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Advancing Sustainable Prosperity: Reports from Boston, Part 1
Emily Gertz, 25 Apr 07
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I'm in Boston at the "Advancing Sustainable Prosperity" conference as a guest of the confab's organizer, CERES. Over 600 people -- a record in the 12-year history of the annual get-together -- are here for a series of workshops and panel discussions on how businesses can use their market-economy power for environmental good, which at this year's conference largely means blunting climate disruption, while making an honest profit in the process.

There were a number of sexy topics on the afternoon's agenda -- "the environmental challenges of energy independence," "seeing green at the bottom of the world's economic period," "global warming hits Wall Street."

So, I decided sit in on the session about real estate: " Conserving energy and building value: Opportunities for transforming real estate portfolios."

And it wasn't just because I share the location, location, location obsession of many New Yorkers. While the emphasis in much of the popular press has been on the occasional green home, it's in big corporations that own and operate a lot of buildings, as well as developers and builders, where a lot of important advances in cutting carbon dioxide emissions could happen very quickly, if the bottom-line financial case for it can be made.

Panelist Marc Heisterkamp of the U.S. Green Building Council kicked off the session with some numbers: commercial buildings in the U.S. (as distinct from homes) use 12 percent of the nation's water, emit 39 percent of its carbon dioxide, produce 65 percent of its waste stream. Consumer and residential together consume 71 percent of its electricity. But there are no easy choices: seal up all the cracks to make a building more energy-efficient, for instance, and you'll also cut back on fresh air flow to everyone who works inside.

The USGBC, which runs the LEED voluntary green building certification system, promotes integrated thinking about all these issues. The LEED standard assesses site planning, water management, energy management, material use, indoor environmental air quality, and innovation and design process, to come up with its various levels of certification. This has been a successful model for measuring the impact of buildings, said Heisterkamp, but now the question is: how to scale this system up to a scope that can have a real impact on blunting climate change?

The USGBC has calculated that based on the atmospheric impact of buildings and current construction rates, and allowing for other industries taking the action needed in their sectors to keep atmospheric carbon concentrations within 450 parts per million (ppm), 100,000 buildings and 1 million homes need to be built to LEED standards before 2010 (right now there are around 800 LEED-certified buildings in the entire United States). It's a big challenge for the organization to scale up its operations to the point that it will be able to promote and certify LEED on that scale.

Lisa Shpritz of Bank of America followed up by discussing the impact of the USGBC's portfolio program -- a voluntary partnership with real estate owners and managers to bring LEED standards systematically into a company's operations. Bank of America owns and/or operates about 85 million operates around 8500 facilities in the US (that it owns or leases) encompassing around 90 million square feet, and making changes across their entire system as part of the overall management plan, instead of building by building, demonstrates the kind of impact a system like LEED could have: Bank of America has set a company goal of reducing its greenhouse gas emissions by 9 percent from 2004 levels by 2009. The company is well on its way to this "nine by nine" target, she said; by taking measures such as switching out over a million incandescent and low-efficiency tube light bulbs for compact fluorescents, the bank has reduced its electric usage 3 to 3.5 percent per year for the past five years, with a savings of around $80 million -- even with energy costs on the rise.

Bank of America is aiming for LEED Platinum certification -- the highest possible -- for its flagship One Bryant Park building currently under construction in New York City, said Shpritz. People are impressed by that project, she added, but then they ask reasonably enough what else the company is doing. "One building is not a portfolio," Shpritz said; what's needed in the commercial real estate sector is a "holistic systemic way of looking at green building portfolios."

Laura Shaffer of the Nathan Cummings Foundation was the representative investor on the real estate portfolio panel.

"As an investor, we've looked at different facets, such as real estate investment trusts," said Shaffer, referring to business entities that invest in different types of real estate or related assets, including hotels, shopping centers, and other commercial properties -- investing in REITs is effectively an indirect way of making money in real estate -- which means that how that real estate is managed, or not managed, to account for climate disruption can have a big impact on its value.

(A big part of CERES' work is promoting investor activism to make corporations plan for climate change in both business and operations, to be sure they're factoring climate risk into their financial projections, and to promote thorough corporate reporting on the company's climate change impact and energy efficiency, as well as other relevant operations to shareholders.)

"The homebuilding sector seems to be the farthest behind," said Shaffer, saying that these businesses seemed to be puzzled as to why investors would care about how they are looking at energy efficiency or climate change. Some have asked the foundation if compliance with current environmental regulations would be enough. Well, the Nathan Cummings Foundation hopes you're doing that already, said Shaffer with a laugh. What she's seen is scattered responses to the foundation's prodding at lower levels of large companies, with individual divisions getting into greener building and operations, but little or no response at the centralized level of a company.

The Nathan Cummings Foundation believes that when companies improve the spaces they occupy and own, they increase shareholder value. And shareholders are also getting more educated, and increasingly less likely to accuse companies of doing "cutesy save the bunnies things" when they undertake green building initiatives.

Heisterkamp agreed, saying that financial metrics are emerging to make a business case for transforming real estate portfolios along green lines. While it's not as simple as showing that a company is doing better because it works with the USGBC, overall USGBC members experience a 28 percent improvement in share value compared to industry peers -- because they are well-run, future-forward companies, Heisterkamp suggested. The challenge is to translate the business case for sustainable real estate operations -- and not just energy efficiency, less water waste and so on, but also increased employee contentment and productivity -- into terms that bottom-line business managers and executives will be able to relate to -- rather than emphasizing possible future regulations.

There were many questions from the audience; one that particularly broke new ground was: What public policy interventions would be helpful to achieving the USGBC's ambitious LEED-certified goal? Policy at the national level would be the most helpful to getting attention of a very fractured homebuilder community, was one reply. But Heisterkamp of the USGBC differed, saying he thought policy would happen more at the local level (with LEED as the standard for regulatory frameworks), and that even there it would be a challenge. "The industry groups that aren't looking at this will fight back very strongly," he said, "and it will be hard to get [good policy at the] federal level; we haven't even got that on the commercial side." Tax credits and other financial incentives for builders who go sustainable were also mentioned as powerful tools.

Another good question was: How do prospective commercial leaseholders get energy efficiency information from landlords or building operators? They'll probably have to reach out to the brokers, the dealmakers, and make getting that information a part of the negotiations, written into the lease, was the suggestion from the panel; don't agree to work with a building operator if they won't turn over the information.

The entire panel (which also included David Wood, of the Institute for Responsible Investment at Boston College) agreed that the people who are coming out of school now -- young engineers, designers, business and marketing types, and others -- are making decisions about where they'll work based in significant part on the quality of the work space and the company's positions on sustainability. Companies have to consider whether they can recruit the smartest, most talented new workers if they don't green their real estate portfolios.

[Image: Wired, Ofer Wolfberger

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On the subject of green leases, I recently came across this:

Might be of interest. It's from an Australian POV but covers many of the issues and drivers mentioned by your panel.

Long time reader, 1st time poster, just want to say fascinating site and keep up the great work!

Posted by: Matthew on 26 Apr 07

Thanks for the kind words, Matthew, and that link; I'll take a look.

Posted by: Emily Gertz on 27 Apr 07



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