Corporate &Investment Banking

Sustainable Finance & Advisory

The next frontier: Embodied
carbon in commercial real estate

Executive summary
Embodied carbon comprises the emissions
attributable to the construction of a new building,taking into consideration emissions related to raw
material inputs, manufacturing, and transportation,
as well as emissions related to the building’s future
demolition. At its core, embodied carbon intends tocapture non-operational emissions from buildings,
helping developers to gain a holistic understanding of
the environmental impact of a new development.
• Embodied carbon is typically measured througha whole building lifecycle assessment, withemissions data for specific products pulled fromenvironmental product declarations created by the
manufacturer.
• Regulations, both in the U.S. and abroad, havebeen pushing for reductions in embodied carbon.
California, for example, requires reductions forlarge commercial buildings or large-scale reuse ofexisting structures. Some jurisdictions have rolled
out incentive programs for developments that takesteps to reduce embodied carbon.
• Disclosure frameworks, like GRESB and SBTi,
and green building ratings standards, including
LEED, increasingly are considering embodied
carbon. Frameworks now enable the disclosureof embodied carbon metrics, while green building
ratings standards award points for projects that
actively consider and reduce their embodied carbon
footprint.
• A number of new developments across various
property types have demonstrated that embodied
carbon can be reduced at little to no cost premium,though other challenges, including material
availability, workforce familiarity, and balancing
operational and embodied carbon remain.

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Understanding embodied carbon
The commercial real estate industry is a major
contributor to the world’s greenhouse gas (GHG)*
emissions, with 28% of global emissions attributable
to day-to-day building operations and a further 11%
attributable to embodied carbon.1 As operational
GHG emissions decrease due to improving building
efficiency and grid decarbonization, embodied
carbon will become a larger portion of the real estateindustry’s overall emissions profile, and, as a result, isbeginning to draw more investor focus and regulatory
scrutiny. Moreover, approximately 2.6 trillion square
feet of new floor area is expected to be added to
the global building stock by 2060, the equivalentof adding an entire New York City to the world
every month for the next 36 years.2 Because of themagnitude and permanence of the carbon impact, it isimperative that real estate developers and investors
explore reducing embodied carbon in their projects.

of building materials, construction processes,
maintenance, and eventual demolition of a building,and is expressed in kilograms of carbon dioxide
equivalents.3 This is calculated by multiplying a carbon
factor (kg of CO2e per kg of material) by how muchof that material is used in a project.4 This assessment
is typically completed as part of a whole building
lifecycle assessment (WBLCA), a holistic method of
calculating the environmental impact of a building
from cradle to grave.
Many manufacturers publish product emissions
data within environmental product declarations(EPDs), which highlight carbon content, similar to
how a nutrition label highlights caloric content.5 As
of January 2024, there are estimated to be nearly
120,000 construction product EPDs globally, making
selection of environmentally friendly construction
products easier than ever.6

Embodied carbon considers the GHG emissions
associated with the production and transportation
Scope of a WBLCA under EN 15978, an Increasingly Common WBLCA Standard7
Beyond the life cycle

Approximate
emissions:

B4B5

B6 operational energy use
B7 operational water use

Site Practicalcompletion

A4: 4% A5: 1%

C1

C2

C3

Benefits and loads beyond
the system boundary
D1i

End of life

B1-B5: 20% | B6:23%

C4

Disposal

Construction / installation

A1-A3: 50%

B3

Waste processing

Transport

Gate

B2

Transport

Manufacturing

CradleB1

Demolition

A5

Refurbishment

A4

Replacement

A3

End of life

Repair

A2

Use

Maintenance

A1

Transport

Construction

Raw material supply

Module:Product

Use

Stage:

Reuse / recovery /recycling potential

Life cycle

Grave

C1-C4: 2%

i. Operational emissions are not a component of embodied carbon

Regulation has been driving consideration of embodied carbon
As sophistication has grown around reducing
operational emissions in real estate, governments
have turned their attention towards reducing
embodied carbon by promoting greater disclosure,2*Greenhouse gases include carbon dioxide, methane, nitrous oxide, and fluorinated gases.

and, in some cases, mandating reductions. The
following chart highlights many of the jurisdictions
pursuing embodied carbon regulation.

Overview of Select Regulations Impacting Embodied Carbon
Regulation

Effective
date

Description

Federal-State
Buy Clean
Partnership8

March
2023

The federal government, along with 13 state governments, have pledged to prioritize theprocurement of lower-carbon construction and infrastructure materials in governmentfunded projects.

CALGreen9

July
2024

Commercial buildings (>100,000 square feet) and school projects (>50,000 square feet)will be required to comply with one of three embodied carbon management pathways:

United States

1. Building Reuse – Reuse 45%+ of an existing structure and its exterior.
2. Performance – Complete a WBLCA demonstrating a 10% reduction in embodied
carbon compared to a baseline project design.
3. Prescriptive – Document EPDs for a set list of materials that must be, on average,
lower than a specified global warming potential** threshold (175% material average).
CA AssemblyBill 244610

July
2025

The California Air Resources Board (CARB) is developing a framework (expected to becompleted by the effective date in mid-2025) for measuring and reducing the carbon
intensity of construction materials with a target of a 40% net reduction no later than theend of 2035, and an interim target of 20% by the end of 2030, from a baseline that willbe established in 2026.

CA SenateBill 25311

Beginning
2026

Any U.S. entity (public or private) doing business in the state of California with global
revenue more than $1.0 billion will be required to report scope 1, 2, and 3 emissions inalignment with the GHG Protocol, which could include embodied carbon emissions forreal estate developers. Currently, scope 3 reporting is scheduled to begin in 2027; scope
1 and 2 reporting will begin in 2026.

Boston: Net Zero
Carbon Zoning(NZC)12July2025

Approved by the Boston Planning & Development Agency in June 2024, this change
to the zoning code is now pending approval by the city’s Zoning Commission. Once
adopted, NZC will require projects filed after July 2025 to provide embodied carbon
reports during planning and construction, among other requirements. Further, the code
will require the majority of newly constructed buildings to be operationally net-zero at
the time of construction.

Canada Standard
on Embodied
Carbon inConstruction13

December
2022

Requires the disclosure of, and 10% reduction in, the embodied carbon of structural
materials used in government projects valued at or above Can$10 million (Can$5
million beginning December 2024) and expected to use more than 100 cubic meters ofconcrete.

London’s Whole
Life-Cycle
Assessment14

March
2022

Requires that carbon emissions associated with demolition of existing structures becalculated, as well as that a whole building lifecycle assessment be completed for inscope replacement structures.

International

Investors and real estate disclosure frameworks are increasingly
considering embodied carbon
Global Real Estate Sustainability Benchmark(“GRESB”) is an investor-led benchmark assessment
for the real estate and infrastructure sectors. Over2,000 property companies, REITs, funds, anddevelopers, representing $7.2 trillion in assets globally,
submit to GRESB.15 Illustrating the heightened
investor focus on embodied carbon, GRESB recently
added a new embodied carbon indicator to its Real
Estate Standard, meaning development companies
now report on their embodied carbon initiatives

3

through the assessment tool. Embodied carbon isincorporated in both the disclosure-oriented section
and the scored section. Points can be earned for
conducting a WBLCA as well as for collecting EPDs forthe building materials procured. In practice, this meansthat it will become increasingly difficult for real estatedevelopment firms to achieve top rated GRESB scoreswithout integrating embodied carbon assessments
and carbon reductions into business-as-usual practice.

**Global warming potential is a measure of how much energy the emissions of 1 ton of a greenhouse gas will absorb over a given period of time, relative to the emissions of 1 ton ofcarbon dioxide (CO2). The larger the GWP, the more that a given gas warms the Earth compared to CO2 over that time period.

The Science Based Targets Initiative (SBTi), a climate
organization that defines and promotes best practices
in emissions reductions in line with climate science, isdeveloping guidance for the building sector to reach
1.5˚C alignment. The organization’s building sector

guidance aims to make embodied carbon targets
required for new buildings within scope 3 reporting,surpassing existing guidance which is limited tooperational carbon.16 Presently, 117 real estate firms
have set targets with SBTi.17

Green building ratings standards are incentivizing embodied
carbon reductions
The World Green Building Council has set targets for
all new buildings to have at least 40% less embodied
carbon by 2030, and for all new buildings to have net
zero embodied carbon by 2050.18 Cascading fromthis directive, various national green building councils
have taken steps to introduce their own guidanceon embodied carbon reductions and measurement.
Various green building ratings standards (GBRS),
including the Living Building Challenge, LEED, andGreen Globes have begun implementing pointscoring categories for firms that make use of moresustainable materials in construction.19
The International Living Future Institute’s Living
Building Challenge 4.0 is comprised of 20 different
requirements, called Imperatives, with the energy andcarbon reduction, net positive carbon, responsible
sourcing, and net positive waste Imperatives allfeaturing strong embodied carbon focuses. To achieve
the responsible sourcing Imperative, for example,
buildings must provide EPDs for up to 20 products,
receive FSC certification for 50% of timber utilized,
source 20% of materials locally, and divert 80% ofconstruction waste from landfills.20 Meanwhile, under
LEED v4.1, points can be earned under the Materials
and Resources credit category by conducting a
WBLCA, obtaining EPDs, material ingredient reportingand optimization, responsible sourcing of raw
materials, and waste reduction and management.21
Like LEED, Green Globes awards points for a myriadof actions, including conducting a WBLCA, selecting
lower carbon materials (with EPDs), and reusing
existing structural and non-structural elements.22
Altogether, these systems incentivize reductions in
the amount of new material needed for a structure
and more conscientious selection of building materials.

Adoption challenges
Change is never easy, and there are some barriers that
could hamper widespread progress in the near term.
One of the primary challenges is regional variation in
the availability of low carbon material. As an example,
the cement and concrete industry is highly localized.
The average travel distance for in-situ concreteis 10 miles (16 km), while the average distancefor concrete’s raw materials is 30 miles (48km).23
Cement and concrete producers must make capital
investments to manufacture low carbon materials. An
absence of market demand in the region can lead tohesitancy in pursing those expenditures and result in
fewer options for developers and contractors. Thismeans that low carbon building products may haveto be procured out of region at potentially higher
prices, or not sourced at all. The federal governmentis doing its part to generate more demand for low
carbon products. For example, General Services
Agency’s (GSA) Buy Clean program requires low
carbon concrete and asphalt to be used in large
4

public projects, and further requires EPDs for thosematerials. Additionally, the IRA allocated $4.5 billion
specifically to the Department of Transportation, GSA,
and Environmental Protection Agency to procure
climate-friendly construction materials for federally
funded projects.24 These initiatives may help to scale
production of low carbon materials, creating positive
externalities for the real estate sector.
Workforce education is another significant challenge,
with professionals across the design, engineering,
construction, project management, insurance, andregulatory landscape needing to better familiarize
themselves with product innovation and techniques.
For example, an engineer could specify the use ofhigher-grade steel to accomplish the same structural
task using less material. However, design and productselection are important to ensure that the increased
strength of the material does not result in additional
CO2 emissions.25 As another example, insurance

providers have struggled to properly assess the risk
and resiliency of new innovative building products.
Products like cross-laminated timber (CLT), dowellaminated timber (DLT), and glue-laminated timber(glulam) have undergone extensive testing and meet,and in many cases, exceed, fire performance standards
when compared to traditional building materials.26,27
However, given the nascency of these products,
insurance companies tend to assign a higher premium
to mass timber structures compared to those made of
conventional materials.28
Once the workforce is seasoned in understanding
recent advancements in building products, striking
the appropriate balance between operational andembodied carbon is critical. This delicate balance wasrecently addressed in a ULI report, The Carbon Sweet
Spot: Design Tradeoffs for Embodied and Operational
Carbon in New Buildings, which explored this dynamic
with three distinct case studies. The report suggeststhat to achieve an optimal outcome, a WBLCA shouldbe leveraged in combination with considerations
such as local climate conditions, the clean energy
proportion of local electrical grids, and theregulatory environment around climate and building
decarbonization to make informed decisions.29,30 As
an example, triple- or quad-pane window glazing canbe utilized to reduce operational emissions in colder
markets with building performance standards tied toenergy use intensity. This product choice results in ahigher embodied carbon footprint and upfront cost
but may be appropriate considering the bigger picture.

Demystifying low carbon development
Despite adoption challenges, there are increasingly
more case studies illustrating high-profile
developments across the globe that have successfullybalanced cost considerations, embodied carbon, andoperational efficiency, including:• Hines’ development, Salesforce Tower Chicago, a 1.2
million square foot, 60-story building completed
in December 2023, was the first building in the city
to require and measure EPDs for its construction
materials. Seeking to reduce embodied carbon,
Hines focused on concrete mix formulations andsteel procurement, reducing emissions from those
products by 27% and 9%, respectively. Altogether,
the entire structure contained 19% less embodied
carbon than at baseline without any additional costpremium.31• Prologis’ Eindhoven DC4 warehouse in the
Netherlands is a leader in both operational andembodied carbon. Featuring an all-electric heating
system and responsibly- and locally-sourced
concrete, the warehouse stands as a model for netzero construction. By 2030, total emissions fromconstruction will have been offset by the generationof onsite renewable energy, which outsizes thefacility’s power needs by a factor of two. The tenant,
GXO, has a strong sustainability strategy of its own,
and is proud to occupy the first logistics facility inthe world with a Zero Carbon Certification.32

5• Lendlease’s mixed use development at 3401 S.
La Cienega Blvd in Los Angeles (“La Cienega”) is
another project that makes reductions in embodied
and operational carbon central to the development
plan. Currently under construction, Lendleaseprocured low-carbon materials, including steel,concrete, aluminum, and glass, to reduce emissions
from materials, while electrified construction
equipment further reduced embodied carbon.
In addition to these initiatives, the development
has been designed to achieve LEED Gold in its
residential portion and LEED Platinum in its officeportion. An all-electric utility system and use of onsite renewables makes the project a model in largescale sustainable development.33• Skanska, a global construction company, hasachieved significant reductions in embodied carbon
across three case studies with negligible impact
on total project cost. In a 200,000 square footmid-rise concrete and steel office building, Skanska
realized a 46% reduction in embodied carbon at a0.50% premium. A similar reduction and premium
was realized for a 125,000 square foot stick built
multifamily development, while the firm reduced
embodied emissions by 19% at a 1.00% premium for
a 360,000 square foot tilt-up warehouse.34

Embodied carbon incentives
To drive progress, there are emerging incentives that
aim to support embodied carbon reductions in realestate. For example, Colorado offers an exemption on
its state sales and use tax for the purchase of eligible
materials that meet a set global warming potential.
Cities including Austin, San Diego, Los Angeles,
and many others, have laws in place to incentivize
the reuse of existing structures and/or the use ofrecycled materials in construction.35 Additionally,
embodied carbon is increasingly being integrated

into sustainable finance to provide differentiatedpricing and outcomes. For example, Equinix and Great
Portland Estates are two firms that have explicitly
referred to embodied carbon in their green financeframeworks allowing for allocation under existing
green bonds.36,37 Further, lenders such as Wells Fargo
have created loan program enhancements fordevelopments meeting certain criteria like completionof a WBLCA, collection of product specific EPDs, andobtaining green building certifications.

Conclusion
As investors and regulators advance progress in
reducing operational emissions, embodied carbon isclearly the next frontier. Early adopters are designing
new buildings with an eye towards reducing embodied
carbon, engaging with supply chains to procure low
carbon building materials, and quantifying wholebuilding life cycle carbon to provide emissions

6

transparency to a broad array of stakeholders. This
strategy is supported by a broad range of sustainablefinance products and third-party incentives to reduce
adoption barriers. Wells Fargo’s Sustainable Finance& Advisory team is prepared to engage with clients
about how sustainable finance can support theirsustainability strategies and implementation.

1. World Green Business Council, “Bringing embodied carbon upfront”
2. Architecture 2030, “Why the Built Environment?”
3. U.S. Environmental Protection Agency, “What is Embodied Carbon?”
4. Cullinan Studio, “Embodied carbon in buildings: How to measure it, how to minimise it”
5. Rocky Mountain Institute, “A Primer on Embodied Carbon in Climate Disclosure”
6. Eco Platform, “EPD Facts & Figures”
7. The Institution of Structural Engineers, “A brief guide to calculating embodied carbon”
8. Office of the Federal Chief Sustainability Officer, “Federal-State Buy Clean Partnership Principles”
9. AIA California, “CALGreen Mandatory Measures For Embodied Carbon Reduction”
10. Stok, “California Embodied Carbon Law: How to Prepare for AB 2446”
11. California Lawyers Association, “California’s Climate Disclosure Requirements”
12. City of Boston Planning Department, “BPDA approves Net Zero Carbon Zoning”
13. Government of Canada, “Standard on Embodied Carbon in Construction”
14. London Mayor’s Office, “The London Plan”
15. GRESB, “Real Estate Assessment”
16. Ramboll, “What the new SBTi building guidelines mean for the real estate industry”
17. Science Based Targets initiative, “Target Dashboard”
18. World Green Building Council, “Bringing embodied carbon upfront”
19. Structural Engineering Institute, “Embodied Carbon in Green Rating Systems”
20. Structural Engineering Institute, “Embodied Carbon in Green Rating Systems – International Living Future Institute’s Living Building Challenge 4.0”
21. U.S. Green Building Council, “How LEED v4.1 addresses embodied carbon”
22. Structural Engineering Institute, “Embodied Carbon in Green Rating Systems – Green Building Initiative’s Green Globes for New Construction (2019)”
23. Materials Palette, “The Emissions Impact of Concrete”
24. Carbon Leadership Forum, “2022 Embodied Carbon Policy – A Year in Review”
25. Materials Palette, “Carbon Impacts of Steel”
26. Naturally: Wood, “Fire Performance”
27. Think Wood, “4 Things to Know About Mass Timber”
28. Woodworks, “Insurance for Mass Timber Construction: Assessing Risk and Providing Answers”
29. Urban Land Institute, “ULI Report: Balancing Embodied and Operational Carbon Emissions from New Buildings is Critical for Long-Term Decarbonization”
30. Urban Land Institute, “The Carbon Sweet Spot: Design Tradeoffs for Embodied and Operational Carbon in New Buildings”
31. Hines, “Our plan in action: Reducing embodied carbon at Salesforce Tower Chicago”
32. Prologis, “Not your Father’s Warehouse: World’s First Zero-Carbon Certified Logistics Building”
33. Lendlease, “Scoping Out the Path to Absolute Zero: How we plan to tackle Scope 3”
34. Rocky Mountain Institute, “Reducing Embodied Carbon in Buildings”
35. Carbon Leadership Forum, “Policy Toolkit”
36. Great Portland Estates, “Sustainable Finance Framework”
37. Equinix, “Green Finance Framework”

Authors
Kelly Souza
Managing Director, CIB Sustainable Finance & Advisory

Paul Stanley
Executive Director, CIB Sustainable Finance & Advisory

Mitchell Hernandez
Analyst, CIB Sustainable Finance & Advisory

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