The concept of green buildings has come a long way, from vague ideas of changing out lightbulbs to a corporate imperative, one that transcends energy efficiency to embrace health and wellness. Today, the subject is sustainability. What began as a concept clouded in fuzzy math about its benefits, has emerged as a science with measurable results.
Todd Feist, IREM’s sustainability program manager, put it best in a recent presentation before our Georgia chapter: “When it first came about, we had this skepticism that there was a cost-savings opportunity with sustainability,” he said. “This is probably because projects were, or seemed, expensive. Why would an owner invest in something that primarily benefits the tenants, in many cases? There was also a lack of utility tracking, so it was hard to see the benefits or track improvements in a meaningful way.”
Today, benchmarking and tracking have increased, not only externally, with programs such as ENERGY STAR, but also within the corporate finance and accounting teams, with the result that there’s an intentional determination of cost savings with advanced financial analysis. This, of course, has been aided in large part by increasing technology driving down the costs of such energy-efficient products as LED lighting.
Investors and tenants are increasingly demanding sustainable features, and there are both market and regulatory signals that indicate this movement.
In fact, over the past seven years, the use of data on the environmental, social and governance performance (ESG data, for short) of companies by investors, financial analysts and stock traders has exploded, Feist tells us, from 2009, “when 1,545 users accessed the data to make investment decisions,” to last year when that number exploded to more than 12,000.
In terms of how this translates into shareholder votes, there were 433 resolutions on ESG in 2015. It was half that just a few years ago. And while the resolutions cover a wide range of issues, the greatest proportions pertain to environmental issues and corporate political activity.
For instance, says Feist, “They’re demanding that companies: publish a corporate responsibility report, publish greenhouse gas data; green their business operations and manage their reputation and preserve their social license to operate.”
Shareholders and investors also demand greater transparency about business activities and sustainability. They want to use this information to make investment decisions and feel secure about their investments, and there are a number of programs that allow companies to “increase their transparency in response to investor demand.”
These include the Global Reporting Initiative, a voluntary standard for annual ESG performance reporting. Currently more than 19,000 produce reports in accordance with GRI standards.
There’s also GRESB, which describes itself as “an industry-driven organization committed to assessing the ESG performance of real assets globally, including real estate portfolios and infrastructure assets.” GRESB participants represented $2.3 trillion in asset value in 2015. That number is expected to grow this year. It should be noted that IREM is a GRESB Premier Partner, and the recently unveiled IREM Certified Sustainable Property certification contributes to GRESB assessment scores.
We said at the top that the green movement has grown up to embrace a holistic view of the worker and workplace. As Feist explained in Georgia: “Good design, construction, management and operations all encourage good behaviors among occupants. Specifically this means better lighting, including daylighting, better temperature control, noise control, low-emitting materials and good air quality.”
That affects all aspects of a worker’s life, including sleep! Research shows that office spaces with good daylighting and good lighting in general lead to 46 more minutes of sleep per night. That extra sleep translates into attentiveness, productivity and health benefits.
The days of speculation about the efficacy of green buildings is well past. Not only is it an imperative from a personal or even an investment perspective, but it is in fact becoming a regulatory imperative.
“Benchmarking and transparency policies have spread quickly in cities and states throughout the country,” says Feist. “Owners can get fined for not complying. It’s expected that mandatory energy audits, or even certain levels of energy performance, will follow these laws, and in fact some local governments have already passed audit and performance laws.”
And if nothing else propels a property owner to embrace sustainability, there is that call to action. The bottom line here is whether you look at it from a personal, corporate or regulatory level, sustainability is an imperative.
Chris Mellen serves as 2016 president of the Institute of Real Estate Management. He has more than 30 years of experience in property management. Mellen is also vice president of property management for the Boston-based Simon Cos., supervising the day-to-day operations of all properties in the firm’s portfolio.