Buyer's Guide Breakdown: Energy & ESG
A few weeks ago, we released the Insider’s Buyer Guide to Operations Technology for CRE. The guide was written in response to a key insight: in most cases, the people evaluating technology have never purchased that type of system before.
In fact, oftentimes they don’t even know what the category of solutions is called, leading to comparisons between companies that do fundamentally different things.
Ultimately, this perpetuates the status quo, pushes technology decisions to individual properties, silos systems, and reduces net operating income.
The Buyer’s Guide was an ambitious project, coming out to 12 pages densely packed with use cases, pitfalls to avoid and providers in each space. Despite focusing only on operations, the guide covered a wide range of technologies, from basic asset tagging to predictive maintenance and everything in between.
Because of this breadth, we could only go so deep on any individual category of technologies.
Due to popular demand, this article will expand on one of those categories: the energy section containing utility management and ESG reporting technologies.
Utility Management
Background
The status quo for utility management in commercial real estate is slow, tedious, and not particularly accurate. In many cases, it is up to the individual property teams to collect and archive their utility bills.
When it comes to comparing utilities across a portfolio, the data is siloed, difficult to retrieve and in no standard format. By the time numbers reach asset managers, they must manually enter it into spreadsheets.
Not only does this make reporting a headache, it limits the accuracy of utility forecasting and budgeting. While there are numerous factors that can alter forecasted spend, such as move-in/move-outs of tenants, new construction or renovations, and weather, many asset managers have no choice but to apply the industry rule-of-thumb 3% year over year increase.
This approach frequently leads to budget variance, which has significant implications for expected cash flows from the property and the types of investments that can be made. Variance also leads to time wasted coordinating asset management, property management and engineering to try to understand what went wrong.
The purpose of utility management technology is to digitize and streamline the routine utility reporting and budgeting as well as provide greater transparency.
Use Case and Setup
The first step in any utility management solution is to begin automatically ingesting utility bills. This is generally achieved by (securely) providing the utility credentials for each site and having the system convert complex bills into nicely formatted and standardized data.
This data can be visualized with dashboards that make it easy to understand how utility dollars are being spent across the portfolio.
Once data is standardized and trended, benchmarking and analytics can be applied to produce much more accurate budgeting and forecasting figures.
In addition, now that the data is digitized, it can be automatically synced with ENERGY STAR Portfolio Manager to remove another manual step in utility management.
Value Proposition
There are three primary sources of value for utility management systems. The first is reducing variance from forecasts to actual utility costs. As mentioned, there is a direct financial benefit of proper forecasting and right-sizing investments.
The next two are less tangible but no less important. Streamlining utility management saves time for on-site teams and asset managers, allowing them to focus on more valuable activities than data collection and entry.
Modern utility management also provides transparency across roles. The days of having energy considerations limited to the sustainability team are over. It’s critical that every member of the organization understands what targets are and the progress towards those goals.
Pitfalls to Avoid
Utility management is only the first step towards a complete energy and sustainability strategy. There are many software solutions available on the market and it is a relatively commoditized service.
The main pitfall to avoid is to remember that building-level measurement is only the first step. Soon enough, reporting and disclosure will lead to the need for optimization and added granularity.
Therefore, it’s advisable to not get locked into a provider that only focuses on building-level utility data. Ideally, there will also be performance optimization capabilities within the platform.
The details of this performance optimization is covered in greater depth in the Buyer’s Guide, but the important takeaway is that these insights should be able to be applied both to properties that have robust building management systems and those that are more simplistic and decentralized.
Providers
Enertiv
Lucid Connects
Energy Watch
Aquicore
Hatch Data
ESG Reporting
Background
There have already been a broad range of federal policy changes around environmental, social and governance (ESG) disclosures, stricter regulations, and incentivizing investors to price ESG criteria into decision-making.
A similar political agenda is flowing up from the state and local level. According to Fifth Wall’s recent report: “Policies such as Local Law 97 in New York City and the Green New Deal in Los Angeles are likely to set the standard across the nation.”
In addition, BlackRock, the world’s largest asset manager, published a document laying out their specific expectations following CEO Larry Fink’s letter in January calling on firms to align with global efforts to combat climate change, including voting against directors if the company fails to provide a credible plan.
Unfortunately, these requirements have created a huge reporting burden for owners and operators of commercial real estate. Many portfolios spend an entire month on GRESB reporting alone. The survey itself is long and the sources of data are siloed, manually extracted, and often only looked at once a year for reporting purposes.
The purpose of ESG software is to collect as much of this information automatically as possible and to streamline the actual submission to frameworks such as GRESB.
Use Case and Setup
The best analog to ESG reporting software is TurboTax. Basically, you want a platform that pre-populates as much data as possible and simplifies a complex process by asking questions one at a time.
Therefore, the more data in the platform generated as a byproduct of managing normal activities, the better.
A major part of ESG reporting is tied to whole building utility consumption, a powerful argument for tying together utility management and ESG reporting in one platform.
In addition to reporting on utility consumption, the GRESB Asset Spreadsheet has a section to submit base load and tenant consumption. While it can be calculated manually, a more efficient strategy is to have that same platform also manage tenant submetering and billing so the data is already available.
Beyond quantifiable consumption data, there is a lengthy survey that asks true / false for whether a range of efficiency measures have been implemented in the last three years. Again, while this can be collected manually each year, it can be pre-populated from a system involved in energy conservation measures and other projects.
Value Proposition
Many investors now require ESG disclosure and are actively benchmarking portfolios based on their performance. Streamlining the submission process increases access to funds while minimizing administrative burden.
In addition, like utility management, ESG reporting software saves an immense amount of time that can be better spent elsewhere as well as transparency within the organization.
Pitfalls to Avoid
Similar to utility management, it’s easy to end up with a “point solution,” a provider that only provides one (albeit necessary) service. While this may solve a short term pain, it usually creates a disconnect between reporting and action, which is not ideal when looking at an overall technology strategy.
Providers
Enertiv
Measurabl
Goby
Envizi
Conclusion
These two categories of solutions cover the basics of energy management but there is much more that can be done to automate processes and actively improve performance.
One option is that instead of relying on utility bills, which only offer 12 data points a year, the utility meters in buildings can be digitized so that building-level utilities can be reported on in real time. This makes for better reporting but is not particularly actionable.
When it comes to optimization, the focus should be on the actual drivers of consumption: tenants and large base building equipment.
While tenant loads cannot be directly controlled, they can be influenced through engaging and educational monthly bills as well as live tenant portals.
Base building equipment is best optimized by analyzing real-time data, either from a building management system or through equipment monitoring.
Want to get the background, use cases and providers across every aspect of operations? All this and more is covered in the Insider’s Buyer Guide to Operations Technology for CRE.
