Energetic Insurance attended IMN’s ESG & Decarbonizing Real Estate Conference in early February. The conference focuses on how the energy sector can have a significant positive impact on the environment, diversity and inclusion, social responsibility, and impact investment opportunities. Investors, employees, customers, suppliers, and tenants are all demanding higher standards for ESG strategy. Investors understand that ESG is a driver for long-term value and sustainability, and it has become an important part of the decision-making for capital allocation.
There is a knowledge gap emerging for property owners who are being asked to report on their carbon footprint for investors and other stakeholders, but really do not know how to do so. Data capture products are emerging from the market to fill this gap. These products help property owners and managers understand their footprint, and provides them with the information they need to invest in resiliency. A process is beginning to form this data capture and reporting structure:
Collect and measure data on building utilities.
Analyze data.
Assess goals and create a plan.
Implement methods to meet goals.
Investors require GRESB (the global entity responsible for creating ESG benchmarks for financial markets) scores and other metrics for their portfolio. These investor requirements force building owners and managers to put emphasis on the first two steps in this process. With robust data, building owners and managers can direct their attention to the third item on the list, but that attention does not extend to the fourth. Property owners have collected data, analyzed and drawn conclusions from the results, then hired consultants to design a plan to improve energy efficiency utilities. But there is little execution.
Based on the conversations we had at the conference, whether or not a building manager can implement plans is based on individual situations. Some said that the reporting itself suits their needs, and there is no incentive to implement a plan. In some cases, implementation is purely a matter of bandwidth: sustainability teams are often thin (although growing), and individuals have full workloads. Where companies are starting to implement, it seems that financing is case specific. Many cities are introducing rules that require buildings to be more efficient or pay a fine, like New York City’s Local Law 97. Some property owners may opt to pay the fine rather than remediate their emissions footprint. The incentives for installing energy-efficient retrofits are not always aligned with building owners’ priorities. Complying with the law comes down to economics - if the cost of the fine is less than the cost to remediate, then it is hard to argue for further investment in efficiency.
One of IMN’s goals of the conference included discussions of how the energy sector can further diversity and inclusion and talk openly about social responsibility. Stakeholders are trying to understand how the Social aspect of ESG is related to their work. Many property owners and managers are experimenting with ways to make tenant spaces more community-focused in an effort to enhance tenant experience and increase satisfaction in spaces, even if it means lessening rentable square footage or increasing operating costs to do so. Solutions for this part of the equation range from common spaces for collaboration or inter-company events to near real-time transparency of a tenant's environmental impact. Building managers and owners are still collecting data on the outcome of these changes, so real long-term impact of these efforts, but property owners reported a decrease in tenant turnover and an increase in demand for these types of spaces.
Some private property owners take the view that they are "exempt" from growing calls for reporting because they are not subject to new SEC rules or other investor-driven reporting. However, in many cases, the Scope 1 & 2 footprint of these properties account for the Scope 3 emissions of larger entities - so ultimately, they will need to get a handle on their emissions as well.