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/ )

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Pick the low hanging fruit? How about the watermelons lying on the floor? — Partnering with Utilities to Reduce Energy Costs

July 28, 2011

When companies develop a sustainability strategy to reduce operating expenses, among the first areas they address is the “low hanging fruit” of energy efficiency as it represents one of the largest cost buckets behind rent or debt service.

However, many or most organizations may not think about “picking up the watermelons lying on the floor” by partnering with their utility company to create an energy plan. Because power providers are incented by federal regulators they are required to extend rebates and provide cost saving programs as part of their service to rate payers.

In a Member-Only meeting of the Sustainability Roundtable, Inc., New England-based National Grid was featured to share some information about programs they offer to their customers and make recommendations that all organizations make take advantage of. They cite that partnering with a utility provider to develop a long-term strategic energy plan includes:

  • New initiative to meet aggressive energy saving goals
  • Targets top quartile customers
  • Sets long-term and high energy saving goals (road-map) for customers rather than ‘short-term’ ad-hoc upgrades
  • Create (or modify) an organizational shift to how energy efficiency decisions are made within a large organization
  • A financial model that enables a re-investment based cash flow positive structure for energy efficiency upgrades

Their presentation highlighted that, in addition to ‘triple bottom line’ energy planning, there are several other key areas they recommend organizations to address:

Financial – incentives, on-bill financing, investment criteria

Technical – benchmarking, energy use data, coordination with LEED standards

Operational – staff training, building certification, O&M guidelines

Other “green” measures – indoor air quality, day lighting, water savings, GHG tracking, productivity studies

The presenter during the program was National Grid’s Michael McAteer who said, “a significant opportunity exists for customers to maximize the technical expertise and achievable energy savings potential in their business environments by partnering with their utility. Adopting a comprehensive data driven approach to reduce operating costs with support from utilities is a smart move and provides valuable dividends to customers.”

He suggested a process that you and your utility company could take might include:

  • Establish contact with top management of large customers and the utility company
  • Identify energy goals, financial criteria, and sign memo of understanding
  • Identify/prioritize projects
  • Benchmark existing use
  • Implement measures and incentive payments
  • Evaluate progress
  • Develop long-term road map for the entire portfolio through “collaborative effort”
  • Train operations staff, create case studies, and assist other studies (water savings, productivity, LEED etc.)

The key takeaways the SR Inc. program highlighted were:

  • Leading companies that develop and implement portfolio-wide sustainability strategies prioritize scalable best practices in energy efficiency and energy cost reduction, and seek to maximize innovative financing, including utility benefits.
  • Utilities are responding to market demand for a portfolio approach by looking beyond buildings, building systems, and technologies for opportunities to assist customers to reduce demand and consumption.
  • The portfolio-wide approach enables customers and utilities to partner at a strategic level, and achieve greater reduction and savings a lower cost and in less time than a fragmented ‘Energy Conservation Measure’ or technology rebate approach.

As you embark on the green to gold treasure hunt or search for the proverbial ‘low hanging fruit’, be sure to reach out to your energy provider who is ready to help and can play an important role to address energy cost, save money and pick up some ‘watermelons.’

If you would like to receive a copy of National Grid’s presentation or to learn more about how you might forge a strategic partnership with your utility company, please contact me 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/ )


What do home offices, airport terminals, cafes, and office touchdown areas all have in common? — they are all important spaces in today’s alternative workplace solutions.

July 14, 2011

As part of an overall sustainability strategy, leading companies are innovating beyond traditional workspace practices and are evaluating shifts in the location of work, hours of work and schedule of work hours.

At a recent Client-Only meeting of the Sustainability Roundtable, Inc. (SR Inc.), new research on “Integrated Alternative Workplace Strategies” (AWS) was presented that found:

  • Changing demographics, advances in technology, new business needs (24/7 service), globalization trends, and environmental considerations influence the move to greater mobility and accelerate the adoption of AWS.
  • Leading companies implement AWS to reduce real estate operating costs and carbon footprint; retain and recruit top talent; increase human capital outcomes; enhance real estate and operational agility; and enhance their brand.
  • Executives follow an iterative process to plan, implement, and evaluate AWS to maximize benefits.
  • Executives deploy AWS on company-wide level after making a compelling business case, aligned with business goals, ensure departmental integration (RE, HR, IT, EH&S), conduct initial assessment, and test pilots.
  • Executives integrate AWS into their company’s sustainability strategy; adopt options customized to meet their business goals and organizational culture to enhance sustainable value creation across the enterprise.

The organizational readiness of companies to adopt AWS differs and this impacts the level of employee mobility they are ready to embrace. SR Inc. classifies AWS into four types of solutions based on the level and mode of mobility:

Internal Mobility – working and moving within a dedicated office, group workstations, open office, and hoteling

External Mobility – working across multiple offices of the same company or home-based work, remote/satellite offices, and telework centers.

Virtual Office – full mobility and third places of cafes, libraries, airports, and client sites.

Fourth Generation Office – fully furnished flexible offices worldwide with outsourcing office and equipment provision to 3rd parties. I.e. Regus, Metro Office, Workspace Group

SR Inc.’s research included case studies from American Express, AT&T, Cisco, GSA, Nortel and Oracle that highlighted lessons learned of:

  • AWS aligns workplace and technology with the way employees already conduct work.
  • Proactive stakeholder engagement is critical. This includes a cross‐functional team with start-to-finish support from RE, HR, IT and the C-suite and engaging employees.
  • Building a legitimate business case, includes RE, HR, IT, and EH&S perspective as well as a real employee value proposition.
  • Technology is available, mature, and effective. It is expected to advance significantly in the next several years, and therefore, companies can design for maximum IT flexibility
  • Formal, comprehensive assessments of the program helps determine what works within the unique company’s context in order to make appropriate adjustments and maximize benefits.

As much as organizations are looking to AWS for the inherent benefits it is important to anticipate the needs to facilitate face-to-face interaction that can stimulate team building and knowledge exchange.

SR Inc.’s Senior Sustainability Analyst, Irina Mladenova, says, “companies across industry sectors find it necessary to revisit their workplace strategies to accommodate evolving working needs. Those who are unwilling will find it challenging to retain top talent, improve collaboration and innovativeness, and ensure low costs. One issue executives still struggle with is capturing space utilization accurately and attributing real estate and GHG footprint optimization or reduction specifically attributed to AWS. Another issue that companies still need to address more directly is how to adapt standard AWS practices company-wide level to local culture and practices.”

If you would like to learn more about how AWS could become part of your company’s sustainability strategy, feel free to download the Executive Summary of the “Integrated Alternative Workplace Strategies” at http://sustainround.com/research/AWS.php.

(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/ )


Yes, You Can Achieve Greater Sustainability in Leased Space

June 6, 2011

Many top companies have developed a sustainability strategy to enhance enterprise value, reduce operating expenses, limit risk, and align with stakeholder expectations.

Corporate real estate portfolios, which typically consist mostly of leased space, are often keystones in these strategies, as real estate leaders seek to improve operational efficiencies, reduce environmental impacts, and create work environments conducive to productivity and retaining/recruiting top talent.

While the move to more sustainable leased space is gathering momentum, many challenges remain. Recent research by the Sustainability Roundtable, Inc. (SR Inc.), entitled “How Leaders are Moving to More Sustainable Leased Space,” cited the following barriers to implementation: 

  • Perceived cost premium for more sustainable space
  • Limited tenant leverage in smaller leases
  • Lack of relevant KPIs, benchmarks and metrics
  • Few reliable sources of information about best practices
  • Lack of a single solution and the need for incremental innovation
  • High hurdle rates based on ROI expectations

The research includes information on best practices on ‘green leases,’ and features case studies from Gensler, Brandywine Realty Trust, Equity Office, Akamai Technologies, Autodesk, and the General Services Administration.

Discussing the research findings, Michael Gresty, SR Inc.’s Executive Vice President of Research and Consulting, notes that, “leading companies have found ways to design, build and even certify more sustainable leased space at little or no cost premium. The most experienced among them, such as Adobe, are consistently pursuing LEED-CI Platinum level certification, because they have proven that the benefits exceed those of basic certification. However, the barriers to adoption identified in our research are real, and can only be overcome by persistent efforts and greater collaboration between corporate tenants and landlords, and further efforts to negotiate win-win solutions in green leases.” 

The key takeaways of the research presentation include:

Leased Space is an Opportunity not an Obstacle – Tenants and landlords can find common ground based on sustainability to reduce costs, risks, and, together, create enterprise value.

Adapt to Mainstreaming of Sustainability – Corporate Tenants, Investors, Advisors, and Owners, recognize that sustainability has become a mainstream concern, that there is no cost premium, and they can innovate within their organizations to adapt.

Overcome Market Barriers – Tenants and landlords still face institutional and cultural barriers to more sustainable leased space; leaders have adopted proven strategies to overcome them, including ‘green’ leases.

Develop an Integrated Strategy – Companies that adopt a cross-disciplinary strategy using Integrated Project Delivery methodology rather than trying to ‘green’ conventional design and management methodologies can maximize sustainable value.

If you would like to receive a copy of the presentation, email Larry Simpson 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/ )


Corporate/Investment Real Estate Professionals Focus on the Deployment of Enterprise Energy and Carbon Accounting Software

May 9, 2011

The real estate footprint boundaries of large companies and real estate owners have expanded, subsequently the challenge to measure, manage, report and reduce energy and carbon data efficiently and accurately to support portfolio-wide sustainability strategies have increased.

This challenge has immediate and particularized relevance for the users of corporate real estate, the owners of corporate real estate, and investor-advisors invested in corporate real estate. On April 21st, the Sustainability Roundtable, Inc. (SR Inc.) released a management best practices research report entitled “Deploying Enterprise Energy and Carbon Accounting (EECA) Software,” that provides practical guidance on software selection and implementation. To access the report, GO TO http://sustainround.com/research/EECA.php

SR Inc. clients who provided case studies include Adobe, Autodesk, Intuit, and Brookfield Properties. Among other findings, the report highlights that:

  • The key drivers for deploying EECA software today to manage GHG emissions include cost control, disclosure requests, brand enhancement, and new, superior technological solutions.
  • The deployment of EECA has significant benefits over the use of spreadsheets and complements other enterprise systems.
  • Careful initial planning and decision-making throughout the three deployment phases (selection, implementation, utilization) can reduce risks and maximize the benefits of EECA.
  • The use of EECA as a management tool first, and reporting tool second, enhances sustainable value creation across the enterprise.

Over the past three years, the market for software to manage sustainability metrics and produce management, regulatory, and voluntary reports has exploded, with over 200 vendors offering products of varying maturity. Since real estate is one of the leading sources of corporate GHG emissions, primarily due to purchased energy use, one software class—known as ‘enterprise energy and carbon accounting’ (EECA) — has become the preferred approach for priority sustainability data management and reporting.

While some research is available on the EECA market size, market share and characteristics of the leading vendors and products, there has been little decision-support for real estate executives on the selection, procurement, and implementation of EECA software until the SR Inc. report was released.

Michael Gresty, SR Inc.’s Executive Vice President of Research and Consulting, observed that “while numerous companies have already deployed EECA solutions, many more have not, and are looking for guidance about why and how to do so from the early adopters. Our client-sourced best practice report includes strictly vendor-neutral step-by-step guidance on deployment by corporate real estate executives.”

Enterprise-wide information systems have become the fabric in today’s corporate/investor landscape but, with the emergence on the importance to track and report carbon emissions, manage sustainability initiatives and gauge success call for a new class of software – enterprise energy carbon accounting and SR Inc.’s guidance on how to deploy it successfully.

How does your organization track, measure and report its’ carbon emissions and sustainability initiatives?

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


“Blue is the New Green: Water Scarcity and Efficiency Takes a More Prominent Role in Greater Sustainability”

April 13, 2011

In recent years, “green” has become a dominant theme in the corporate and social lexicon, and a critical business driver in many companies’ overall strategy.

Senior level executives publically proclaim the “green” high ground as a corporate philosophy while middle management supports the organizational objective with “green” real estate strategies, many of which tend to be focused on energy efficiency because it has the greatest potential for savings.

More recently, water scarcity and associated rising costs have become critical issues bordering on a crisis, as a survey of recent headlines attests: “metro eyes evening lawn sprinkling ban to conserve water,” “water shortage warning issued for 16 Florida counties,” “Pasadena will face water shortage emergency this month,” and “spring watering restrictions now in effect.”

The Sustainability Roundtable, Inc. (SR Inc.) recently released a client briefing with the following key takeaways:

  • The five market drivers for water efficiency in corporate real estate portfolios are rising costs, increasing water scarcity, reputational risk, green building certification, and investor concerns
  • Domestic use, heating and cooling, landscape, and kitchens are the four main categories of water demand in commercial buildings
  • Water foot printing is important to evaluate both direct and indirect water use
  • Mapping flows and measuring water consumption using metering, sub-metering, and estimation are essential to benchmarking and setting goals

Water scarcity has increased average water rates of 310% over the past 25 years compared to a 207% increase in the CPI. In many areas, water consumption charges do not yet reflect the true cost of water, but they are rising quickly because subsidies that kept them artificially low are being phased out. For instance, NYC has raised water rates 12.9% for three years in a row, and plans to do so again in 2011. Water districts are raising prices to cover the full cost of water treatment, storage, and delivery. As water scarcity intensifies and water rates increase so does the pressure for governments to mandate efficiency.

Companies that utilize LEED standards on new construction and existing building retrofits can reduce water consumption by 20-50%. The LEED certification guidelines include a pre-requisite for water reduction (20%), water efficient landscaping, innovative wastewater technologies, water performance measurement and cooling tower management.

Water scarcity and increasing costs are getting attention from investors who are interested to learn how companies manage their water use. In 2011, for the second year running, the Climate Disclosure Project is requesting information on the risks and opportunities companies face in relation to water on behalf of 354 institutional investors with assets of $43 trillion. Water is sometimes called “the new carbon,” but while CO2 emissions are only priced in some markets, water costs and risks are increasing in all markets.

Most companies already focus on energy efficiency, but water and energy are interconnected. Efficient use of water reduces on-site energy use, as well as the energy required to supply fresh water and treat wastewater and recycle water. Power plants which produce electrical power use water for cooling or to turn turbines. By extension, water use causes carbon emissions because of the energy required to source and pump it. The Environmental Protection Agency reports that about 8% of US energy demand goes to processing and moving water.

Storm water is typically a problem which requires expensive infrastructure both on-site and off-site to solve. Leading corporate real estate executives are seeking ways to re-assess the management of storm water to capture its value and reduce capital as well as operating costs.

As water is beginning to play an increasingly important part of an overall sustainability strategy, measuring and auditing water use is essential to create a baseline and to benchmark. Common corporate water efficiency goals are incremental 2-3% annual improvements as a reduction in the volume of water used by area (gallons per square foot), but some organizations are targeting 20-30% 1-year goals.

An integrated approach to implement water efficiency includes:

  • potable water use reduction – low-flow fixtures, cooling towers, leak repair, xeriscaping;
  • water recycling – onsite water recycling and rainwater harvesting; and,
  • water diversion – incorporating storm water management for re-use will yield optimal results to address the increasing water crisis.

Michael Gresty, SR Inc.’s Executive Vice President of Research and Consulting, comments that “many corporate real estate executives remember the poor quality of the first generation of more efficient low flow fixtures, and associate water efficiency with thoem and associated municipal mandates that had low or no payback. Today, there are numerous solutions on the market that have been thoroughly tested and work extremely well. Moreover, while bathroom fixture replacement is important, our research shows that the biggest gains can often be in leak detection and repair, cooling tower efficiency, and non-potable irrigation or xeriscaping, all of which can both be easier and less costly to implement.” 

The operational market drivers of rising costs and increasing scarcity, in concert with strategic drivers of reputational risk, green building certification, and investor interests are compelling leading corporate real estate executives to create value through water efficiency.  To achieve this, industry best practices are to:

  • Meter and measure water use across your portfolio to establish baselines
  • Benchmark using ENERGY STAR
  • Track changes in water to identify leaks and other anomalies
  • Focus on preventive maintenance of cooling towers (responsible for a high percentage of water consumed) and improve fixture efficiency
  • Implement green roofs, bio-swales, and other solutions to manage storm water for re-use (irrigation or on-site filtration)

Clearly, “blue has become the new green” due to the importance of water conservation to address operating cost reduction and as an integral part of a successful “green” sustainability strategy.

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