Transition indicators in action: Commercial Property Assessed Clean Energy

Understanding the speed of the energy transition can highlight risks while revealing compelling investment opportunities. To help investors gauge the pace and path of the transition, we identified key metrics that investors should monitor in our recent paper, The energy transition: 10 essential indicators for institutional investors.

Leveraging this framework, Alexandra Cooley, CIO and co-founder of Nuveen Green Capital, explains how two energy transition indicators—policy initiatives and corporate carbon reduction targets—are driving the need for alternative financing solutions to address not only decarbonization but also stabilization of operating costs for commercial buildings. This article is part of a series.

The built environment is responsible for over 42% of annual global CO₂ emissions.¹ Regulatory changes and shifting demand is putting pressure on commercial building owners to reduce their carbon footprint through a combination of incentives and penalties. At the same time, rising costs, including energy costs, have continued to pressure buildings’ operating budgets. Historically, there wasn't a robust financing solution to address building upgrades, prompting the need for innovative tools like Commercial Property Assessed Clean Energy (C-PACE) financing.

Indicator #7—Regulatory incentives and mandates create opportunities for new financing structures

C-PACE is a financing mechanism enabled by U.S. state policies that allows building owners and developers to access private capital for energy-related upgrades, new construction costs and renewable energy projects. Since C-PACE programs are established and managed at the state or municipal level, they are shielded from federal oversight.

In response to regulatory pressures, such as New York's Local Law 97 that mandates emissions reductions in commercial buildings, property owners are embracing C-PACE financing. C-PACE was enacted by states to serve as a ‘carrot’ for property owners to encourage them meet ambitious carbon emissions reduction requirements. It enables commercial real estate owners to improve energy and water efficiency, install solar panels and implement resiliency measures to reduce reliance on fossil fuels and enhance building attractiveness to both tenants and investors.

From an investment perspective, the appeal of C-PACE lies in its security through a senior tax assessment, a policy enabled through local U.S. state programs. The C-PACE structure not only provides a secure investment vehicle for decarbonization projects but also incentivizes investors by prioritizing their lien over mortgages. This senior position is ringfenced for energy improvements that reduce energy and water use or enhance the resiliency of a building, providing property owners with financing options to lower operating costs while building more efficient structures.

Indicator #3—Corporate carbon reduction targets and changing tenant preferences driving building upgrades

Many large corporations own or have substantial investments in commercial buildings, which can contribute significantly to their carbon footprint. On average, most listed U.S. companies are aiming to reduce their carbon emissions by about half.²  As companies strive to meet their decarbonization goals and strengthen returns on their real estate investments, there is growing demand for sustainable, efficient, and resilient infrastructure. This is where C-PACE financing becomes crucial, enabling property owners to fund necessary improvements that align with corporate sustainability targets.

The real estate market is also shifting towards a preference for newer, more efficient buildings. From the perspectives of tenants, investors and lenders, there is a premium on properties that offer greater efficiency and resilience. This creates a competitive environment where the best buildings — those that are sustainable, better-performing, and capable of withstanding severe weather events — are highly sought after. C-PACE financing supports this transition by providing the capital needed for such upgrades, making buildings more attractive to investors who prioritize predictability and resilience.

With over $3 billion originated, Nuveen Green Capital is a national leader in sustainable commercial real estate financing solutions, and an affiliate of Nuveen, the $1 trillion+ asset manager and wholly owned subsidiary of TIAA.³