 3: which even maybe six five, six years ago was seen
Speaker 3: as quite niche. And so the focus has really changed.
Speaker 3: I mean operational energy efficiency and buildings. You know, that's
Speaker 3: been that conversation has been going on since the nineteen seventies,
Speaker 3: and even with that understanding, over all this time, it's
Speaker 3: really been a slow adoption right. The importance on operational
Speaker 3: energy efficiency really has varied depending on where we've been
Speaker 3: in the energy cycle. Basically, it was a tolerable waste
Speaker 3: as long as energy prices were acceptable. You know, Assessing
Speaker 3: physical climate risk has gone from that niche practice to
Speaker 3: mainstream really in just the last five years. It's been
Speaker 3: an incredible adoption rate. It's been helped by the accessibility
Speaker 3: of tools that help interpret those complex concepts like climate
Speaker 3: scenarios and asset level exposure to hazards. But really it's
Speaker 3: because the last five years has seen the realities of
Speaker 3: climate change with extreme weather events hitting asset value. Real
Speaker 3: estate is ultimately a risk management business, right, Understanding what's
Speaker 3: going to impact the income over the whole period and
Speaker 3: ultimately that determines asset value at exit. Climate risk is
Speaker 3: really something that can be understood and acted on to
Speaker 3: protect that assets value over time. So the last three years,
Speaker 3: you know where the hottest on record, and the summer
Speaker 3: of twenty twenty four, some eighty percent of Americans experienced
Speaker 3: a climate change enhanced emergency, so extreme heat, extreme cold,
Speaker 3: wind events, and wildfires, and we're really seeing that that
Speaker 3: widely shared lived experience has helped real estate owners and
Speaker 3: investors understand that this is having and will continue to
Speaker 3: have real impacts, and they need to prepare to protect
Speaker 3: their assets value for the longer term.
Speaker 2: And so you know, you touched on I think some
Speaker 2: of the key economics here where physical risk is you know,
Speaker 2: hitting asset value. I'm sure too though that when it
Speaker 2: comes to economics like those, changing priorities even ultimately influence
Speaker 2: where owners choose to invest. So for investors, the important
Speaker 2: question is you know whether those investments produce measurable financial
Speaker 2: benefits risks. So where are building owners seeing that you know,
Speaker 2: the strongest financial return from improving building performance and resilience.
Speaker 3: So it's it's an interesting time, right. So energy efficiency,
Speaker 3: operational energy efficiency was always you know, it always paid
Speaker 3: on some level. The question was how long would it take? Right?
Speaker 3: And so now the combination of energy affordability and availability
Speaker 3: has come to the to the forefront. And that also
Speaker 3: is twinned with resilience as a whole. So the resilience
Speaker 3: of our grids, the ability to you know, protect our asset,
Speaker 3: and these these things are all intertwined. Right, So the
Speaker 3: energy availability and affordability question really has brought this to
Speaker 3: a critical point, and it means that operational energy efficiency
Speaker 3: is you know, coming much more to the force. So
Speaker 3: you know, whereas once getting access to energy was considered routine,
Speaker 3: we now have many markets where demand well outstripped supply
Speaker 3: and that's leading to long wait times to get connection
Speaker 3: for development that costs money. Right, Utilities are just not
Speaker 3: ready to support that demand that's coming through. So on
Speaker 3: a lot of places, prices arising and that's really improving
Speaker 3: the payback calculation on energy efficiency and energy costs are
Speaker 3: starting to hit tenants hard and they're starting to look
Speaker 3: for spaces that reduce their operating costs. Real estate owners
Speaker 3: can offer at least building level operational energy efficiency, whether
Speaker 3: they're triple at least or managing the asset directly as
Speaker 3: a way of attracting and retaining tenants. In many ways,
Speaker 3: operational if energy efficiency actually is becoming a resilience issue,
Speaker 3: because when you have an efficient building, you're also building
Speaker 3: resilience into that asset. You're hardening that asset against extreme
Speaker 3: weather events. You are also being able to create environments
Speaker 3: in which when we have extreme weather events, the people
Speaker 3: inside those buildings can stay safe. Right. So it's it's
Speaker 3: interesting to see that the intersection of these two things
Speaker 3: happening and actually seeing that operational energy efficiency plus the
Speaker 3: more traditional things we think about resilience are actually pulling
Speaker 3: together to say. When we're talking about kind of looking
Speaker 3: at the bigger picture of how can we make buildings
Speaker 3: more resilient, they're intertwined, they're all together, and when you
Speaker 3: do those different projects together, Really we're talking about from
Speaker 3: a cost perspective. A lot of this is focused on
Speaker 3: insurance costs. We know insurance premiums have gone up in
Speaker 3: a lot of cases that has really impacted NI and
Speaker 3: asset value. How do we manage that in a changing climate.
Speaker 3: Focusing on the energy efficiency the asset plus the additional
Speaker 3: resiliency elements that can protect that asset can help manage
Speaker 3: those insurance costs over the longer term. Again, this is
Speaker 3: a risk management business, right, and insurance is ultimately a
Speaker 3: risk management project. It's all about understanding those risks and
Speaker 3: taking the calculated steps forward. Some of the bigger players,
Speaker 3: you know, where you have large assets, so you can
Speaker 3: actually spread risk in different ways. You can be strategic.
Speaker 3: That's going to be good, they're going to be okay.
Speaker 3: But really the insurance costs come to folks who can't
Speaker 3: spread that risk in different ways. They're exposed to hazards
Speaker 3: that they can't they can't mitigate, So how are they
Speaker 3: going to manage that over the longer term. That's a
Speaker 3: really big part of it. But you know, it's interesting
Speaker 3: that the answer that we've had for forty years continues
Speaker 3: to be a really critical one. When you create energy
Speaker 3: efficient buildings, you also create more resilient buildings along with that.
Speaker 2: That's helpful to hear, and I think you know clear
Speaker 2: of how it's impacting not just operating costs, but the
Speaker 2: insurance element. I think we tend to discuss these topics
Speaker 2: though at a market level, but they could be easier
Speaker 2: to understand through real world examples so much more specific.
Speaker 2: Can you perhaps share an example where the BREAM framework
Speaker 2: meaningfully influence perhaps a client's investment decision or even the
Speaker 2: long term performance of an asset. Yeah. Sure.
Speaker 3: So many of our clients are using brand certification as
Speaker 3: a process for kind of getting their house in order right,
Speaker 3: to position the assets, and really to understand where these
Speaker 3: assets are starting from today, right, getting the understanding of
Speaker 3: the sustainability risks and opportunities that are there, and for
Speaker 3: a lot of buildings, shocking. I know, lots of owners
Speaker 3: don't have a lot of information about it, right. They
Speaker 3: have some basics that come from a property condition assessment
Speaker 3: that's conducted in a two week due diligence period, right,
Speaker 3: and you know, you can learn a lot of information
Speaker 3: from that, but ultimately you have to understand what you
Speaker 3: own and what the reality of that is on the ground.
Speaker 3: So we've worked with a lot of clients who are
Speaker 3: kind of kind of starting from the basics of filling
Speaker 3: in data gaps that they should have just for everyday performance,
Speaker 3: let alone for sustainability. Right. So this process can provide
Speaker 3: really a structured way to gather documentation. It needs to
Speaker 3: be gathered, validated, and submitted as part of our process,
Speaker 3: and it really helps them get those assets into position
Speaker 3: to be able to manage going forward, right, really understanding
Speaker 3: what the what the basics are, and then to be
Speaker 3: able to bring in improvement plans. So our process requires
Speaker 3: not only documentation, but we have a really rigorous certification
Speaker 3: process which includes an assessor trained and licensed by vary
Speaker 3: to verify that performance on site. So you know, getting
Speaker 3: all that together, that initial certification for many of our
Speaker 3: clients is about you know, understanding, okay, where we now,
Speaker 3: let's go get that building building and improvement plans, let's say,
Speaker 3: on top of verified data and information. And that's really critical.
Speaker 3: So in the last couple of years we've published case
Speaker 3: studies with Newvene EQT real Estate and axi im Alts
Speaker 3: which is now BMP Pariba, where they've described how BRIM
Speaker 3: has really helped them understand the performance and set their
Speaker 3: improvement pathway for the future to deliver value. And I
Speaker 3: think one of the most exciting things about this is
Speaker 3: that we are not talking super high performing assets right now,
Speaker 3: right like, this isn't about the super shiny things. These
Speaker 3: are about really buildings that reflect a lot of our
Speaker 3: current building stock, which is that they may be on
Speaker 3: the lower performance scale, but there are absolutely ways that
Speaker 3: they can move forward, that they can improve and actually
Speaker 3: drive value through that process. So sustainability, I think for
Speaker 3: a long time was thought about is something that you know,
Speaker 3: we do for high performance assets already. You know, it's
Speaker 3: kind of like given the high five to but that's
Speaker 3: not where the risk sits. So for those clients, I think,
Speaker 3: particularly in those case studies, it was a great demonstration
Speaker 3: of how they were looking at this as you know,
Speaker 3: how sustainability can really help drive that value wherever this
Speaker 3: asset's performance sits.
Speaker 2: Exactly what I wanted to kind of dive in next.
Speaker 2: I mean, one challenge the industry faces is that most
Speaker 2: of like tomorrow's building stock has already been built, but
Speaker 2: new constructions only part of the equation. And you know
Speaker 2: you spoke already a ton on this, But what are
Speaker 2: clients prioritizing I guess when deciding how to retrofit existing assets.
Speaker 3: So the two things I think that are the most
Speaker 3: immediate or kind of what I mentioned before, so cost
Speaker 3: you know that certainly is sharpening pencils on the efficiency side, right.
Speaker 3: The other eye is to regulation for existing buildings. So
Speaker 3: you mentioned, you know, around building performance standards. So we've
Speaker 3: seen retrofits to reduce energy usage. It's been particularly active
Speaker 3: in those jurisdictions with building performance standards. But we're also
Speaker 3: seeing particularly national owners really looking at where building performance
Speaker 3: standards may emerge, or even using building performance standards as
Speaker 3: a framework for all of their assets to think if
Speaker 3: a building performance standard came in, how would this asset perform?
Speaker 3: I mean, you know, as of twenty twenty four, about
Speaker 3: twenty five percent of all buildings in the US were
Speaker 3: covered by a building performance standard, and there's many jurisdictions
Speaker 3: that are still considering rolling them out. So for clients
Speaker 3: who are thinking about that regulation, they're thinking about also
Speaker 3: resilience and the hazard exposure that they have and needing
Speaker 3: to mitigate or manage that risk. What we're seeing with
Speaker 3: retrofits is actually bringing those two things together. What are
Speaker 3: interventions or changes that can be made where energy and
Speaker 3: resilience intersect. So high efficiency buildings, you know, cutting cutting
Speaker 3: energy use that can also need that mean that you know,
Speaker 3: backup solar or solar powered battery systems can be smaller, cheaper,
Speaker 3: and run longer during extreme events. Those all provide value
Speaker 3: in the asset and in aggregate. When buildings reduce energy
Speaker 3: demand and participate in demand management programs, it decreases stress
Speaker 3: on the grid and helps avoid blackouts which have those
Speaker 3: wider economic consequences. So we're really seeing the twinning there
Speaker 3: thinking about how can solutions do more things? What are
Speaker 3: the co benefits? I mean, find me a solution that
Speaker 3: reduces energy usage, you know, delivers additional resilience and protects
Speaker 3: occupant health and well being, and you've got a business
Speaker 3: case winner, so really looking for the solutions that do
Speaker 3: all of those things. And I think you know, certainly,
Speaker 3: given with the acute events, there's been a focus rightly
Speaker 3: so around life safety and comfort that has come in.
Speaker 3: You know, for real estate, ultimately we're a building's business,
Speaker 3: but we're also about people, right, It's really about occupants
Speaker 3: for a lot of it. How do we ensure that
Speaker 3: people stay safe during these events? You know, efficient buildings
Speaker 3: that can maintain reasonable internal temperatures mean that occupants can
Speaker 3: shelter in place right as long as the building structural
Speaker 3: integrity is maintained. And I mean this is really critically
Speaker 3: important for multifamily but also for commercial properties too. Right,
Speaker 3: people's productivity is damaged, particularly by extreme heat, so it
Speaker 3: increases fatigue, gets so those reaction times, and it raises
Speaker 3: the rate of mistakes. That's a business issue. So you know,
Speaker 3: bringing all of those two things together, we need to
Speaker 3: we need to start fortifying our buildings for the climate
Speaker 3: that we have in the future and really the one
Speaker 3: we're facing right now, just for it to maintain the
Speaker 3: value over that time. And there's a lot of building
Speaker 3: stock that really needs that help. So, you know, the
Speaker 3: way we look at it is like it needs to
Speaker 3: be about all buildings everywhere. How do we move those
Speaker 3: all forward? How do we you know, keep them uh,
Speaker 3: you know, keep them focused or the ownership focused to
Speaker 3: keep moving those forward? And how do we provide a
Speaker 3: means of measuring that that is really you know, science
Speaker 3: based and delivers value over the longer term.
Speaker 2: And I guess that would just again stem from the
Speaker 2: growing importance of consistent, comparable data like uh, you know,
Speaker 2: obviously investors increasingly rely on that building performance information when
Speaker 2: they're evaluating assets, but not all data is created equal.
Speaker 2: And you mentioned the bit on the importance behind having
Speaker 2: you know, some kind of data to derive insights. You
Speaker 2: can't manage what you don't measure, the famous saying that
Speaker 2: everyone likes to be used the you know, obviously brain
Speaker 2: emphasizes third party verification. But like, why is independent building
Speaker 2: performance data so valuable for building owners and for investors?
Speaker 3: It's a great question. You know, we start at kind
Speaker 3: of the basis of building science, right, So our organization,
Speaker 3: be Area, is a one hundred plus year old building
Speaker 3: science research organization, and you know, we're the first to
Speaker 3: say there are a million different ways that you can
Speaker 3: measure performance, But ultimately what is meaningful What can you
Speaker 3: not only understand but influence and change as an outcome.
Speaker 1: Right.
Speaker 3: We often talk about this in the difference like when
Speaker 3: you have an existing building, most people can't change the
Speaker 3: walls unless you're going to do a major you know, retrofit. Right.
Speaker 3: So you got the asset that you have, how can
Speaker 3: you optimize within it? Within that? Right? So for us,
Speaker 3: the first thing is establishing what are the what are
Speaker 3: the data points that matter? How does it have impact?
Speaker 3: So you know, for example, you know we've talked about
Speaker 3: energy efficiency. Really energy efficiency is important, but ultimately from
Speaker 3: an impact perspective, it's about how much carbon is produced
Speaker 3: from the from the energy that goes with that, right.
Speaker 3: So you know operational energy FREEMS recognized operational carbon emissions
Speaker 3: in our standards right from the beginning because science told
Speaker 3: us that's where the impact was going to be. So
Speaker 3: we focus on looking at the metrics that really matter
Speaker 3: and that are measurable and end can be and can
Speaker 3: be changed or influenced right through through changes in management. Okay,
Speaker 3: so real estate is ultimately about managing risks, right in
Speaker 3: order to manage those risks. One, you have to understand
Speaker 3: what the risk is and the data that underpins that
Speaker 3: that's going to tell you. So again narrowing it down
Speaker 3: from the billion and one things that you can measure
Speaker 3: down to the things that really matter. But the independence
Speaker 3: of that data, right, Like you said, not all data
Speaker 3: is the same, and it's really important for investors to
Speaker 3: be able to trust the information that they're being given. Right,
Speaker 3: do they trust that the risks are being managed and
Speaker 3: that the performance is as they are being told? And
Speaker 3: I think we're in very much a trust but verify
Speaker 3: kind of society, right that comes behind this. So Briham's
Speaker 3: process is really building on that. We take it a
Speaker 3: step further through requiring the on site visit, right because
Speaker 3: you know, it's not just what's shown on paper but
Speaker 3: actually backed up what's seeing on site. And you know,
Speaker 3: I mean any owner can tell you, you know, when they've
Speaker 3: purchased something, and they may walk in and there's always
Speaker 3: a surprise, right. I don't think there's any real estate
Speaker 3: owner and manager in the business who hasn't had at
Speaker 3: least one of those in their career. So the independence
Speaker 3: of the assessor from the owner and even from bre
Speaker 3: really makes them the independent third part verifying the performance achieved,
Speaker 3: so you know, it's not just what's set on paper,
Speaker 3: but it's actually what's going on in the assets. And
Speaker 3: it's important to note right, most assets in the building stock,
Speaker 3: like I said, are not high performance buildings. That adds
Speaker 3: risk to the asset, but that doesn't make it uninvestable,
Speaker 3: and in fact, one could argue that actually the more
Speaker 3: you know brown quote unquote a building is the more
Speaker 3: desperately it needs that investment. Right. The key is providing
Speaker 3: the transparency of the extent of the risks and opportunities
Speaker 3: and allow the investor to make an informed decision. Being
Speaker 3: really clear on the critical metrics to measure is part
Speaker 3: of that, and that's where we come at this from
Speaker 3: a science base. Trust the science to define those metrics.
Speaker 2: Gotcha, And I'd love to touch on AI now if
Speaker 2: that's okay. You know, on our side, we've spent quite
Speaker 2: a bit of time just researching AI infrastructure, particularly around
Speaker 2: the how water, power and cooling all play in this space.
Speaker 2: And as data centers become larger, more resource intensive, they're
Speaker 2: introducing a different set of design and operational challenges that
Speaker 2: I would say traditional well compared with traditional commercial buildings,
Speaker 2: and so would be great to hear from conversations you've had,
Speaker 2: even perhaps some of the certificates you guys were able
Speaker 2: to issue using BREAM, Like, how are those trends changing
Speaker 2: the way clients maybe think about designing and just overall
Speaker 2: operating data centers.
Speaker 3: Yeah, it's a great one. I mean, it wouldn't be
Speaker 3: a conversation if we didn't bring up AI at this point, right.
Speaker 3: It's a really I mean, it's a really exciting space,
Speaker 3: and this is interestingly presenting us some really incredible challenges
Speaker 3: in thinking about resource management and availability. I mean, there
Speaker 3: was always the theoretical, you know, reaching a limit of
Speaker 3: what we have available, and data centers have kind of
Speaker 3: brought that into into reality. Certainly on energy, we're already
Speaker 3: experiencing it, and I think the fears around energy limitations
Speaker 3: of energy availability are coming kind of into the water
Speaker 3: sphere now. You know, let's start with water though, because
Speaker 3: I think this is a really big one. You know,
Speaker 3: there's been some pretty wild estimates out in the media
Speaker 3: about how much water data centers consume. Ye as if
Speaker 3: that consumption would be uniform no matter where the data
Speaker 3: centers are built. So you know, I mean I've been
Speaker 3: I've been working in the data center sector for at
Speaker 3: least two years now. I'm helping develop our standards and
Speaker 3: updata standards around data centers and you know, and I
Speaker 3: work with a number of operators we have, we've issued
Speaker 3: certificates for data centers for over ten years. And I
Speaker 3: think what's interesting there is, like the miss that's being
Speaker 3: made is that really, when I comes to water, the
Speaker 3: critical thing to consider is the cooling strategy that's being
Speaker 3: used because that's where the water consumption comes in. And
Speaker 3: that cooling strategy is very different climactically. Right. This isn't
Speaker 3: a one size fits all where we're throwing up the
Speaker 3: same building whether we're building in Phoenix or you're building
Speaker 3: in the Great Lakes area, Right, So there is absolutely
Speaker 3: a potential to be consuming millions of gallons of water.
Speaker 3: That's absolutely possible. But practically speaking, most data center developers
Speaker 3: are now installing closed loop systems which do not use that.
Speaker 3: And that's not just in water stressed areas. That's in
Speaker 3: a lot of different areas. There is a challenge around refrigerants.
Speaker 3: We can't be blind to the fact that refrigerants aren't
Speaker 3: necessarily benign as their impact, but it is not necessarily
Speaker 3: the water stress that's there. And I think I think
Speaker 3: a lot of data center operators are very conscious of
Speaker 3: partly because the energy the energy limitations that are now
Speaker 3: being hit, really conscious of what happens if you don't
Speaker 3: have that. Those are critical material, uh significant issues, right,
Speaker 3: So what transparency is not not present at the moment,
Speaker 3: and I think that's stirring a lot of fears about
Speaker 3: what does this mean? And we should be concerned. I mean,
Speaker 3: water is really critical. There is no life without water,
Speaker 3: and so for me, it's even more critical than the
Speaker 3: energy conversation. We need to be able to manage that.
Speaker 2: Just to make the matter a little bit more complicated
Speaker 2: to you, I would just throw in there that a
Speaker 2: lot of these you know, closed loops zero water cooling designs,
Speaker 2: a lot of it is also announced for the new
Speaker 2: build out, which kind of goes back to what we
Speaker 2: touched on earlier, the importance of retrofitting existing you know assets,
Speaker 2: and at least to your point, having disclosure so insight
Speaker 2: into you know, what is there cooling strategy And though
Speaker 2: that is like a huge part of their consumption, really
Speaker 2: their water footprint largely anchors in how they're sourcing their electricity,
Speaker 2: because if it's powered by water intensive fuel types like coal,
Speaker 2: natural gas, nuclear, that's a whole other issue that makes
Speaker 2: it even more you know, important for.
Speaker 3: Those who are in the in the GHG inventory or
Speaker 3: calculation business. I started talking about Scope three water not
Speaker 3: that long ago, and people shuddered, you know, it was
Speaker 3: that idea about yeah, like, I mean, it's not it's
Speaker 3: not in the protocol yet, nobody needs to worry. But
Speaker 3: but that's essentially what we're talking about. We're talking about
Speaker 3: the impacts from from that generation. And yes, that is
Speaker 3: absolutely hidden at this point. We don't have a method
Speaker 3: for calculating. And but it's interesting, right, Like you know,
Speaker 3: the GHD protocol came about where people were like, you know,
Speaker 3: there's two things that we care about. Really the core
Speaker 3: things is what are we generating on site? What you know,
Speaker 3: emissions we're generating on site, and then what power are
Speaker 3: we purchasing? Scope three for GHD emissions came later, right,
Speaker 3: This idea about actually there's a lot of different things.
Speaker 3: When you look at Scope three of the GHD protocol,
Speaker 3: there's fifteen different categories. There's a lot of different ways.
Speaker 3: I think we'll come to water in the same way. Right,
Speaker 3: we need to focus on you know, what are we
Speaker 3: using on site, the efficiency of that, and really I
Speaker 3: think from a data center perspective, it's around site selection
Speaker 3: where you know, I mean, we've got the twinning of
Speaker 3: like I think energy is the bigger thing at the moment.
Speaker 3: You know, water you can solve, you can have. I
Speaker 3: wouldn't call it waterless data centers, but again there's alternatives
Speaker 3: that are not water that actually would not be then
Speaker 3: a barrier to citing a data center. I think the
Speaker 3: power aspect, though, I mean, that's going to come down
Speaker 3: the line. At this point, we're just talking about, you know,
Speaker 3: what can be transmitted down the way line even I
Speaker 3: mean for a lot of folks, it's like can it
Speaker 3: be transmitted down the line?
Speaker 1: Right?
Speaker 3: Availability rather than even an affordability in some level. I
Speaker 3: think the thing that's interesting about data centers is like,
Speaker 3: you know, in the standard real estate world, you know,
Speaker 3: a small efficiency gain, you you know, the the you know,
Speaker 3: the being counters would say, well, you know, it's kind
Speaker 3: of a small gain. It's not really a big deal.
Speaker 3: It doesn't move the needle, whereas even like a five
Speaker 3: percent efficiency gain at a data center could mean millions
Speaker 3: of dollars, and so there's real you know, drive to
Speaker 3: make that work, uh and actually to drive those efficiencies. So,
Speaker 3: you know, just like everything else we see, you know,
Speaker 3: AI infrastructure is basically turning into you know, everything else
Speaker 3: on steroids. I think it's been a really good learning
Speaker 3: case for the rest of real estate to say, actually,
Speaker 3: you know, in a world of limitations of limited resources,
Speaker 3: how do we choose what's important? How do we choose
Speaker 3: who gets energy and who doesn't. Why do we choose that?
Speaker 3: Water is another really great way. I mean, that's another
Speaker 3: very interesting facet and you know what's going on in
Speaker 3: the Colorado River right now with that system that is
Speaker 3: again it's a mirror to what we're doing in energy.
Speaker 3: But ultimately, you know, we need to think about all
Speaker 3: of those different aspects. How do we work together as
Speaker 3: an economy to be able to access that in that energy?
Speaker 3: You know, I think a lot of power is more difficult,
Speaker 3: right because ultimately the power demand is being driven by
Speaker 3: the equipment and the building and that's out of the
Speaker 3: control of data center developers and operators. It just is right,
Speaker 3: you know, Navidia and others are making determinations about how
Speaker 3: energy intensive or energy efficient their equipment is going to
Speaker 3: be and the data but the data center developers and
Speaker 3: operators are the face of it right to the communities.
Speaker 3: So you know, I mean think about it this way, right,
Speaker 3: Industry buildings can be used from everything from logistics warehouses
Speaker 3: to advanced manufacturing. The energy usage in those use types
Speaker 3: is totally different, but that's driven by tenant use, you know,
Speaker 3: not the building itself. So how do you manage that?
Speaker 3: You know, for data center developers and operators, a lot
Speaker 3: of that is going to be about figuring out what
Speaker 3: is within their responsibility and control and making sure that
Speaker 3: that is as efficient as possible, while also you know,
Speaker 3: working with their their occupiers, their digital occupiers. You know,
Speaker 3: it's interesting in the office sector, you know, many owners
Speaker 3: have requirements on the energy efficiency of the equipment that
Speaker 3: can be installed in the building, you know, to ensure
Speaker 3: the design or actual energy load provided is maintained. Right,
Speaker 3: there's only so much power they can do. With data centers,
Speaker 3: there's no such limitation. And there's a good reason for that,
Speaker 3: and that is because the equipment is changing so quickly
Speaker 3: at this point. How how to manage that is very
Speaker 3: very difficult. Ultimately it becomes about power allocation. You know,
Speaker 3: is as a digital tenant you go into a data center,
Speaker 3: you're paying for a certain amount of power allocation. There's
Speaker 3: penalties for going over that allocation, right, But ultimately, so
Speaker 3: if you're installing equipment that is more intensive there, it is, right,
Speaker 3: but ultimately that is something that's being made, the decisions
Speaker 3: being made by the tenants to put in that particular equipment.
Speaker 3: I think one of the biggest you know, this is
Speaker 3: a multi faceted challenge. Data center developers and operators need
Speaker 3: to focus on how they create buildings that are really
Speaker 3: energy efficient from a building systems perspective to and resilient
Speaker 3: as well to go with that. But it's also up
Speaker 3: to the digital tenants, the occupiers of this, and the
Speaker 3: equipment manufacturers, the IT folks to really think about their equipment.
Speaker 3: It's energy efficiency, it's processing and ultimately I think, I
Speaker 3: mean the big one that's kind of hidden is the
Speaker 3: e waste that's coming out of this. The refresh rate
Speaker 3: is just incredible, and again another sneaker, we're all busy
Speaker 3: looking at power, what's that going to be just to
Speaker 3: get this dang thing online, and really, what's going to
Speaker 3: happen in five years time when they need to refresh
Speaker 3: all the equipment. Where's it all going to go. What's
Speaker 3: going to happen to it is going into a local landfill? Gosh,
Speaker 3: I hope not. But we need a circular economy and
Speaker 3: we need it fast.
Speaker 2: Right And I think that goes back to the cascading
Speaker 2: effects of the supply chain, where it's you know, we're
Speaker 2: looking at waste, we're looking at energy, there's water, so
Speaker 2: very complex. But hopefully as time goes on, we're getting
Speaker 2: more answers, or at least there's more companies that are
Speaker 2: kind of showing leading by example and showing the way
Speaker 2: for others to move forward.
Speaker 3: You know, I think the biggest thing here is the
Speaker 3: transparency piece. There's a lot of fear going on right
Speaker 3: now about what's happening because there just isn't the transparency
Speaker 3: that we expect or we've had from other industries. Bring
Speaker 3: the transparency and we will ease the concerns and the fears.
Speaker 3: I think that's going to be the first step. And ultimately,
Speaker 3: like I've said about Braham, that's kind of why we're
Speaker 3: here in the first place, but also you know, being
Speaker 3: able to be clear about those impacts and the you know,
Speaker 3: the cost and the benefits.
Speaker 2: Gotcha. And maybe on that note we can end more
Speaker 2: on a question that's forward looking, so, you know, looking
Speaker 2: beyond today's market, investors are trying to understand which performance
Speaker 2: metrics are likely to become more important over the next decade,
Speaker 2: as the regulations evolve and as the physical risks continue
Speaker 2: to change. Perhaps looking ahead of just five years, what
Speaker 2: building performance metrics do you think investors and property owners
Speaker 2: will pay much closer attention to than they do today.
Speaker 3: I think in the US it's going to be about
Speaker 3: energy use intensity EUI for a segment of the market,
Speaker 3: and certainly from a global investor perspective, they will continue
Speaker 3: also to focus on carbon use intensity. But I think
Speaker 3: EUY is going to be the core metric, partly because
Speaker 3: a lot of guys sits for the regulation, and I
Speaker 3: think we're going to see those building performance standards start
Speaker 3: to be implemented much more broadly. You know, the the
Speaker 3: withdrawal of the federal government from looking at these issues
Speaker 3: has not stopped, and effect probably is accelerated state and
Speaker 3: local action to bring in UH, regulations that will manage
Speaker 3: carbon emissions, so I think I think EUY though, will
Speaker 3: be even more important. That's the regulation side, that's the
Speaker 3: energy affordability and availability, and I think ultimately certainly on
Speaker 3: the development side UH for non data centers, I think
Speaker 3: the the ask for development, you know, the energy asks
Speaker 3: that's going to come from developments, is going to be
Speaker 3: heavily questioned as there's so much pressure on the grid.
Speaker 3: I don't see that changing for the next five years.
Speaker 3: I think some of this is also going to come
Speaker 3: in with on site generation and battery storage, right, so
Speaker 3: you know, twinning those things about how do we continue operating,
Speaker 3: how can we reduce our reliance on the grid, and
Speaker 3: then how do we go through blackouts which are more
Speaker 3: likely or they feel more likely at this point because
Speaker 3: of the strain on the energy consumption we even have
Speaker 3: today as utilities move forward. So I think that's going
Speaker 3: to be the next thing is not just you know,
Speaker 3: are you getting enough energy where are you getting it from?
Speaker 3: But how are you going to maintain that operation, whether
Speaker 3: for residential, for multifamily, or for a commercial business through
Speaker 3: periods of extreme weather, heat or cold and other events.
Speaker 3: And then I think the other one is going to be,
Speaker 3: you know, the movement. Right now, I think most investors
Speaker 3: are asking questions about physical climate risk. Have you assessed?
Speaker 3: Do you understand? I think the next five years is
Speaker 3: going to be about and what are you doing about it?
Speaker 3: Are you doing anything? And actually and not to I mean,
Speaker 3: obviously I always make a plug for we should be
Speaker 3: doing something about it, right, but there is also a
Speaker 3: decision of not acting right and but that also has
Speaker 3: to be transparent. There is a case in some ways
Speaker 3: where people would not invest in those things, but it's
Speaker 3: just as important to ask why not as much as why.
Speaker 2: So I feel like.
Speaker 3: You know that the real move is going to be
Speaker 3: from you now understand the risk? How are you applying this?
Speaker 3: And that's going to be a big change, particularly you know,
Speaker 3: this is an al Ninio year, right it is building
Speaker 3: and the more events we have, the wildfires in particular,
Speaker 3: the more I think this is really praying on people's
Speaker 3: minds about how we're going to continue to adapt to
Speaker 3: the world that's really changing quite quickly around us.
Speaker 2: Wonderful, Brianna, Thank you so much for joining us today
Speaker 2: and for sharing your perspective, and thank you to everyone
Speaker 2: for listening, so if you're interested in learning more, you
Speaker 2: can explore Bloomberg Intelligences Prepare and Repair theme and other
Speaker 2: physical environment themes by going to BI space theme on
Speaker 2: the Bloomberg Terminal, or you could read additional research from
Speaker 2: the Bloomberg Intelligence Sustainable Finance team by going to bi
Speaker 2: Space ESG. Thanks for listening, and we hope you'll join
Speaker 2: us again for next episode.