Empire State Realty Trust (NYSE: ESRT) is a publicly traded real estate investment trust (REIT) that owns, manages, operates, acquires and repositions office, retail and multifamily properties in Manhattan and the greater New York metropolitan area including the Empire State Building, the "World's Most Famous Building." As of June 30, 2023, ESRT’s portfolio comprised approximately 8.6 million rentable square feet of Class A office space, 718,000 rentable square feet of retail space and 721 residential units across three multifamily properties.
Achieving 100% Renewable Electricity Procurement
ESRT has established itself as an industry leader in sustainability. According to its 2022 Sustainability Report, the company advances “environmental, social and governance principles as we lead the industry with our expertise and consistently implement best practices across our portfolio.” A key aspect of ESRT’s sustainability efforts is sourcing renewable electricity to reduce greenhouse gas emissions associated with purchased electricity (scope 2 emissions). Dana Robbins Schneider, SVP and Director of Energy, Sustainability and ESG at ESRT, stated: "We are a leader in sustainable operations with a viable example of how to scale carbon neutral strategies and policies to balance with an effective economic business case." We have purchased renewable power…for the World's Most Famous Building, the Empire State Building, for a decade. We now expand that to all properties in New York State with an additional Direct Energy contract for our Connecticut properties. We continue to advance our commitment to solutions that reduce our environmental impact. Our tenants now work in carbon neutral offices and the investment community can recognize our leadership."
"As legislation, market demand, and climate change risk push real estate owners to meet emissions reduction requirements, companies need to seek out more advanced ways to offset their current usage while they work to reduce emissions," said Anthony E. Malkin, chairman, president, and CEO at Empire State Realty Trust. "ESRT continues to innovate and implement ways to serve as a destination for high quality tenants and benefit investors with considerable savings and returns. "Our portfolio remains an attractive offering for tenants whom flight to quality means healthy, energy efficient buildings at an accessible price point," Malkin added.
As of October 2023, ESRT’s portfolio is carbon neutral and set goals to reach net zero carbon emissions at the Empire State Building by 2030 and throughout the portfolio by 2035. In February 2021, ESRT announced it had entered into a three-year contract to power 100% of its portfolio with renewable wind electricity. The agreement sources the renewable energy from the purchase of over 300,000 MWh of renewable energy certificates (RECs) annually. This expansion built upon ESRT's decade-long effort to power its iconic Empire State Building with renewable energy. In the first year, the contract saved ESRT over $800,000 compared to traditional brown power.
Beyond cost savings, powering its portfolio with renewable energy supports ESRT's goals to reduce greenhouse gas emissions and differentiate itself to tenants focused on sustainability. Speaking to Commercial Observer about their success in November of 2023, “while others bought and borrowed, we kept leverage low and invested in our portfolio,” Malkin told the publication. “We’re modernized, amenitized, well located, energy efficient, and we’re real leaders in sustainability and indoor environmental quality.” Particularly for their prized asset, much of its enduring value has come from the concentrated effort to make the Empire State Building one of the most energy-efficient and sustainable buildings in the world, according to Robbins Schneider.
The Impact of RECs with Additionality
While ESRT has made significant progress in renewable electricity procurement, its strategy could be improved by purchasing RECs with additionality rather than solely traditional RECs. Incorporating RECs with additionality would allow ESRT to participate in accelerating the grid’s ability to transition to renewable energy. Since RECs with additionality would come from projects yet to be developed, these would be forward fixed price agreements to purchase strips of RECs for 5 or 10 years in advance of the project’s commercial operations date. Not unlike a VPPA. but without the need to search for a specific project. This would enable ESRT to document its effort to make a more impactful marketing claim for sustainability purposes over using traditional RECs. Which support ESRT’s current success in tenant attraction and retention.
Equally important, the fixed price for RECs with additionality would mitigate rising costs over time associated with continued renewable energy procurement using RECs without additionality. It would also provide scale to their emission reduction strategies needed to cover increased consumption of megawatt hours (MWh) of electricity as their business continues to grow. As ESRT’s electricity consumption expands, the purchase of RECs with additionality can expand with it.
A Chance To Raise The Bar Even Higher
In conclusion, ESRT's commitment to renewable energy and sustainability is commendable. They’ve clearly demonstrated that sustainable operations and economic viability can go hand in hand, providing a viable example for other companies to follow. ESRT's achievements in reducing its greenhouse gas emissions and achieving carbon neutrality set a high standard for the real estate industry. By considering the inclusion of RECs with additionality in its renewable energy strategy, ESRT could further enhance its sustainability efforts and push them even further ahead of their industry peers in the transition to renewable energy.