ESG Reporting Starts with ENERGY STAR
What is ESG?
Interest in climate-related financial and risk disclosures is driving the development of private and public sector reporting and a heightened interest in climate emissions measurement and management. More than ever before, shareholders, credit rating agencies, insurance companies, and private equity firms are requesting that companies measure and disclose their climate risks, as these can translate into material financial impacts for investors.
Climate risk disclosures are part of the larger Environmental, Social, and Governance (ESG) reporting framework that can be used to measure a business or company's sustainability and ethical impact. It is a general term used by investors to evaluate the behavior of companies and determine their potential future financial performance. The number of investors and investment funds assessing companies based on ESG factors has been growing rapidly, and this trend is expected to continue into the future. Many large homebuilders, especially those that are publicly traded, are now reporting on their annual performance of ESG factors.
Standard disclosure frameworks have been created to encourage consistency in ESG reporting. One example of a framework that has specific protocols for the home building industry is the SASB Home Builders Sustainability Accounting Standard (PDF, 645 KB). The SASB standard encourages builders to report the number of ENERGY STAR certified homes and apartments they build each year. Constructing homes and apartments that earn the U.S. Environmental Protection Agency's (EPA) ENERGY STAR label can be a powerful way to communicate a homebuilder's sustainability commitment and the tangible environmental benefits of their emissions-reducing activities.
Energy efficiency: the foundation of reduced emissions
For homebuilders, the energy used in the homes and apartments they build typically makes up a majority of the downstream emissions associated with their operations (often referred to as 'Scope 3' emissions), especially when accounting for the projected lifetime of those homes, which can be 50 years or more. ESG frameworks encourage companies to provide emission reduction targets in the 5-10 year range.
The energy used to heat, cool, and operate homes often comes from the burning of fossil fuels, which can contribute to smog, acid rain, and climate change. Overall, residential home energy use accounts for 17% of U.S. emissions (IEA, Tracking Clean Energy Progress). As a result, by building homes that use energy more efficiently, builders can help to reduce the demand for power and the amount of air pollution generated.
Why ENERGY STAR certification?
Did you know that Buildings account for more energy consumed than any other sector in the United States?
A reliable way to document that a new home or apartment is energy-efficient and contributes to reduced emissions is through ENERGY STAR, the trusted, government-backed symbol for energy efficiency. ENERGY STAR certified homes and apartments are independently verified to meet strict guidelines for energy-efficient construction set by the U.S. EPA. A typical home that earns the ENERGY STAR undergoes more inspections and testing than homes built to code, allowing mistakes to be identified and corrected, and ensuring that the program's requirements have been met.
ENERGY STAR certified homes are designed to be at least 10% more efficient than homes built to the state's adopted energy code. And as states continue to implement more efficient energy codes, EPA updates the ENERGY STAR program requirements to maintain at least 10% savings compared to the state's new code. Shareholders, ESG frameworks, and policymakers do not need to change their policies or references to updated efficiency targets; EPA does this automatically within the ENERGY STAR program.
By combining rigorous requirements with independent verification, ENERGY STAR certification provides greater certainty to ESG stakeholders that estimated emission savings are truly being met. EPA encourages home builders to incorporate a commitment to 100% ENERGY STAR certification as a short-term demonstration of their larger emission reduction targets.
A smart investment
Homebuilders that meet ENERGY STAR standards have a competitive advantage, making them a smarter investment for investors. ENERGY STAR can help builders reduce their regulatory risk by staying ahead of advancing energy codes and provides opportunities to access a variety of financial incentives in the market, such as the new 45L New Energy Efficient Home tax credit and utility rebates.
In addition, over the past decade, a number of studies have been conducted that demonstrate the market case of energy-efficient homes and apartments. These studies have shown sale and re-sale price premiums ranging from 2% to 8% in most markets for rated, energy-efficient homes, including ENERGY STAR certified homes.
Constructing homes that meet EPA's rigorous ENERGY STAR program requirements for energy efficiency can also serve as an important first step for builders as they work to pursue building net zero emission homes or certification through one of the multi-attribute green building rating systems, which cover additional aspects of ESG reporting criteria such as water, material, and land use.
Looking to the future: ENERGY STAR NextGen Homes and Apartments
In the residential new construction sector, addressing the challenge of climate change will require efforts to expand beyond increasing energy efficiency in homes and make more significant strides in decarbonizing their operation. To meet this challenge, EPA is launching ENERGY STAR NextGen Certified Homes and Apartments program to identify and recognize the next generation of homes that deliver additional emission savings through efficient electric technologies such as efficient heat pumps, heat pump water heaters, electric cooking, as well as EV charging capability.
This new program, launching in 2023, will provide an additional opportunity for builders to document progress towards their ESG goals related to reduced emissions, backed by third-party verification and EPA's trusted ENERGY STAR program. Homes and apartments that earn this new certification will deliver emission savings above and beyond the core ENERGY STAR Residential New Construction program. EPA's initial modeling suggests that these homes will help to avoid up to 80% in operational emissions. As with ENERGY STAR certified homes and apartments, these emissions savings are multiplied over time as builders construct more ENERGY STAR NextGen homes and apartments.