Greener Pastures: Real Estate, Sustainability and the Bottom Line

By Dan Probst

As corporate CEOs and CFOs increasingly recognize the full range of financial benefits that flow from environmental sustainability, real estate strategies are at the top of their list of priorities—whether they realize it or not.

Companies are facing increasing pressure from customers, employees, investors and regulatory bodies to become more sustainable, but the mandate to grow revenue and increase shareholder value has not diminished. Senior executives may have viewed the two sets of goals as contradictory in the past, but now they are recognizing that sustainable practices can enhance, rather than detract from, financial performance.

A 2008 study conducted by CFO Research and Jones Lang LaSalle revealed that a majority of CFOs believe they are likely to get a wide range of benefits from sustainable practices. Not surprisingly, 78 percent of senior finance executives said sustainability was likely to enhance their brand, 77 percent said it was likely to lead to reduced risk and 74 percent see an increase in customer demand for sustainability. But finance executives also acknowledged that these strategies could reap benefits such as improved employee health and productivity (68 percent), reduced operating expenses (61 percent) and increased investor returns (53 percent).

The 175 senior finance executives in the survey ranked two real estate related activities as the highest priority sustainability strategies after regulatory compliance. Seventy-nine percent said energy efficient buildings and the corresponding reduction in carbon emissions are a mid-to-high level priority. Reducing the environmental impact of operations was considered a high priority by 45% and a mid-level priority by 36%. By contrast, reporting environmental performance to investors was a high priority to only 29% and a mid-level priority to 32% of finance executives.

Perhaps building related sustainability strategies are a priority today because executives realize they have fallen short in these areas. Buildings are responsible for about 39 percent of all energy use in the U.S. and about 36 percent of the country’s greenhouse gas emissions, according to the U.S. Green Building Council. And there’s no question a lot of that energy is wasted. The Environmental Protection Agency (EPA) estimates that buildings in the top quartile of energy efficiency—in other words, those eligible for the ENERGY STAR label—use 35 percent less energy and generate a third less carbon per square foot than average buildings.

The EPA lists more than 170  organizations, many of them Fortune 500 companies, that have pledged to reduce their greenhouse gas emissions by significant percentages. Some companies might meet those goals by changing the products they make or in their supply chain. For service companies, however, virtually the only way to achieve a major reduction in their carbon footprint is to focus on reducing the use of non-renewable energy in their office buildings.

Cities are coming to a similar conclusion. More than a dozen major cities have green building laws, including some that mandate new public-sector buildings meet environmental standards, or that provide fast-track approvals for private-sector buildings that meet those standards. Los Angeles recently enacted a law that new buildings must conform to LEED Silver standards, and San Francisco is discussing a rule that would mandate LEED Gold.

In most cases, municipal ordinances are based on LEED standards which cover not only energy efficiency and greenhouse gas reduction, but also practices that promote the health, well-being and morale of building occupants. These practices range from indoor air quality standards to maximizing natural sunlight and views of the outdoors to accommodating employees who want to bicycle to work or routinely work from home. LEED even offers points to building owners and occupants who can document productivity gains as a result of these efforts.

Corporate executives recognize that promoting employee health and well-being through sustainable workplace strategies will have a positive impact on employee retention and productivity. Even a small increase in productivity might have a larger impact on a company’s bottom line than the millions of dollars saved on energy costs. Yet, the promise of productivity gains is not a major driver of sustainability, because results are virtually impossible to measure.

In fact, measuring the impact of sustainability is the primary challenge companies face in implementing these strategies. When CEOs were asked about the three biggest barriers to sustainability, 46 percent named the inability to measure sustainability against shareholder value, and 37 percent included the inability to document environmental impact on financial performance.

This lack of metrics may be another reason why companies are turning their attention to real estate strategies. Reducing energy and water bills is a direct and measurable benefit to the bottom line. A less direct, but still measurable, impact comes from Workplace Strategy, the growing trend of redesigning office space to increase density (and thus reduce space requirements) and to enable mobile employees to work outside the office. Companies that engage in Workplace Strategy often reduce energy use by reducing the amount of space needed per employee; and, by tracking the average number of work-from-home employees, companies can also calculate the number of car trips avoided and take credit for the reduction in emissions.

Real estate industry leaders are fueling these trends by developing more sophisticated tools and practices for adding financial value through sustainability activities. Streamlined processes for assessing the environmental profile of buildings, tools that enable portfolio-wide metrics, and widespread professional training on sustainable practices are just a few of the strategies that CoreNet Global members are pursuing to help corporations deliver on goals such as Climate Leaders.

Sustainability has emerged as a top concern for most corporate real estate directors only in the past couple of years. With the help of outsourcing partners and service providers, they are demonstrating to senior management that they can not only contribute to success but can take a central role in bringing their companies to greener pastures.

Dan Probst is Chairman of Energy and Sustainability Services at Jones Lang LaSalle.


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One Response to “Greener Pastures: Real Estate, Sustainability and the Bottom Line”
  1. Energy has become one of the most significant concerns in the 21st century. The need for energy has continued to increase and it has become difficult to meet this demand. Coal is poised to be one of the most important sources of energy but it is facing the challenge of environmental impact. To ensure that coal becomes an important source of energy in the world, it is important to put in place a framework for sustainable coal mining. The government should play bigger roles in regulation of coal mining and ensure environmental impact assessment is carried out first. The government should shut down mines if they continuously ignore the law. Fines are not sufficient deterrents for coal mines to supply with safety standards and protect the people and the planet.
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