AvalonBay Communities, Inc., (AvalonBay) is the 16th largest publicly traded REIT (real estate investment trust). As of March 31, 2023, the Company has ownership interest in 295 apartment communities consisting of 88,826 apartment homes in 12 states and the District of Columbia. As an equity REIT, AvalonBay develops, redevelops, acquires and manages multifamily communities primarily in New England, New York/New Jersey metro, the Mid-Atlantic, the Pacific Northwest and in Northern and Southern California. This footprint makes them the 4th largest multifamily owner according to the National Multifamily Housing Council (NMHC)
Their leadership in multifamily housing directly translates to their sustainability efforts. For over a decade the company has leaned into its forward thinking as a sustainability champion and it shows up at the core of their operations. "We integrate ESG efforts into all aspects of our business” said CEO, Benjamin Schall in a recent interview. “We understand and are driven by a strong belief that our actions, both big and small, contribute to creating a better way to live for all people, the places where we live and work, and the planet at large."
Katie Rothenberg, Vice President ESG added recently, "We are very pleased that our climate change and emissions reduction efforts and investments are making an impact. It is a testament to the over 3,000 AvalonBay associates working each day to create a better way to live by supporting programs that help address environmental sustainability as well as meaningful change through our inclusion and diversity efforts.”
AvalonBay has been repeatedly recognized by the Global Real Estate Benchmark (GRESB) as sustainability sector leader having received the highest rating of 5 stars two years in a row.
“GRESB Sector Leaders are the top-performing organizations leading the way to a net-zero future and pulling the industry forward” said Sebastien Roussotte, CEO of GRESB. NAREIT views their work similarly, awarding the company a second consecutive Leader in the Light Award for 2023.
In receiving this award, Rothenberg noted that “like many organizations with 2030 targets, the AvalonBay team continues to refine strategies, policies, and practices to better align efforts focused on the achievement of our science-based targets (SBTs) - 53% reduction in scope 1 and 2, and 47% reduction in scope 3 from a 2017 baseline.” The winning doesn’t seem to stop there, with honors from Newsweek and Statista as one of the most responsible companies in America for 2021 and is ranked number 64 on the Forbes Net Zero list.
But as impressive as the accolades are, the real plaudits go to AvalonBay’s strategies. They’ve employed a portfoliobased approach to reach their goals as they strive for 100% renewable electricity. In 2019 the company solidified its guiding principles when it announced its commitment to setting science-based emissions reduction targets to be approved by the Science-Based Targets initiative (SBTi). In doing so, they joined a growing group of leading companies focused on setting emissions reduction targets in line with what climate science say is necessary.
At the time Tim Naughton, Chairman of the Board said “as the cities and markets in which we do business move toward a low-carbon future, AvalonBay has plans to lead the way and contribute positively to this future. We know that fulfilling our purpose of creating a better way to live requires us to continue to set ambitious and innovative goals aligned with climate science, and, as a result, AvalonBay is committed to setting science-based targets.”
Former VP of Corporate Responsibility, Mark Delisi, now VP of ESG at Brookfield Property Group noted that the “Company’s commitment to science-based targets, demonstrate the strong position that AvalonBay is taking on environmental sustainability and a low-carbon future.”
With SBTi as the northstar, AvalonBay has taken a thoughtful yet aggressive approach to its renewable electricity strategy that spans onsite generation, offsite generation and an innovative approach to using RECs. In 2021 they added 23 solar panel systems representing 3.06 MW giving them a total of 59 solar sites operating with a total of 8.6 MW of solar. The result of this onsite strategy produces roughly 12,200 MWh of electricity per year. In 2022, they added another 13 sites with a total of 4.8 MW of solar generating roughly an additional 6,300 MWh of electricity.
They’ve also innovated by tweaking their energy supply procurement program to adjust for summer peak demand management they’ve found ways to lower supply rates by using an online reverse auction platform that supports renewable energy credits. All of this has Increased renewable procurement of common area electricity to 91% in 2021 and will help AvalonBay successfully move to 100% renewable electricity in 2022.
Lastly, in the future, AvalonBay will consider offsite power purchasing through mechanisms such as a Virtual Power Purchase Agreement (VPPA). The expectation is that a contractual investment in an off-site renewable energy project will allow them to gain the environmental benefits (renewable energy credits or RECs) while making a sizable dent in their emissions.
These strategies come with some risk and complexity, such as potential fluctuations in energy supply and the need to adapt to evolving regulations and market conditions.
The Potential Impact of RECs with Additionality
To complement their strategy and ease some of the complexity, AvalonBay's progress could be further improved if the company included RECs with additionality in their approach. RECs with additionality are not only relevant and critical, but they provide several benefits.
First, they can help accelerate the grid's transition to renewable energy while driving a greater environmental impact. Since these RECs would subsidize only new renewable energy projects, this would help more pre-development projects come online faster.
Second, RECs with additionality will also help mitigate costs over time. Since these certificates ensure that an increasing amount of new renewable energy projects are financially viable, supply will eventually catch up with demand, lowering renewable energy costs.
Third, AvalonBay could enhance marketing claims for sustainability using RECs with additionality. Since additionality is the missing piece to the current unbundled REC model, AvalonBay could make a more impactful marketing claim about its sustainability efforts by demonstrating a direct contribution to new renewable energy projects.
Lastly, RECs with additionality would add scale to AvalonBay’s approach. Considering a VPPA in the future is laudable and possibly meaningful with respect to the company's impact on the grid and its sustainability efforts. But a VPPA is a huge undertaking requiring expert negotiating skills, risk mitigation in the electricity market, and a massive effort to engage stakeholders. Not to mention dealing with the lack of clarity as to whether it will cover your future electricity consumption. Instead, RECs with additionality can be procured seamlessly without the VPPA hassle while providing a flexible approach to addressing future electricity consumption.
AvalonBay has made commendable progress in its efforts to source nearly 100% renewable electricity to reduce its scope 2 emissions. By incorporating RECs with additionality into its strategy, the company could further enhance its environmental impact, accelerate the transition to renewable energy, and strengthen its position as a leader in sustainable real estate development, ownership, and management.