Though it will involve substantive changes, the move to net zero is not something companies should dread — and they lose money to inefficient systems every day they wait.
The World Green Building Council recently shared good news: Some of the US's top commercial real estate companies are making progress on the path to net zero, by fully transitioning their buildings to renewable energy.
But news that pleases environmentalists doesn’t always sit as well with business leaders. This is especially true when sustainability initiatives mean major overhauls that threaten to wreak havoc on the budget.
While real estate operators such as Nuveen and CBRE are pleased to report they are well on their way to reaching net zero, other companies — including many in other lines of business with large real estate portfolios — are undoubtedly beginning to feel the pressure from a range of constituents including board members, activist shareholders, tenants and employees.
How much will energy-saving upgrades such as solar panels, high-efficiency windows, heat pumps and LED lights in every room of every building cost? And what will happen if my company falls behind in the race to reach net zero?
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While there are no simple answers to these questions, the news is not all bad for companies with large real-estate portfolios that are feeling the heat to reduce carbon emissions. In fact, being proactive in the move to net zero will not just polish your company’s reputation — it will also save money.
The psychological sticking point
Every company would be a model of energy efficiency today if becoming sustainable required no time, effort or expenditure. It requires all three — but it’s well worth it.
The first obstacle on the path to net zero for many companies is a psychological barrier: We all learned growing up that if it ain’t broke, you don’t fix it.
Why would a company — especially one whose primary line of business is not real estate — replace thousands of working light bulbs? Why replace an air-conditioning system that is doing a perfectly good job of keeping a data center cool?
Because, in the case of going sustainable, fixing things that are not technically broken can and will save money.
And that takes care of the second obstacle for companies: The cost.
Companies not using LED lights, smart controls, digital HVAC systems and plug-load sensors are paying way too much for energy today. Businesses are losing money to inefficient systems every day they stall on the road to net zero.
The fluorescent lights that have long been the norm for many companies consume twice the energy of LED lights. Manual thermostats mean that large, empty rooms are kept cool or warm for no reason. Banks of computers are left plugged in after the last employee has left, still draining energy.
Companies are losing money today to so-called sunk costs. But these costs can be far lower. According to Energy Star — a program run by the US EPA and the Department of Energy — buildings that are not energy efficient are essentially wasting:
$0.60 per square foot on operations and maintenance expenses annually
$0.50 per square foot on janitorial expenses annually
$0.53 per square foot on utility expenses annually
Additionally, real estate portfolios that have implemented energy-efficiency measures see:
Sale prices from 1 to 31 percent higher
Rental premiums 3 to 16 percent higher
Occupancy levels up to 10 percent higher
Energy efficiency pays for itself relatively quickly. Companies should focus on that more than they do the initial capital outlay required to move to energy sustainability.
Steps companies can take
Transitioning to renewable energy begins with identifying and measuring the opportunity to increase efficiency — or in other words, to save money. It’s important to first gauge how all of your assets are performing when held up against industry benchmarks.
Energy audits can be done manually, by sending technicians out to every building to take readings. But many companies nowadays opt to install sub-meters that track energy usage, as these are more cost-effective and convenient. The insights these provide are actionable.
The next step is implementation — examples of which include efficiency upgrades to lighting, installation of solar panels, smart controls for HVAC systems and other upgrades.
Building managers will then procure cleaner energy from a utility or a deregulated market to take the remaining energy load that can’t be displaced onsite and make it renewable.
After these three steps, the budget area once shrugged off as sunk costs will begin to look smaller and more manageable. Companies can begin sinking far less into this budget category while also burnishing their reputations.
Making it happen
Our country is making moves to reduce its carbon footprint, and this is not a trend that is going to reverse. Every company with real-estate holdings will be expected — if not mandated — to move its buildings over to a system of renewable energy.
And although it will involve substantive changes, the move to net zero is not something companies should dread. Every business with real estate holdings should welcome it, and take proactive steps to make it happen.
The move to net zero is not just the right thing to do. If companies make this transition the right way, it’s also right for the bottom line.