The Road Ahead in 2012 for the Real Estate Industry in the Drive to Greater Sustainability

December 18, 2011

This past year has been marked by corporate and commercial real estate leaders who have increasingly embrace the principles of sustainability to reduce operating expenses, enhance enterprise value and align real estate/facility portfolios with their organization’s goals of financial performance and environmental excellence.

In 2011, the challenge for executives did not come from their inability to succeed and lead but, from limited capital expenditure resources in the face of the risk and uncertainty of an expanding yet fragile world economy.

2012 will bring its own set of risk and uncertainty but, real estate professionals seem more motivated to develop and implement portfolio-wide sustainability strategies with the confidence that an organized commitment to corporate sustainability better aligns them with top management, investors, customers, talent and regulators. And, that sustainability is a better way to organize and motivate geographically dispersed, functionally divided staff.

In the coming year, leading real estate executives must recognize that individual sustainability initiatives, no matter how successful, are unlikely to be acknowledged at a Board or investor level. Conversely, real estate leaders that aggregate multiple successful sustainability initiatives with immediate payback paired with initiatives that have a longer-term internal rates of return can organize and animate the drive to higher performance throughout a large real estate portfolio that will justify Board, investor and top customer recognition and support.

The key to sustainable real estate strategy success in 2012 will rely on:

  • Leading companies who recognize sustainability as a megatrend that presents strategic imperatives for senior executives, where real estate plays a prominent and sometimes guiding role in enterprise wide sustainability.
  • A more comprehensive, internally branded “sustainability strategy” can be better resourced by the C-suite and the Board, rewarded by investors, supported by employees and lead to higher scores on the rapidly emerging number of indexes that measure sustainability.
  • Energy efficiency and cost savings will remain the core of real estate sustainability strategy, but a growing number of corporate users will see the value of enhanced employee health, well-being, and productivity within workplace environments.
  • Leading real estate executives will establish a compelling long-term vision of sustainable real estate with a strong business case and create effective policies and management structures to institutionalize sustainability.
  • Real estate executives will be identified as “Committed”, “Advanced” or “Leaders” depending on the maturity of their strategy. It will be critical to evaluate and identify improvements through the use of assessment tools such as the two-tiered qualitative “Sustainability Performance Assessment” (SPA), developed by the Sustainability Roundtable, Inc. (SR, Inc.)
  • The SPA reveals that leading companies will invest broadly in portfolio sustainability strategies but most companies still do not adequately invest in the areas of governance or results.

Will you be among the committed, advanced real estate leaders to achieve sustainability success in the coming year and ‘move the needle on the dial’?

Dare to be a pioneer and become the catalyst for change that will drive your company to greater sustainability in 2012.

If you would like to learn more about SR Inc.’s “Strategic Performance Assessment” or how its subscription-based research and management best practice advisory services can help you drive your organization closer to sustainability, visit us at www.sustainround.com or contact SR Inc.’s Larry Simpson, Executive Vice President – Advisory Services at larrysimpson@sustainround.com.

(The author is Larry Simpson, Executive Vice President, Advisory Services, Sustainability Roundtable, Inc. Additional posts can be found in SR Inc.’s Forum found at http://www.sustainround.com/aboutst/blog/)

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SR Inc. to Convene Corporate/Commercial Real Estate Executives and Drive an Industry Closer to Greater Sustainability

November 12, 2011

The Sustainability Roundtable, Inc. (SR Inc.), the for-profit, shared cost research and consulting firm will bring together corporate/commercial real estate executives and sustainability professionals who represent over 60 member-client organizations at SR Inc.’s Third Annual Summit entitled, “The Change Driving Sustainability” on November 30th and December 1st at the St. Regis Hotel in Washington D.C.

This invitation only two-day event will feature: sustainability excellence award winners; presentations and case studies of SR Inc.’s 2011 Research Program; panel discussions with Federal agency representatives; and, facilitated sessions to develop SR Inc.’s 2012 Research Program.

Management Best Practice Sessions will include:

Portfolio-wide Sustainability Strategies: What strategies do Real Estate Executives use to resource and create sustainable value. (Includes Innovative Finance for Energy Efficiency)

Benchmarking Sustainability: What sustainability KPIs should Leaders adopt and what are the relevant performance benchmarks.

Sustainable Leased Space: How Leaders move to more sustainable leased space? How Tenants and Landlords systematically implement green leases and what provisions in RFPs, LOIs and Leases are used.

Alternative Workplace Strategies: What AWS strategies are successfully adopted to increase productivity and how can landlord’s best respond.

Working with the Federal Government: What are the best sustainability resources available within the Federal Government and how can Real Estate Executives partner with them.

The collaboration of SR Inc.’s member-clients supported by SR Inc.’s analysts, researchers, consultants and advisors is rapidly driving the real estate industry toward greater sustainability with breakthrough management best practices about ‘what works’ to apply the principles of sustainable real estate strategies across a portfolio that reduce operating expenses/occupancy costs; enhance enterprise/asset value; and align with organizations’ commitment to the environment.

If you would like to learn more about SR Inc.’s Annual Summit III or how SR Inc.’s resources and implementation guidance could help you drive your organization closer to sustainability, contact SR Inc.’s Larry Simpson, Executive Vice President – Advisory Services at larrysimpson@sustainround.com.

(The author is Larry Simpson, Executive Vice President, Advisory Services, Sustainability Roundtable, Inc. Additional posts can be found in SR Inc.’s Forum found at http://www.sustainround.com/aboutst/blog/)

 


SR Inc. Launches New Website with Resources to Help Organizations Move to Greater Sustainability

September 13, 2011

The Sustainability Roundtable, Inc. (SR Inc.) launched its new website on August 28th along with new corporate branding that includes resources for corporate and commercial real estate executives to help their organizations move to greater sustainability.

The site, www.sustainround.com, features: an overview of SR Inc.’s service offerings; select client references and profiles; career opportunities; link to SR Inc.’s blog; and a compendium of research, advisories and briefings available in SR Inc.’s “Digital Library” that clients can use to accelerate their ability to achieve high performance of their owned and leased facilities.

Visitors are encouraged to download the company Newsletters and complimentary, representative examples of research which feature: “More Sustainable Leased Space,” “Integrated Alternative Workplace Strategies,” and “Advanced Energy Management Systems.”

SR Inc. is a shared-cost research and consulting firm that promotes the use of industry best practices about ‘what works’ to apply the principles of a sustainability real estate strategy to reduce operating expenses, enhance enterprise/asset value and align with their organization’s commitment to environmental goals.

To learn more about how SR Inc. is assisting “Leaders Creating Value” and how their resources can help you, help your organization move to greater sustainability, please feel free visit the new site, www.sustainround.com, and contact Larry Simpson, Executive Vice President of Advisory Services at larrysimpson@sustainround.com or 508-946-4750.

(The author is Larry Simpson, Executive Vice President, Sustainability Roundtable, Inc. Additional posts can be found in SR Inc.’s Forum found at http://www.sustainround.com/aboutst/blog/)


It’s not Rocket Science or Brain Surgery, its Corporate Real Estate Budgeting for Greater Sustainable Outcomes

August 22, 2011

Summertime, right? Time for vacation with family and to regroup before the blur of activity in the post-Labor Day fourth quarter? Wrong.

For most of you, the month of August is about hungering down in a conference room converted, “war room” with co-workers crunching numbers to prepare your real estate budget for departmental and corporate approval.

As you know, the budgeting season can be a tedious process to track down information, project internal charge-back costs to offset expenses, calculate macro interest rates, collect data from various systems and sources, and project/reconcile budget-to-actuals.

But, you don’t have to go visit a rocket scientist or ask a brain surgeon to know we are still amidst difficult financial times for most companies and budgeting is getting more and more difficult. The challenges you face are how to reduce operating expenses and enhance asset/enterprise value. But, now you’re being asked more and more to align the real estate portfolio with corporate environmental goals while achieving an acceptable rate of return.

How are you going to do find monies in your budget to create a sustainability strategy with so much less? The Sustainability Roundtable, Inc. (SR Inc.) and their most recent research just might have some of the answers.

SR Inc., in their report, “Allocating Resources for Sustainable Outcomes” found that:

  • Sustainability upgrades can have a substantial impact on the enterprise bottom-line to reduce operating and maintenance costs, mitigate carbon impact, improve employee productivity and increase asset value.
  • Capital allocations to improve indoor environmental quality can be more cost-effective and create greater enterprise value than energy conservation and efficiency investments.
  • Determining the relevant metrics and qualifying some sustainability key performance indicators (KPI) is difficult but methods are emerging measure intangible benefits.
  • Base financial models such as simple payback and ROI are inadequate to assess the real costs and benefits of most sustainability projects.
  • Energy performance can be benchmarked, monitored and evaluated, and therefore energy efficiency upgrades are high-priority for innovative finance programs.

But, you don’t own all of your facilities and have little control on the pass through expenses from your landlords in your current lease. SR Inc. has conducted some breakthrough research in a report entitled, “More Sustainable Leased Space,” where the adoption of ‘green lease’ language and other measures can help you achieve greater sustainability and reduce occupancy expenses. The research found:

  • To overcome conflicting priorities and the barriers that hinder the move to more sustainable leased space, leading companies develop a strong business case aligned with corporate goals, conduct total lifecycle accounting, adopt “green” leases, and gather data for sustainability KPIs to benchmark internally and externally.
  • Many corporate tenants pursue LEED-CI or BREEAM interiors to reinforce credibility, provide brand recognition and engage employees/clients. To avoid administrative burdens of formal certification but still obtain the benefits, some choose to ‘design to LEED-CI’ but not certify.
  • To achieve cost-effective sustainable leased space and certification, CRE leaders give preference to those buildings that are ENERGY STAR rated or whose landlord has demonstrated a commitment to sustainability.

SR Inc.’s Vice President of Research and Consulting, Irina Mladenova claims, “overestimating certification costs and setting unrealistically high hurdle rates based on a simple payback analysis are typically the biggest barriers in the move towards more sustainable leased space. When real estate executives hire consultants to lower the documentation and filing cost but do not overpay them and when a life-cycle cost analysis rather than a simple payback analysis is used to establish hurdle rates, the additional costs to achieving green building certification is in fact far less (0-2%) than many real estate professionals assume. And, there is an increasing recognition that green buildings result in significant, yet hard to quantify, health and productivity benefits.”

The challenge to find monies in your budget for sustainable real estate is no longer a cost benefit trade-off. The budgeting process may be arduous but, there is clear evidence that you can achieve a more sustainable real estate portfolio by allocating resources where they will have the greatest impact and implement initiatives that are more about changing behavior than being capital intensive. And, besides, budgeting for sustainable outcomes is a heck of lot easier than rocket science and brain surgery.

If you would like to learn more about how you can create a budget with greater sustainable outcomes you can download SR Inc.’s research: “More Sustainable Leased Space,” (http://sustainround.com/research/leasedSpace.php);  and for a copy of “Allocating Resources for Sustainable Outcomes” please contact Larry Simpson, EVP of Advisory Services at larrysimpson@sustainround.com.

(The author is Larry Simpson, Executive Vice President, Sustainability Roundtable, Inc.  who can be reached at larrysimpson@sustainround.com. Additional posts can be found in SR Inc.’s Forum found at http://www.sustainround.com/forum/ )


The Juxtaposition in Sustainability of the Built Environment

May 23, 2011

“Out with the new, in with the newer”…there is the juxtaposition occurring in sustainability of the built environment.

There is a shift from new to newer technologies; a migration of leadership within some companies from the corporate real estate professionals to chief sustainability officers; and an evolution of not just to embrace best practices but, advance them and to define the future of sustainability in corporate facilities.

New to Newer Technologies

At a recent Green Best Practices Summit in Boston, New England’s sustainability leaders heard from Jim Gorton of Cape Wind, a company who is developing America’s first offshore wind farm off the coast of Massachusetts with 130 wind turbines that will produce clean, renewable energy. Gorton highlighted that less than a month after the federal government gave approval to start construction, a major coal power plant in Massachusetts announced it would shut down by 2014. Gorton said, “the juxtaposition of these two announcements … illustrates where we are going as an industry, and what we have to do to move toward creating a healthier environment and increasing energy independence.”

Migration of Leadership

There is a juxtaposition occurring in many of today’s corporate cultures where the responsibility to develop sustainability strategies has transitioned beyond the corporate real estate department to manage energy consumption, waste reduction and water conservation and others within a company who address corporate social responsibility. Sustainability has reached “C-Suite” prominence with the emergence of Chief Sustainability Officers to coordinate the convergence between environment, economic and social aspects that will result in top-down leadership and more comprehensive corporate environmental stewardship.

The Horizon of Sustainability

But, the most exciting advancement is that companies aren’t just utilizing the principles of sustainability to meet the objectives of occupancy cost reduction, enhanced enterprise value and overall commitment to environmental preservation. Some of the most innovative companies are redefining what sustainability will be as they push the limits to exploit opportunities and minimize risk of what is on the horizon for sustainability.

With the progression of these and other developments, the juxtaposition of today and tomorrow lies with the question each of us must ask ourselves of, “are you ready?” Will you be poised to take advantage of emerging technology, industry best practices and processes to create sustainability strategies that support your organization’s objectives, appeal to your sense of “doing the right thing” and collaborate as a society in the move to greater sustainability?

Are you ready for the juxtaposition of who you are and who you need to be to play your role and move an industry?

(The author is Larry Simpson, Executive Vice President, Sustainability Roundtable, Inc.  who can be reached at larrysimpson@sustainround.com. Additional posts can be found in SR Inc.’s Forum found at http://www.sustainround.com/forum/ )


Carrot or Stick: What Motivates Your Company to Disclose Sustainability Initiatives?

March 21, 2011

Increasingly, companies are publishing information about their greenhouse gas emissions, climate change initiatives, and sustainability strategies because they believe that doing so makes them more attractive to investors. This is the carrot.

A number of organizations promote voluntary sustainability disclosure and reporting, such as the Global Reporting Initiative (GRI) and the Carbon Disclosure Project (CDP). The GRI provides guidelines for reporting, while the CDP compiles voluntary disclosures from over 2,500 companies, including 330 members of the U.S. S&P 500, in response to it’s annual questionnaire issued on behalf of hundreds of leading investors.

Some companies already incorporate information about their sustainability initiatives in their annual reports and Securities and Exchange Commission (SEC) filings. The latter has become a necessity for most, given that in February 2010 the SEC clarified that existing disclosure rules requiring companies to report on issues material to investors also cover climate change risks and opportunities. This is the stick.

Which, carrot or stick, does your company respond to?

Many companies still decline to disclose voluntarily or file with the SEC on the issue of climate change. The extent of non-compliance with the SEC requirements was recently highlighted in a report developed with input from Ceres’ Investor Network on Climate Risk, which outlines generally weak climate disclosure by businesses, and proposes steps for improving such disclosure, especially in the annual 10-K financial filings due by March 31, 2011. The Ceres report comes just after Mercer issued a new study warning that climate change could increase investment portfolio risk by 10 percent over the next 20 years.

Sustainability Roundtable EVP of Research, Michael Gresty, observes that “failure to disclose signals either that companies are unwilling to reveal poor performance that will present them in bad light, which is a red flag to investors, or that they have not assessed the risks and opportunities, which is an even bigger red flag. Since real estate assets are the main source of direct and indirect GHG emissions for most companies, and these correlate closely with their cost of energy, we see the sector leaders in our Sustainable Real Estate Roundtable working actively to measure and manage energy and GHG emissions, and to report on their portfolio-wide sustainability initiatives.” (See SRER report Portfolio-wide Sustainability Strategy for more information.)

A proactive response to the carrot (voluntary) and SEC mandated (stick) disclosure has created competitive advantage for companies that have been developing and implementing successful sustainability strategies. To some companies the underlying driver behind sustainability initiatives is to reduce operating expenses by applying the principles of sustainability that include: improve energy efficiency; resource utilization and waste reduction; procure renewable energy sources; and, space optimization through alternative workplace environments to reduce the overall size and cost of the real estate portfolio — for many companies, the OPEX reduction is ‘carrot’ enough. But, as mainstream investors increasingly use broader environmental, social and governance (ESG) research to mitigate risk and seek alpha, those companies that fail to disclose raise doubts about what they may be hiding, and cede the terrain of transparency to their competitors.

(The post was originally published in the Sustainability Roundtable’s blog found at http://www.sustainround.com/forum/SOR/ and was republished with permission by the author, Larry Simpson, Executive Vice President, Sustainability Roundtable, Inc.)


Creating Enterprise Value through Sustainable Real Estate Strategies

February 3, 2011

Sustainable corporate real estate strategies:

– reduce operational and occupancy costs through energy efficiency and space optimization, AND

– avoid customer, employee, environmental and regulatory risk, AND

– align portfolio management with an organization’s overall objectives.

Sustainable development, which has been defined as “meeting the needs of the present without compromising the ability of future generations to meet their own needs,” is a policy objective and global megatrend that companies must align with to create enterprise value.

The hallmark of corporate sustainability excellence is inclusion in the Dow Jones Sustainability Index (DJSI). The DJSI recognizes that “corporate sustainability is attractive to investors because it aims to increase long-term shareholder value. Since corporate sustainability performance can now be financially quantified, they now have an investable corporate sustainability concept. Second, sustainability leaders are increasingly expected to show superior performance and favorable risk/return profiles. A growing number of investors are convinced that sustainability is a catalyst for enlightened and disciplined management, and thus, a crucial success factor.”

DJSI recognition does not necessarily require a sustainable corporate real estate strategy, but those organizations that proactively incorporate the principles of sustainability into managing their portfolio of leased and owned facilities can make significant contributions to their organization’s overall enhanced value.

The challenge for the corporate real estate and facilities professional is made a bit easier when senior management fully embraces the principles of sustainability and is willing to make the necessary investment that achieves an acceptable internal rate of return. 

The way real estate strategies play a major role to create enterprise value is best highlighted in the Sustainability Roundtable, Inc.’s (SR Inc.) “2010 Corporate Real Estate Management Best Practice Guidebook” which reports the following best practices they originally researched from leading corporations:

  • Portfolio-wide sustainable real estate strategy is an essential component of a corporate response to the sustainability megatrend.
  • Leading real estate executives align with corporate strategy to establish a vision of sustainable real estate; implement effective governance; guidance; short-, medium- and long- term goals; and demand accountability for results.
  • Executives can create sustainable efficiency and value by developing and implementing portfolio-wide initiatives to improve portfolio performance and increase asset value.

Going forward, innovative real estate professionals are being increasingly recognized for taking the lead to exceed goals. To be successful they must implement proven sustainable real estate strategies that: compliment the corporate vision; anticipate long-term environmental impact; meet shareholder demand for financial returns; foster customer loyalty for company products and services; set high standards for the corporate code of conduct; and, maintain employee affinity and job satisfaction.

Michael Gresty, SR Inc’s EVP of Research and Consulting, observes that “today, the corporate real estate function is often by default the internal champion of sustainability initiatives. CRE teams can now do more to secure C-suite buy-in that enables them to maximize value creation rather than simply minimize costs. CRE is experiencing a metamorphosis to become a new source of value and risk management.”

Sustainability is no longer just “a good idea” or “the right thing to do,” sustainability is now an investable strategy as sustainable real estate portfolio management has become an important element in creating benefits for companies and their investors. As the sustainable enterprise value creation dynamic expands, it will have an even more profound effect on improving individual and corporate financial performance, the global economy, and environmental stewardship.

(The post was originally published in the Sustainability Roundtable’s blog found at http://www.sustainround.com/forum/SOR/ and was republished with permission by the author, Larry Simpson, Executive Vice President, Sustainability Roundtable, Inc.)