Ventas, Inc. is a real estate investment trust (REIT) and S&P 500 company that occupies an essential role in the longevity economy. With roughly 1,400 properties in the United States, Canada, and the United Kingdom, the company’s portfolio serves a large and growing aging population. Among its assets are senior housing communities, outpatient medical buildings, research centers, and healthcare facilities. In 2022, Ventas took a bold step toward its sustainability goals: it committed to net-zero operational carbon emissions (Scopes 1 and 2), which it expects to achieve by 2040.
Ventas used an innovative approach to generate net-zero road maps for all properties within the company’s operational control. Leveraging the power of AI (specifically, a form of advanced machine learning) and physics-based modeling, it derived nearly 800 building-level plans. These road maps are intended to guide building operators through specific steps for each of the next 17 years and include estimated costs and operational cost savings from energy reduction. Even without factoring in marketing and environmental benefits from the property enhancements, estimated operational savings from energy efficiency are expected to largely offset implementation costs.
McKinsey’s Brodie Boland sat down with Kelly Meissner, vice president, corporate ESG and sustainability, at Ventas, to talk about why the company set this goal, how it created plans for each building, and what it will take to achieve full implementation.
This interview has been edited for clarity and length.
Brodie Boland: In March of 2022, Ventas announced its commitment to achieve net-zero operational carbon emissions by 2040, exceeding its prior goal to decrease absolute carbon emissions by 30 percent by 2030. What led you to make this commitment?
Kelly Meissner: It was the confluence of several things. Many of our investors are focused on decarbonization, the related risks, and the implications for long-term shareholder value. Internally, we had a set of goals we were working toward that were aligned with the Paris Agreement, but we wanted to increase our ambition. We consider ourselves a leader in sustainability within the real estate industry, and we want to stay there, because we know it drives value for our shareholders.
We wanted to understand how a portfolio of our size and scale could get to net zero in a cost-effective way. Based on our modeling, we believed we could achieve operational (Scopes 1 and 2) net zero by 2040. We had the advantage of a very robust data set for our Scope 1 and 2 emissions, which we have built out over several years and which is now based on over 90 percent actual data, so our model required very little estimation.
Ultimately, the rationale is compelling: it’s about driving value in our portfolio. Our analysis showed that achieving net-zero operational carbon emissions will result in lower energy and maintenance costs, more resilient assets, improved air quality and occupant comfort, and enhanced tenant and resident attraction and retention. The board was very supportive, and we announced our goal shortly thereafter.
Brodie Boland: The traditional approach to decarbonizing buildings is to send an engineer into each building to assess conditions at the property. They then recommend efficiency measures and renewable energy sources that could be implemented. You have a lot of buildings, which made that traditional approach limiting. How did you go about developing a plan to decarbonize?
Kelly Meissner: When we began, we had about 800 properties under our operational control and therefore within the scope of our goal. Using traditional methods, it would take years and significant cost to do individual, deep-dive decarbonization analyses on so many properties, which by the way, are managed by roughly 50 different operators. So, we knew we had to take an innovative, data-driven approach to develop property-specific net-zero pathways for all our assets.
Time was of the essence, because we’re investing significant capital every year in our portfolio on heating, ventilation, and air conditioning systems, water heaters, roofs, and other energy-consuming equipment in our buildings. Every year that goes by that we’re not decarbonizing as part of those routine replacements, we miss an opportunity and also increase our regulatory risk given the proliferation of local and state mandatory building performance standards.1 We wanted to get started right away.
We knew the basic building blocks: we needed to decarbonize our buildings through electrification and energy efficiency, and then all the electricity needed to be from 100 percent renewable energy sources. But our question was, “How do we translate this to the building and equipment level in a way that our operators could execute?”
Brodie Boland: What did you ultimately do?
Kelly Meissner: We decided to take a technologically enabled approach. We used a tool that could create detailed and unique plans for each of our 800 or so buildings. The tool uses data sources including imaging from satellites, information on solar radiation, soil conditions, weather, and energy models of a million or so buildings. We then provided the data we had on our buildings to layer on top of that. For some buildings, we had conducted energy audits and had a lot of data, but for most of our buildings we just provided the size and type of building and our last few utility bills.
The tool then applied a machine-learning algorithm to do two things. First, it produced the equivalent of a unique energy audit for each building. Then it created a detailed description of how each building could achieve our goals, including each step we had to take for that building, the cost of that step, and the energy it would save.
The result was that in a very short period of time, we had detailed road maps for each of our buildings, and we were able to easily aggregate these road maps into a portfolio-level view. It was fast and cost-effective, which was great. But more important, the machine-learning aspect of this tool allowed us to test many different road maps for each property and for the portfolio to achieve the optimal financial outcome.
Brodie Boland: How long did it take to get initial plans? And once you had the plans, what were the next steps?
Kelly Meissner: It took less than eight weeks for this advanced analytical approach to deliver us 800 property-specific road maps in the spring of 2023. It was pretty amazing. But the road maps are only part of the solution—the other critical piece is putting them into action and ultimately integrating them into our everyday capital expenditure and planning processes.
Consequently, after we got the road maps there was a lot of socialization work to do, both at the executive and operator levels. We held webinars with the operators to explain how the road maps were developed, to share sample road maps and solicit feedback, and to talk about how they are going to inform capital planning going forward. This all involves significant change management with our operators and property managers, but we’ve benefited from being intentional about engaging them from the early stages. And we will have ongoing collaboration with them throughout the execution of the road maps.
Brodie Boland: It makes sense that you needed plans that would communicate clearly all the steps that building operators needed to take. But what factors were most important to your executive team?
Kelly Meissner: Our executive team understood the potential benefits of the net-zero commitment. But of course, as a publicly traded company, we are focused on delivering value for our shareholders, which is the lens through which all initiatives are viewed and assessed. Our executive team needed to hear the detailed business case for the approach we were suggesting, the costs associated with alternative approaches, and the costs associated with the recommended approach. They wanted to understand what we were getting for those incremental dollars. In other words, what is the benefit for shareholders?
Because this information is baked into the road maps, we were able to show both the costs and benefits of each action, and clearly demonstrate the long-term value generated by our holistic and coordinated approach.
Brodie Boland: Let’s go deeper into the question of change management. Beyond building operators, who are the other stakeholders, and what are the issues that could delay action—even with the road maps in hand—if you don’t actively address implementation?
Kelly Meissner: It’s so important to remember that this process requires engagement across the whole stack of our operations. My team collaborates with our operating partners, executives, asset management teams, financial planning and analysis teams, accounting teams, and building engineering teams. Everyone’s educated on these road maps, how important they are, and how they are getting incorporated into our day-to-day operations.
Brodie Boland: What’s clear from this conversation is that though you benefitted from the magnitude, speed, and complexity of machine learning to deliver the plan, there is also a very human process that has to happen after that. What should other real estate companies keep in mind when it comes to implementation of even the most optimized approach to a net-zero pathway?
Kelly Meissner: Implementation requires evaluating everything from different stakeholders’ perspectives and trying to make sure that we’re communicating, recommunicating, and communicating again what we’re trying to accomplish and why. It will be an ongoing process.
But now that we have the decarbonization road maps, everyone from our local building operators to our internal team is aligned on that plan, it’s integrated into our capital planning and the way we think about things such as roof and equipment replacements, and we can focus on getting it done.
I think we’re really setting a model for how real estate can decarbonize at a scale that has not been done before. This is a template for how the commercial real estate sector overall is going to deliver on the environmental progress we need.
