Under the Lens: Green Leases with Adam Tarogowski

How can green leases help future-proof your business? We share expert insights and three practical answers.

As Adam Tarogowski, CTP’s Group Head of ESG, tells Institutional Real Estate Inc. in a recent interview, nearly 40% of CTP’s lease agreements with our clients in 2023 had a green lease clause, and he expects this number to continue rising. In this interview article, Sharpening Up: Making Green Leases More Effective (please note there is a paywall), other industry experts unanimously agree with Adam: green leases are on the rise and driven by several factors — not just for asset owners, but also for tenants as they are confronted with more environmental reporting, legislation, and investor interest. 

But first, what is a green lease? Knight Frank defines it as the following:

“A ‘green lease’ is a lease that incorporates clauses whereby the owner and the occupier undertake specific responsibilities/obligations with regards to the sustainable operation/occupation of a property, for example: energy efficiency measures, waste reduction/ management and water efficiency. The incorporation of green clauses is not limited to new leases. Where a lease is already in place, the parties can enter into a Memorandum of Understanding (MoU) which provides a roadmap for co-operation between the parties on improving the environmental performance of the property.”

This article acknowledges that tenants may be apprehensive about adding more involvement to their contracts, such as with data sharing, but it assures that both parties need to work together to meet their environmental impact goals. Lucy Winterburn, a Fund Director at Savills Investment Management, explains how tenant-landlord relationships are evolving:  

“If I look back, we used to let a building for a 10- or 20-year lease and said ‘thank you Mr. Tenant, we don’t really need to talk to you anymore apart from when it comes to rent renewal.’ But those days are gone now. A good landlord must have a much closer relationship with a tenant and regularly interact with them. There is an understanding that we are in this together and we can’t make our buildings more energy efficient without each other. We have to make sure that we are all doing everything we can to reduce energy consumption and make a building more efficient.”  

In response to climate change and the legislation seeking to slow it, we understand that the private sector must expand its priorities to new areas. Every day, we are working to adopt better practices and innovations to address these new challenges proactively, not just for us, but also for our clients because there is a big overlap in our goals. Because CTP builds to own, our business model is centered on long-term cooperation and partnerships with our clients. Your success is our success, and that success includes working on our environmental goals together.  

Here are three ways green leases can help future-proof your business:  

1. More Efficient Sustainability Reporting: Wherever your business operates in the EU, you’ll see sustainability reporting on the rise under directives like the EU Taxonomy or CSRD. Green leases make it easier to identify and collect key data related to your business’s utility consumption, while also making it easier to track greenhouse emissions. 

2. Utility Optimization and lowered costs: It is easier and more efficient to work together: we are experts in building technologies and systems, while you best understand the unique technologies your business uses. Through sharing data and working together, we can better identify gaps for improvement and adjust specifications to achieve better results and tighten utility consumption. 

3. Longevity assurance: Green leases help protect the long-term value of assets by encouraging continuous improvements and sustainable use. For tenants, this helps ensure the building will be kept in good shape and minimize their operational costs, particularly over the course of longer-term lease agreements. 

Learn more about how CTP delivers sustainability HERE.