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.
Effective building data management in the evolving ESG landscape
Twenty years ago, when the modern concept of ESG was first gaining traction, the notion of a major corporation openly sharing ESG-related data was primarily confined to academic circles.[1] Now, with over 95% of multinational companies reporting on ESG, transparency is becoming the norm.[2] Voluntary disclosures, exemplified by the GRESB Benchmark, have multiplied across industries, and regulators are following closely behind with a flurry of mandates.
With many organizations around the world striving to quantify and reduce their annual carbon emissions, building performance and energy efficiency are squarely in the spotlight. It is increasingly common for buildings to disclose detailed energy and water usage data. Meanwhile, emerging regulations are turning up the heat for real estate asset owners and managers who have not yet begun to measure and improve building performance.
Several jurisdictions in the U.S. and Canada have already adopted policies requiring large commercial and multifamily properties to evaluate and report on annual energy usage. In 2008, Austin, Texas, and Washington, D.C., became the first U.S. cities to establish building energy benchmarking requirements.[3] In the following 15 years, dozens of states, counties, and cities followed suit, passing their own benchmarking and transparency policies.[4]
By requiring buildings to methodically consolidate data and report on efficiency metrics, benchmarking laws provide a common frame of reference for investors, owners, government officials and members of the public to compare properties. Today, nearly 25% of commercial building space in the U.S. is benchmarked using the federal government’s ENERGY STAR® Portfolio Manager®, which also serves as the national benchmarking platform in Canada.[5]
While mandatory disclosures may encourage owners to upgrade properties based on their relative performance, benchmarking laws do not explicitly require operational improvements. In recent years, however, several state and local governments have adopted building performance standards (BPS), which are designed to accelerate the rate of building retrofits by targeting buildings scoring below a certain threshold. Most building performance standards are anchored to ENERGY STAR Portfolio Manager data, meaning that the ENERGY STAR benchmark is typically a prerequisite for BPS compliance in North America.
With initiatives emerging at state, county, and city levels, managing regulatory risk in the U.S. market is increasingly complex. Left: U.S. jurisdictions regulating building energy benchmarking and transparency. Right: U.S. jurisdictions committed to passing building performance standards (BPS) by April, 2024.
Failure to comply with benchmarking and performance standards exposes properties to regulatory risk, including substantial fines. Notably, New York City’s Local Law 97 will place carbon emissions caps on buildings and enforce progressively stricter standards starting in 2024. Buildings exceeding the maximum carbon intensity will incur a tax of USD268 per metric ton CO2e. Based on current performance, approximately 20% of properties will exceed the limits in 2024, and 76% will surpass the 2030 caps. [6] Under these conditions, the cost of doing nothing can be unbearably high for property owners.
While the pressure to collect and disclose data only continues to rise, it is a considerable undertaking to obtain high-quality building energy data, successfully implement operational improvements, and track performance over time. The task of substantively reporting on building performance is complicated by the fact that reporting protocols are not standardized in scope, form, and content. Furthermore, obtaining whole building data for energy, waste, and water has proven complex, with issues ranging from occupant privacy to idiosyncratic utility data management practices.
For properties across North America, foreign investment also plays a pivotal role in shaping reporting protocol. Just as the U.S.’s Portfolio Manager tool shapes other markets, policies such as the Sustainable Financial Disclosure Regulation (SFDR) are influential in North America. With global standards converging, centralized reporting to a common benchmark such as GRESB makes properties appealing to a wide range of investors.
With thousands of data points to manage, multiple reporting systems, and potentially dozens of jurisdictions to monitor, properties require automated, accurate data management solutions that are adaptive to evolving disclosure needs. To provide resilience in a dynamic policy landscape, the combination of energy management software and building automation has emerged as a winning strategy for properties subject to regulatory scrutiny.
Streamlining reporting while improving operational efficiency
Until recently, corporations were accustomed to tracking utility spend, not greenhouse gas emissions, water use, materials, or waste metrics. To comply with evolving requirements, many properties rely on software to aggregate and analyze data while providing useful insights for building operators. With the ability to rapidly analyze thousands of real-time and historical data points, operations managers can leverage property-specific insights to make cost-effective improvements.
Sophisticated utility management platforms can also aggregate data in alignment with multiple ESG reporting standards. By automatically performing calculations, including weather normalization and greenhouse gas accounting, energy management systems can provide accurate, auditable reporting on material issues without the need for property managers to comb through the underlying data. In addition, properties can ensure full traceability by utilizing data integration services that communicate directly with the benchmarking organization’s application programming interface (API).
Advancements in building automation provide complementary benefits by allowing software systems to monitor and adjust energy-intensive operations, including heating, ventilation, cooling, and lighting. A state-of-the-art building automation system may help a commercial building reduce energy consumption by up to 40%.[7] Architects often incorporate sensors into the design of new buildings, but retrofitting older buildings with the necessary hardware is becoming increasingly attractive to property owners.
Real savings across a portfolio
While building operations cause about 26% of global energy-related emissions, utility spend is among the highest controllable expense categories in real estate.[8] An incremental, software-driven operational strategy can help the triple bottom line by lowering emissions, improving occupant comfort, and delivering 10–20% savings across a portfolio, all with with low capital expenditures and minimal disruption.
New York-based SL Green Realty Corp, for example, implemented building optimization software at 1515 Broadway, the 54-floor office tower on Times Square in Manhattan. Constructed in the 1970s, the property’s energy performance had been lagging behind modern standards. Over six years, the property achieved an ENERGY STAR score of 76, compared to its initial 48. SL Green enjoyed a 99% return on investment and simple payback in 1.2 years.[9] In addition to providing excellent financial outcomes, these improvements helped the property make substantial progress toward its public commitment to reducing emissions through the New York City Carbon Challenge.
Today, technological advancements are enabling the decarbonization of the built environment while offering cost savings to property owners and managers. The growing imperative for accurate, complete building data is causing many asset owners and managers to reconsider how ESG data is managed. By adopting and implementing a software-driven strategy, properties can secure operational savings, along with the gold standard in reporting: a traceable record of building performance over time.
This article was written by Victoria Wallace, Product Marketing Specialist, at Yardi.
References:
- [1] The Evolution of ESG Reports and the Role of Voluntary Standards
- [2] The State of Play: Sustainability Disclosure & Assurance
- [3] Commercial and Multifamily Building Energy Benchmarking, Transparency, and Labeling in US Cities
- [4] State & Local Government Coordination: Benchmarking and Building Performance Standards
- [5] Benchmark Your Building Using ENERGY STAR® Portfolio Manager®
- [6] NYC Building Emissions Law
- [7] Building Automation Systems
- [8] Energy System: Buildings
- [9] SL Green Corp. on Pulse Building Optimization
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