- THE MAGAZINE
Caught up in the perfect storm of high operational costs, heightened regulatory pressures and a turbulent economic climate, companies are compelled more
Clare Morris Broderick, PE, LEED AP
than ever to find ways to make their facilities more energy efficient. Improving the efficiency of your property’s environmentalsystems — such as with energy, water and carbon — can drastically reduce costs, create higher value for your real estate assets and help your company demonstrate social corporate responsibility.
Energy is now more than ever seen as a strategic business concern for many corporations. But while large government entities like public schools and municipalities are privy to the benefits of grants and funding for their energy efficiency projects, many other enterprises in the private sector are left with the burden of making their own energy improvements with less guidance and fewer resources.
For these enterprises, the key to finding revenue internally is to optimize property assets and reduce operational costs through the practice of responsible property management (RPM). RPM may take on many names — often times referred to as sustainable asset management, or responsible property investing — but the concept is the same across the board. RPM is an approach that recognizes the full range of environmental, social and economic issues that building owners are met with everyday in the management of their property portfolios.
Reaching the Triple Bottom Line
Nowadays, when building owners talk about meeting the “bottom line,” they’re most likely referring to the “triple bottom line,” the simultaneous pursuit of profit, environmental quality and social wellbeing. This concept has gained acceptance in the public and private sectors as the theoretical framework for sustainable decision-making. RPM presents the opportunity to increase competitiveness by enhancing employee retention, environmental reputation and profit margins meeting the triple bottom line of people, planet and profit.
The Value of RPM
Many of today’s successful businesses know that energy management is an integral part of an organization’s everyday operations, as well as its long-term strategic plan. But what may be holding many companies back from moving forward on RPM initiatives is the misconception that a full-fledged property portfolio overhaul is the only way to make the effort worth it. In reality, this trepidation amounts to missed business opportunities when small improvements, or building commissioning, could mean quick, measurable results. The key to overcoming this is to realize the full potential of energy opportunities, beginning with gaining a clear understanding of the portfolio’s current performance.
While managing a property portfolio can be approached in different ways, many building owners have seen the benefit in employing a firm that offers a comprehensive range of RPM services to facilitate a streamlined approach to identifying and managing risks to investment performance, and to determine the best exploitation of opportunities to achieve the greatest sustainability performance of the property owner’s asset base. In reality, a business may simply need assistance for small-scale energy improvements, while other entities might benefit from a comprehensive end-to-end development plan; a firm that’s an expert in energy and sustainability strategies can help determine which is optimal, while crafting the business case for the investment at the same time.
The Business Case for RPM
While benefits to the environment form the moral case for more energy efficient and sustainable buildings, it is the payback to investors and building owners which make the economic case. And without a strong business case for RPM, the entire initiative is likely to be stopped dead in its tracks. Stakeholder expectations are first and foremost economic in nature, with the strongest focus on life-cycle costing, energy costs and management, and building functionality. Other concerns for the stakeholder extend to ecological issues, social value and regulatory compliance. An RPM plan needs to speak to the specific expectations and desires of the owners and stakeholders based on the company or institution. While the stakeholder expectations of a healthcare facility might differ from those in the real estate development sector, one commonality is that all stakeholders want to know what the solutions identified in the plan are, and how the plan will affect the bottom line. The real financial value in RPM is demonstrated by the energy savings, tax deductions, energy efficiency certifications and increased property values.
Energy Savings. It goes without saying that improving on energy efficiency will produce energy savings and reduce operating costs. Switching to low-carbon energy sources, using resource-efficient products, and finding more efficient illumination alternatives are only some of the cost-savings measures that can be taken. Building commissioning, in fact, is one of the most cost-effective means to improving energy efficiency. Currently, a multitude of published case studies illustrate the savings that can be realized through the commissioning of existing commercial buildings. In a collaborative study sponsored by the U.S. Department of Energy from the California Public Interest Energy Research (PIER) program in 2005, it was concluded that commissioning presents a median whole-building energy savings of 15 percent with a corresponding payback time of less than one year. Compared to new construction, whose median payback time is almost five years, it’s clear that there is a wealth of savings opportunities that can be extracted from existing buildings with a relatively minor investment.
Tax Deductions. Tax incentives, both at the state and federal level, will be realized from energy efficiency measures, and the lucrative opportunities these deductions present can be substantial. One example is Internal Revenue Code 179D, often called the “Deduction for Energy Efficient Commercial Buildings.” By retrofitting properties with more energy-efficient alternatives, 179D will permit a deduction between $.30 and $1.80 per square foot of the facility. A good portion of this can be obtained simply by lighting improvements alone, and for commercial buildings the savings add up quickly. This cost reduction will both demonstrate responsible energy use, (helping the company’s reputation and serving as a business driver), and produce true bottom line benefits. And 179D is just one example. Other deductions exist, and when a company stacks these incentives, they can optimize the tax benefits and achieve the greatest savings.
LEED and ENERGY STAR Certifications. A recognized standard for measuring building sustainability is the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system. Achieving LEED certification is a solid way for a building owner to demonstrate the proven energy efficiency of his or her building. LEED certification, which includes a rigorous third-party commissioning process, offers compelling proof to the building owner, a company’s clients and the public at large that a company has achieved operational excellence and is performing as designed. Getting certified allows you to take advantage of a growing number of state and local government incentives such as further tax deductions, all while demonstrating corporate social responsibility in the marketplace.
Aside from LEED, another major indicator of a company’s successful energy management practices is the U.S. Environmental Protection Agency’s (EPA’s) ENERGY STAR label. The financial benefits of ENERGY STAR-labeled buildings are widely recognized. The EPA awards this distinction to owners of buildings with ratings in the top 25 percent of energy-efficient performance ratings nationally, verified by a professional engineer. And along with the label comes very real savings. For example, the EPA reports that ENERGY STAR-labeled office buildings are “one-third more energy efficient than their average counterparts and have annual energy bills that are, on average, at least $0.50 per square foot lower per year, or 35 percent lower than the average building.”
Responsible property management means approaching the decision-making process of your organization in a new way; it means making choices with the greatest long-term benefits in mind. According to the U.S. Government-issued “Real Property Sustainable Development Guide,” this means “eliminating the concept of waste — thinking ‘cradle-to-cradle’ rather than ‘cradle-to-grave.’” The same guide asks the integral questions: “Are you creating more productive and healthier work environments? Are you considering the impact on the environment and on future generations?” When your enterprise operates with the concept of responsible property management encompassing the decisions that are made, there is a good chance that those choices will benefit your triple bottom line.
The Triple Bottom Line