The ROI of Sustainability

The ROI of Sustainability

Excerpt: Sustainability and Corporate Social Responsibility are increasingly becoming business as usual practices but as with anything, they need justification. Yet the return on investment can be difficult to calculate… and it’s not all money off energy bills.

Sustainability is an increasingly popular topic in all business sectors and more companies than ever are moving toward integrating sustainable practises and policies in their day to day operations. However, as with any project internally in an organisation, a business case and projected return on investment is normally required to justify investment and resource. But in the case of sustainability initiatives, it can be complex to calculate this return.

In the US, 40% of the country’s total energy consumption is accounted for by buildings, so most commercial property owners and developers recognise the importance of investing into sustainable upgrades to increase the longevity and decrease the maintenance bills of their portfolio. A survey by Partner carried out in 2015 demonstrated that commercial property professionals rated energy optimisation as the most promising area of investment within their portfolio. Indeed there are plenty of products on the market that now promise a financial return on investment within set periods from 3 years onward.

Opportunities for financial payback for investment within sustainability are stronger than they ever have been, with more benchmarking and practical examples available. Developing a business strategy based on the benchmarking of a property’s energy outputs will result in a considerably more efficiently operated asset. The knock-on impact of this yields higher rents, lower vacancies, faster absorption and lower operating costs. Depending on the country of operation and rebates and incentives available, the costs of implementing energy efficiency systems within properties can be negligible: government incentives should always be researched into.

To reconcile the complete picture of ROI of sustainability measures, factors other than finances need to be taken into account. Regulatory, social and market factors should all be considered. These include, but are not limited to:

Reducing operating expenses
The reduction in energy usage has an obvious result in lower utility bills, but there are other operational expenses that can be decreased by implementing sustainability measures.

Dependent on the area in which the property is, there may be government or state-sponsored initiatives and incentives to lower other costs. Low-Income Housing Tax Credit is one such examples, encouraging greener building usage by offering extra credit to properties with lower emissions. Incentives vary from country to country but can account for up to 35% of property tax savings – a large discount to overall expenditure.

Access to better funding.
Several financing programs available (from both public and private sources) have pre-requisite requirements that now stipulate or favour more eco-friendly building practices. Benefits can include discounted interest rates, additional loan proceeds or preferred pricing.
Greener lending programs often favour multi-property portfolios to encourage accountability and corporate social responsibility.

Compliance updates
As building stock ages, it is often the case that improvements need to be made to meet newer energy and efficiency standards and requirements. Many countries and authorities are, as a result, introducing legal requirements for benchmarking and usage disclosure to ensure that property owners correctly quantify and calculate property performance – and improve it where required.

Requirements vary but stricter rules are already implemented in some cities. In New York, energy audits, retro commissioning and benchmarking is a legal requirement on all commercial buildings over a stipulated square footage.

Valuable demonstration of corporate responsibility
Building energy performance is now increasingly measured alongside other efficiency measures in one corporate social responsibility metric. There is now an expectation that all businesses will have in place CSR policies, procedures and reporting. CSR is now considered as mainstream as investment, leasing and financial decisions are.

External pressures
Institutional investors alongside potential staff and existing stakeholders all increasingly expect a solid commitment to be made to CSR and sustainability. Indeed external pressure fast making this the ‘norm’ in business practices is resulting in the creation of assessment and consultation companies who specialise in assessing, recommending and implementing sustainability best practices and measures. Property owners having a favourable portfolio-wide sustainability assessment carried out is becoming an increasingly important metric to attract investors, who are receiving pressure from their capital stack to demonstrate commitments to green practices.

It is no longer just investors demanding greener spaces, but also tenants and estate agents. Greener, more eco-friendly buildings will often be worth paying a premium for, and so it is important that property owners stay on top of the latest developments in the sector to benefit from this.
Indeed the ROI on sustainability is not just savings on energy bills – and keeping at the forefront of green initiatives is the most certain way to benefit from payback all ways round.

Brexit to give continued uncertainty to Sustainability Professionals, JLL warns

Brexit to give continued uncertainty to Sustainability Professionals, JLL warns

Excerpt: JLL UK is leading the way to call for governmental intervention and planning to give better certainty and stability to sustainability professionals in the wake of ongoing political and business uncertainty.

Investment management firm JLL UK has warned that the country’s prolonged period of political and business uncertainty in the wake of the Brexit vote will continue to affect sustainability professionals, and suggests they must be more flexible in their pursuit of long-term corporate social responsibility objectives and goals.

Talking to edie, JLL UK’s Head of Sustainability Sophie Walker said that she believed those working in sustainability would have more difficulty adjusting to the period of uncertainty compared to those working in other areas of business – because the nature of their goals are long-term and the attitude of other sectors currently is very focused on short-term aims. She said of the research JLL had conducted:

“Post-Brexit, I think we’re operating under assumptions of EU roadmaps on a variety of business issues, including sustainability. Things are up for debate and discussion over the next few years and everybody in every sector has to be more flexible than they’ve had to be in their entire career. You have to be brave, bold and ambitious when setting out your targets. At some point, you’ll have to take that step. But, you have to be prepared to pivot and be more nimble. It’s an interesting challenge for sustainability professionals, who always try to take the longest view possible but are now being asked to think across a three to six-month spectrum. It’s definitely a tension.”

Dissimilarly, Walker claims that the recession was, inadvertently and unexpectedly, a positive event for the sustainability sector, as it placed focus for the first time on the financial aspects of sustainability to drive long-term business value. Whilst she admits this does stifle companies spending on “green bling”, she believes the required re-focus on long term strategy made sustainability more integral and central to businesses rather than staying as a ‘nice to have’ add-on. JLL UK were just one such company to shift this focus, and several of their clients have moved in the same direction.

JLL only recently announced their own sustainability goals to meet by 2020. These include a 100% renewables targets and aspirations to send zero waste to landfill. However, since the Brexit negotiations have begun, Walker believes the focus could well change again.

“I fully anticipate that within the next six months I’ll have to pivot again and slightly change focus. Business hates uncertainty, it makes it really hard to make investment decisions that are effective, and you can waste time second-guessing what might happen,”

Walker said. “But, we are in business to serve our clients and provide them with real-estate solutions. Ultimately, that isn’t going to shift, Brexit or no Brexit, and we have to align our sustainability trajectories to support that ambition and purpose. Our clients aren’t going anywhere and they continue to need our support. It’s a helpful mindset to keep, to try not to worry about all the shifting parts.”

However, periods of uncertainty are not without risk, and Walker acknowledges this. For companies operating within the built environment, legislation and regulation manages the requirements for environmental protection and standards, and is being constantly updated worldwide to move with new market developments, gain strength and become stronger. Walker described the need for such regulation to stay in place to provide a “safety net” for such businesses.

Within the EU at present, buildings currently account for 50% of extracted materials, 50% of energy consumption and a third of waste generated. The European Commission has a Circular Economy Action Plan to focus on the lifetime of buildings and ensures that new regulation and legislation introduces design improvements to increase the lifetimes, energy efficiency, durability and recyclability of properties and their components.

This circular economy model will no longer apply to the UK once it has left membership of the EU, but the government has yet to adhere to the package and has not announced plans to introduce any new legislation – similar or otherwise. It is this lack of clarity of a long-term involvement within the plan or announcement of a new one that contributes greatly to the aforementioned uncertainty. Indeed, JLL UK is one of several companies who are currently backing Business in The Community’s (BITC’s) new circular offices campaign that aims to introduce circular economy principles to the private sector.

“I don’t think anyone knows about the timeline for circular economy,”

Walker added.

“It does have the potential to have a really significant impact on the UK, but only once resource input prices become very expensive or volatile. We do need to start to see some of the really simple legislation come in. Those simple things could create quite a lot of momentum, and it is definitely in the government’s gift to make happen.”

How this will impact on the sector moving forward remains to be seen, but one thing remains definite: more planning is needed to ensure the safeguarding of sustainability.