You’re the Head of Operations for a large and diverse portfolio consisting of over 15,000 multifamily units, 8 million square feet of office space and 3 million square feet of retail.
Recently, you’ve been “volunforced” to head up the ESG committee. Even more difficult than the vague mandate to “do ESG,” there’s an explicit understanding that any new investments are to have a quantifiable ROI.
The other frustrating aspect is that the company already does good work. Social considerations have been woven into the company's DNA and community development is incorporated into every ground up project.
Likewise on the environmental front, the company has implemented numerous initiatives in the past couple of years, though the tracking and reporting of these have not necessarily been standardized.
In internal meetings, a similar vein of conversation keeps coming up: “The entire industry is facing the exact same situation, why does it feel like we’re reinventing the wheel?”
The clock is ticking and there’s immense pressure to get it right so that the portfolio can continue to scale. What’s needed is a roadmap, a clear progression from the first step to the ultimate goal.
So, let’s break the ‘E’ into broad categories, each of which builds on the last.
ESG 1.0
ESG 1.0 is simply benchmarking at the portfolio scale.
Some cities, like New York, Boston and Los Angeles, have required utility benchmarking submissions for years. While there are industry leaders, many organizations are doing what’s required in each locality, but not at the portfolio level.
The value of ESG 1.0 is two-fold:
- Checking the box for investors that will not provide capital to firms that do not have reporting in place
- Allowing non-technical stakeholders to leverage a benchmark to inform allocation of resources
That’s where reporting frameworks come in. While there are dozens of different standards, when starting out, the first step should be to get whole-building utility data into Energy Star Portfolio Manager.
While an arduous process to do manually, this is very straightforward with technology. In most cases, technology providers can integrate directly with utilities to pull this data into a central platform and then push it on a regular basis to Energy Star Portfolio Manager.
In addition to utilities, waste data can be uploaded to Energy Star. In an ideal scenario, this information is collected at the source as we discuss in our white paper on 5 Ways to Reduce ESG Reporting Burdens.
Whether waste data can be uploaded or not, this is essentially what’s expected today from an “E” perspective. Pretty easy, right?
When it comes to rounding out the “S” and the “G,” the most common reporting framework for commercial real estate is GRESB.
GRESB takes Energy Star data for the “E”, so that’s covered. Unfortunately, because “S” and “G” are qualitative, it can be difficult to compile and submit the various policies and programs, especially in the first go.
In this case, technology can support with submission, but there will generally have to be dedicated resources (either internal teams or third party consultants) to put the information together.
Submitting to GRESB is not required, but many investors are looking to it as the easiest way to compare different portfolios across every aspect of ESG.
Even if you don’t decide to submit to GRESB (say, your particular pool of investors are not asking for ESG data), it’s still worthwhile to submit to Energy Star, because the normalized scores set the stage for ESG 2.0.
ESG 2.0
In many portfolios, benchmarking has become a bit of a dirty word. Something that is extra work forced by a law or government agency.
But there’s real value in it. Let’s take a look. Without really lifting a finger (remember, technology can automate the data collection and submission process), you now have a precise understanding of which properties are your lowest performers.
Now, with your limited resources (both time and money), you’re honing in on the areas that will produce the biggest results and return on investment.
That’s what ESG 2.0 is all about: capturing property-level data to drive low and no-cost efficiencies.
The specifics here will differ.
For example, some properties will have building management systems (which control and automate how equipment operates). These systems are like your keyboard: they will execute exactly what you type into them, but they won’t tell you if it’s a good sentence or not.
That’s where technology comes in. Analytics solutions are like Grammarly, keeping 24/7 vigilance over each setting on each piece of equipment to make sure it is optimal.
Other properties will not have building management systems, or have older models that cannot be integrated with. In these cases, equipment monitoring can be deployed to fill the gaps, capturing real-time energy data that can be translated into the same energy efficiency (and maintenance) insights.
Finally, the last part of ESG 2.0 is the tenant consumption data. Again, the specifics will differ, but many properties are already capturing this data, albeit on paper and in spreadsheets, for the purposes of utility bill backs to tenants.
Again, like the Energy Star submission process, technology can fully automate this process by pulling in utility data automatically, gathering meter reads through an app or digital meters, and generating invoices immediately.
Remember, tenants increasingly have their own ESG reporting and goals, they simply lack the transparency to know whether they’re behaviors and decisions are having any effect.
When combined, there’s suddenly a full picture of base building consumption, tenant consumption and vacant consumption. Combine this with powerful analytics and engaged tenants, and you’ll see energy reductions of 10, 20, 30 or even 40%.
Taking it a step further
Of course, optimizing how equipment is operated and partnering with tenants will only take you so far.
Many organizations have set out goals to be carbon free by 2050. Usually, this plan involves a combination of buying clean energy credits and deploying renewables.
These are important levers, but there’s no getting around making significant investments to the infrastructure of properties.
Fortunately, ESG 2.0 has set up the property to make data-driven decisions about capital investments.
That’s because, as a byproduct of optimizing the building operations, we have collected new sources of data that will become critical when making large capital decisions.
Specifically, we have captured the runtime hours of individual pieces of equipment. This helps us move from depending entirely on the manufacturer’s suggested useful life (and maybe a snapshot property condition assessment), we can make decisions based on how much the equipment has actually been used.
This often delays capital expenditures, freeing up budget for retrofits and upgrades to more efficient models of equipment.
That’s where the other critical data stream comes in. Equipment monitoring calculates the minutely energy consumption of individual pieces of equipment. That means, instead of basing replacement decisions off the expected savings quoted by vendors, they can be made empirically based on the data.
Moreover, every decision can be infused with the knowledge of whether or not the new piece of equipment fits into the overall carbon reduction plan. With critical systems having expected useful lives of 20+ years, the decisions of next few years will have a lasting impact on a portfolio’s ability to hit its long-term goals.
In addition, by bringing this process into software, it breaks down the barriers that usually exist between property management, engineering, asset management and sustainability. It may even increase the asset value of the property by removing the risk of an unexpected capital outlay for property buyers.
Bringing it Back
Of course, if you’re the head of portfolio management, you don’t want to be involved in the chiller replacement process. All you want to know is if things are on track and how you’re doing compared to your peers.
Another wonderful byproduct of technology is that all aspects of operations can be normalized with 0-100 scores just like Energy Star does for utilities.
And that’s it, the scary world of ESG broken down into three phases, with bonus cross-functional transparency for the back-of-house operations.
Of course, every portfolio will have nuances. Details will differ depending on property types, age of assets, and more.
But generally speaking, if you’re already fully benchmarked, start using that data to deploy analytics and implementing optimizations. If you have analytics in place across the portfolio, start thinking about a data-driven capital plan.
Enertiv is the only platform that can support with each stage of the ESG journey. Schedule an intro call today to get a walkthrough of the approach tailored to your specific portfolio.
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