Why is it so important to identify the case for sustainability?
1. You want to attract investors
2. You need to comply with requirements to ensure a healthier planet
3. You want to attract the best tenants and talent
4. You know there are better ways to operate
New technology, such as data automation and reporting at the building and portfolio levels, building automation systems, and energy intelligence software, provides the data you need to better control your buildings' operations.
Portfolios that use technology provide their owners and operators with better insights into building performance, giving them the confidence to make data-driven decisions by identifying outliers and finding cost-saving opportunities and capital investment projects to create efficiencies.
The Steps
Things to Consider
Consider investors, shareholders, peers, owners, and joint-venture partners
Identify your current ESG challenges, financial targets, and time to implementation
Determine the value of the effort
Define success; what are your performance-based targets?
Evaluate your long-term strategy
As with any strategy, the first thing to do is identify clear, measurable outcomes that define what success means to you.
This step is meant to establish a clear definition of what sustainability and ESG mean for your organization. You need to determine the level of interest in these efforts across the organization.
Understanding the current mindset will define the level of appetite at the start of this initiative, guide your strategy to encouraging engagement across your organization, and give you an idea of the end results you'll be able to achieve.
Some categories get you started:
Set measurable, trackable, and relevant ESG goals
Who are the stakeholders? What are their goals and / or business models? How will you communicate with them?
What will a successful end result look like? That is, how will you know when you've gotten where you're going?
What is your level of appetite? Do you want to be at the forefront of adopting new approaches, or implementing what works once it's been proven by others?
What's your holding time for a property? A three-year ownership versus a long-term hold will yield completely different perspectives on sustainability initiatives, for example.
What are your financial and timeline targets?
What are your current challenges?
How does sustainability create value for your organization?
Who are your peers and what are their sustainability goals? There's something to be said for "Keeping Up with the Joneses". Your stakeholders will be using this as a metric when evaluating your organization, so you should as well.
What are your drivers for ROI? There are three P's to consider, not just one. This is about Planet, People, and Profit, not just Profit alone.
Budget
How much are you willing to spend? Can you get funding?
What is your ROI tolerance? Do you need to see a financial return in one year? Three years? 10 years?
What has the highest value? How did you answer "What are your drivers for ROI?" in Step 1? Are you most interested in energy cost reductions?
While budgeting begins with ROI analysis, the return may not be limited to the direct financial impact. For example, an organization with longer-term holds for properties may be willing to pursue initiatives or capital improvements with longer timelines, whereas an organization focused on attracting investor stakeholders might highlight benchmarking initiatives.
Lastly, consider the availability of your team. We provide more detail on this element in
Step 5: Build a Sustainability Team, but the gist is this: if building a dedicated in-house team to work on these initiatives isn't feasible, hire a consultant to keep progress on track. Some additional considerations when creating a budget include:
Implementation of capital improvements to drive future savings
Energy audits to determine what potential improvements are available and what ROI they could deliver
Determine the value both in terms of cost perspective and improvements that might be seen with benchmarking
The availability of your team to track, document, and maintain your ESG initiatives and disclosure projects
Supplement your Budget with Alternative Funding Sources
Demand Response: Large businesses receive financial payments in exchange for curtailing their energy load at times when demand on the grid reaches unsustainable levels. Rather than investing millions in new power plants to meet demand peaks that only occur temporarily throughout the year, utilities instead pay customers to temporarily reduce energy usage and maintain stability on the grid. Curtailing could be as simple as temporarily shutting down nonessential equipment or falling back on pre-installed backup generators. This source of revenue can be used to fund additional investments, helping to reduce the upfront capital investment required to drive long-term savings from energy efficiency improvements.
Property Assessed Clean Energy (PACE): PACE has emerged as a financing structure that helps companies tackle these clean energy and efficiency initiatives without upfront costs. Under PACE financing, municipal governments provide the upfront capital for energy efficiency measures and renewable energy installations, and the companies reimburse the municipality over a given time period (typically 5-25 years) through adjustments to the company's property tax.
Opportunities
Define your portfolio classification and preferred asset groupings
Turn the raw data available on your buildings into actionable insight into energy efficiency
Identify top and bottom performers across your portfolio
Leverage continuous monitoring to conduct building-level energy auditing and enable proactive maintenance
In order to create your business case, you need to fully understand your portfolio and its differentiators
Manually managing, aggregating, and reporting on utility data is often a very involved and time-consuming process.
Utilize data automation technology to collect and validate your portfolio data to drastically decrease these time and effort requirements, and simplify the identification of top and bottom performing assets.
With these insights, you can focus on building-level initiatives, such as real-time metering, demand response, retrocommissioning, and energy auditing to evaluate further opportunities for building-level ROI with capital improvements.
For example, ask yourself if your organization has the tools to prevent "energy drift" in your buildings. As defined in a landmark study conducted by the US Department of Energy's Lawrence Berkeley National Laboratory, building energy drift is the inevitable degradation of energy efficiency that occurs as a result of design flaws, construction defects, and as equipment malfunctions or succumbs to general wear-and-tear.
Evaluate opportunities
The research also concluded that these issues can cause energy efficiency to degrade by 10% to 30% over a one- to two-year period.
To take control of this drift, businesses are turning to tools and platforms that combine and automatically analyze the data from their energy meters, equipment sensors, building automation systems, and other sources to notify their site-level staff of the issues causing energy waste in their buildings. This proactive approach to maintenance, giving staff the ability to identify and correct issues before they drive up costs, has been proven to boost sustainability performance, reduce utility and operations and maintenance costs, and provide a better experience for tenants.
And it all begins with constant visibility into your buildings' operational and energy trends.
Construct an ESG Framework
How will a new sustainability reporting plan apply to your overall portfolio?
How will you monitor progress and reach goals?
What are your preferred benchmarking standards and how will you meet them?
How will you ensure compliance with regulatory changes? What reporting to government agencies is required?
Now that you've completed the first steps, you have the information you need to start defining your ESG framework. Organizations with ESG strategies are becoming more and more attractive to investors. Why?
Companies that perform well in their ESG initiatives also tend toward strong financial performance, with better investment value and higher returns. According to the Harvard Business Review, "...90% of 200 studies analyzed conclude that good ESG standards lower the cost of capital; 88% show that good ESG practices result in better operational performance; and 80% show that stock price performance is positively correlated with good sustainability practices."
So a higher GRESB score, for example, creates a stronger case for investment than companies with lower performance, and especially over those who eschew ESG altogether.
While many organizations voluntarily undertake various environmental and social efforts, the governance aspect is compulsory.
Compulsory - Address regulatory concerns
Based on your asset's location and size, you may have city- or region-specific benchmarking ordinances that you are required to comply with. Depending on your property team's availability and experience, this is an area in which outside consulting groups and platform tracking tools, such as the products and services offered by Goby, can be beneficial to not only keep you apprised of new regulations as they arise but also streamline and complete the reporting process on your behalf.
Voluntary - Define benchmarking & certification standards, and how to satisfy them
Sustainability certifications, such as ENERGY STAR and GRESB, offer numerous benefits for property owners and managers. Also, these certifications provide third-party designations that are easily recognized and help create a framework to provide direction across an industry. Trending and well-established certifications should be considered to round out a portfolio ESG program.
Build a Sustainability Team
Decide whether it's best to build your own team or outsource the effort
Secure stakeholder buy-in
If your budget doesn't contain room for a dedicated sustainability team, you will need to consider some alternatives.
The most cost- and time-efficient solution is to hire an outside consultant to handle everything, instead of splitting the time of your employees between their day-to-day work and the additional requirements that this sustainability effort will introduce.
Will the team you assemble be comprised of internal staffers, or will you outsource some or all of the tasks to a consultant?
Consultants can offer greater efficiencies in understanding and completing certifications, as well as provide objective suggestions on areas for improvement.
Buy-in will have one of the biggest impacts on the success of the implementation of your sustainability business plan. It's important to define who will be a part of your sustainability team and build trust among all members.
The team you build should extend beyond the executive level. Engaging your asset and property teams guarantees even greater involvement around new initiatives, moving the needle even more and inevitably leading to a more successful program.
Consider energy challenges on a property-by-property basis to track, benchmark, and reduce your energy consumption. This implementation will help ensure that your newly developed ESG plan is adopted within every level of your organization, not just at the top.
We recommend a team that includes:
At least one executive representative
Stakeholder representatives (e.g. staff from Investor Relations, Tenant Relations, Asset Management, and Property Management)
In-house team members focused on sustainability (possibly a Director of Sustainability)
A consultant, if applicable or required
"We observe that companies and funds that develop stakeholder engagement programs are likely to start in-house, focusing on employees, and work their way towards monitoring their supply chain and improving their relationship with tenants."
Check Your Progress
Compare to other ESGs
Ensuring success means keeping your plan on track. This requires constant monitoring and evaluation in order to make necessary adjustments.
For instance, as part of Step 1, you identified a successful end result. Perhaps you quantified a percent-reduction goal you wanted this effort to achieve. How will you measure those reductions and track them?
With the right tools and processes, there are three ways you can monitor your organization's progress in energy efficiency.
The first is the portfolio-wide view. Your portfolio may have dozens to hundreds of buildings. If your business is going to be able to show real progress in your ESG and energy efficiency efforts, you'll need a centralized system to access your data and the ability to track the performance of your KPIs across your full portfolio of properties at any given time.
Secondly, it's important to keep in mind that real progress in energy efficiency happens at site-level. While your facility teams need access to detailed recommendations for improving energy efficiency, your organization also needs to be able to dive into the status of the projects at individual sites.
While this kind of visibility can provide context to portfolio-wide performance, it can also foster a sense of accountability at the site-level. Providing transparency into the status of individual buildings and projects demonstrates your organization's commitment to energy efficiency, and helps drive engagement from site-level team members who are responsible for implementing these crucial measures.
Finally, you need to be able to put your portfolio's progress into context. To measure how your efforts track with those of other organizations, choose a platform that can allow you to benchmark your performance against similar portfolios.
Look to the ESG reports that other large organizations make publicly available. Keep abreast of industry research on the latest trends and developments, and leverage industry standards like ENERGY STAR and GRESB to see how your portfolio stacks up.
Data-Driven Software
Utilizing data automation and analytics platforms can drastically streamline and empower your portfolio's reporting capabilities and performance. Automating invoice and utility bill processing will alleviate the burden of manual labor on your employees. Visualizing data increases your ability to discover consumption trends and identify top and bottom performances portfolio-wide. Validation engines reduce the likelihood of billing errors and mitigate the risk of late fees.
Promote Your Performance
What metrics are you planning to use to measure your progress?
How will you communicate your progress and your goals, especially to investors?
What are your goals for promoting your efforts internally vs. externally?
What will the actual reporting process look like?
Promoting the story and success of your efforts to adopt ESG into the core values of your properties and your company yields a multitude of benefits.
A few key reporting considerations: What format(s) will you use to promote your results? Will the results be made public or kept private? Will promotion occur through benchmarking (e.g. SASB or GRESB) or an annual report? Who is your target audience? What channel is best to reach them?
Providing regular internal updates keeps employees on task and reinforces that their efforts are contributing to an important organization-wide goal. Promotion also re-engages stakeholders and can contribute to the overall ROI of your initiatives. Data reporting and modeling will both help you measure and verify your progress, but may also spur innovative thinking that can lead your organization to create a competitive advantage.
Diversify Your Outreach
Nearly as important as implementing your ESG strategy is making sure you get the word out and market your efforts with the correct method for your target audience.
Be diligent and consistent with content you release to the public. Keep your messaging and performance metrics as close to real-time as possible to demonstrate the value and corporate adoption of ESG into core company operations and beliefs.
Use a multichannel marketing approach to promote success and efforts and drastically increase the reach of your message. Website promotions, press releases, and email campaigns, for example, are good tactics for spreading the word to a greater audience.
You've implemented ESG strategies and drastically shifted toward socially and environmentally conscious business practices, yet no one has noticed; what gives? Keeping your message and your actions in sync is crucial. No one will know about the paradigm shift within your organization unless you tell them first. You will be the first and best promoter of the efforts and successes of your new strategy.
Businesses are beginning to adopt public promotion of their ESG efforts as a standard practice, and over the last year there has been an increased trend in CSR reports to help companies do this successfully. Investors, tenants, prospective customers, and employees are all coming to expect transparency into your operations. Your sustainability reports enable your business to meet these interested and crucial parties where they are.