Leveraging technology to improve ESG performance & Impact investment decisions

Author:

Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.

Environmental, social, and governance (ESG) performance is becoming increasingly important to property occupants, investors and regulators. That also makes boosting ESG performance with improved operations, technology and tenant behavior critical to sustaining asset value. Sustained energy savings can significantly increase the value of a building and eliminate the higher investment risk associated with less sustainable properties.

Many institutional investors who provide money for U.S. real estate companies incorporate ESG criteria into their investment decisions. In fact, 85% of asset owners believe ESG factors are material to investment policy. In addition, many states and municipalities have enacted laws requiring public disclosure of energy use data.

Investment managers are discovering that the most efficient approach to ESG management is a technology platform that combines data for sustainability, property management  and investment management.

Joe Consolo, Industry Principal of Yardi Energy, says:

Property owners required to report ESG data to investors and regulators need aggregated data that can be used for multiple purposes. Investors also want access to their energy information on the same system as the investment data.

Technology platforms are now capable of delivering visibility into portfolio performance that helps maximize return on investment through heightened ESG compliance. Such platforms automate the management of whole building aggregation and the tracking of energy cost, consumption, and reporting data. They also eliminate the manual tasks involved in submitting data required for ENERGY STAR certifications required by many municipalities, successful ASHRAE Level 2 audits, GRESB reports, and energy-oriented financial incentives, also known as “green financing.”

Documented savings and increased asset value

The principal outcomes of a successful energy strategy that utilizes technology include:

  • Increased market valuation, fewer rental concessions, and higher rents.
  • Tangible process improvements.
  • Elimination of low-value manual tasks.
  • Reduced risk of overpayments and late fees.
  • Lower greenhouse gas emissions and money saved on fines for excess use.
  • Increased tenant comfort and fewer complaints.
  • Attracting investors and high-quality tenants with increased LEED and ENERGY STAR scores.

Connected software suites promote ESG compliance by improving energy efficiency, thereby reducing energy usage in buildings. They include green energy procurement, 100% whole-building energy, water and waste data aggregation, and ENERGY STAR and GRESB reporting. Optimization algorithms significantly reduce HVAC energy consumption by sending temperature, pressure, and speed setpoint adjustment signals to fans, pumps, and chillers every 30 seconds.

Operators get visibility into the full portfolio in a single place and hone in on properties with larger-than-expected utility costs and associated energy use and greenhouse gas emissions. All of this translates into increased net operating income and asset values. Combining these solutions within a single connected property and investment management solution enables owners and managers to take a comprehensive approach to energy management that streamlines processes and recovers costs. Indeed, energy consumption reductions of up to 30% with increased tenant comfort have been documented. It also contributes to improved building LEED scores and increases eligibility for other energy certifications.

Another contribution to improved energy efficiency is utility expense management platforms that validate, process and pay utility bills. They ensure accurate data capture that allows companies to benchmark their properties, secure financial incentives, and accomplish their sustainability initiatives.

Where to begin?

A good way to begin an energy management upgrade is to invest in invoice automation that reduces manual effort in the AP process and electronic procurement that centralizes their spend. Additional investments often include work order apps for facilities, one-stop vendor management, and automated payments. An incremental approach is generally less disruptive than an aggressive, do-it-all-at-once attempt at achieving big results right away. Such an incremental, software-driven operational strategy can net 10-20% savings across a portfolio with low upfront costs and no tenant disruption.

The simplest part of an energy strategy is understanding and documenting energy consumption across a portfolio. That’s where utility expense management solutions that draw analysis and insights from utility bills come in. Validating utility bills and handling exceptions through an automated system eliminates time-consuming work that staff would otherwise have to handle while reducing late fees, bill errors, and overpayments. The data that energy software collects also contributes to the ENERGY STAR benchmarking needed to satisfy internal and external energy-tracking requirements.

Prevent problems, drive value

Introducing automation in an energy program can also prevent problems in HVAC systems by proactively detecting faults and providing dozens of different types of alerts before it even costs money. It can optimize heating and cooling to satisfy both tenant comfort and cost-saving objectives, while giving owners full control of the building with remote scheduling and defined setpoints.

Perhaps most significant, energy savings directly correlate to operating income and credibly boost building value. SL Green, for example, installed an energy optimization software solution at a building in New York City that exceeded the initial estimated electricity and steam savings by 24%. The company gained a 99% return on investment and simple payback in 1.2 years, in addition to increasing its ENERGY STAR score from 48 to 76 within six years. The building also achieved 25% of its New York City Carbon Challenge greenhouse gas emissions goal, leaving only 5% to go by 2026.

Technology and software that manage energy spend and consumption will likely become even more robust, helping property managers catch and correct spikes and outliers faster and applying artificial intelligence to fault detection and fully optimizing buildings. The next generation of building managers is going to expect greater functionality and control, and the time to get ready is now. New technology presents an opportunity to implement a comprehensive energy strategy that provides full visibility and insight into a portfolio’s energy spend. Property owners have better means to manage large, diverse portfolios with maximum efficiency and value while lowering risk.

Whether this data comes from building automation systems, smart utility meters, or the growing number of Internet of Things devices, it is becoming increasingly important to make data-driven decisions if you wish to optimize efficiency. Having the tools for accurately collecting and analyzing data is also becoming more essential as algorithms become more sophisticated and their use more widespread. Furthermore, data analysis tools enable operators to reduce overall consumption using actionable insights.

The simple takeaway here is that companies wishing to maintain their competitive advantage need to implement tools that can integrate a growing amount of data across many different platforms and buildings, in order to optimize decision-making.

This article was written by Joel Nelson, Senior Marketing Writer at Yardi.

References

Voice of the Asset Owner.” Morningstar Indexes. Accessed August 7, 2024.

SL Green Corp. on Pulse Building Optimization.” Yardi. Accessed August 7, 2024.

Yardi Pulse Building Optimization.” Yard. Accessed August 7, 2024.

 

 

 

Read more on ESG data.

Industry insights