Climate Corps 2010: The Business Case for Green Leasing

As I've previously written, I have been hired as an EDF Climate Corps fellow at SunGard Data Systems, Inc. for the summer. While my fellowship is primarily focused on identifying, analyzing and recommending energy efficiency projects at my host company, as a member of the sustainability team I have also been working on other, more strategic projects. One of the projects that I am involved in is creating a primer for our finance and facility managers outlining the business case for green leasing (PDF).

SunGard's global real estate portfolio covers approximately 8.2 million square feet in more than 300 facilities, an estimated 95 percent of which is leased. Every year, multiple transactions including lease renewals, relocations and consolidations offer a window of opportunity for improving operating costs and performance at low to no marginal cost.

In addition to the many traditional strategies employed to capitalize on the real estate decision opportunity, integrating sustainability considerations and sustainability personnel into the site selection, RFP and lease negotiation processes is increasingly becoming an industry best practice, and typically leads to cost and performance benefits.

Three Primary Benefits of Green Leasing

1. Increase Profitability

• An efficient, high performance building will generally have lower operating costs than a similar average building. Efficient use of energy and water and proper waste management lower the operating costs of the overall building, and the savings can be passed on to the tenants. According to McGraw Hill Construction, the operating costs of green buildings are 13.6 percent lower than non-green buildings.
• Establishing clear expectations in the lease regarding green initiatives will lead to a stronger tenant/owner relationship.
• The right agreements can help to break down the split incentive barriers that have historically kept attractive energy efficiency projects from moving forward. For example, Johnson & Johnson's energy efficiency project portfolio has returned 18.8 percent from 2005 to 2010. The chart below produced by The American Council for an Energy Efficient Economy's (ACEEE) research indicates energy efficiency returns can exceed 20 percent with low risk.

ACEE chart2. Reduce Liability

• High performance buildings can improve employee health and well-being, leading to lower health care costs. According to a study by The Rocky Mountain Institute, air quality improvements fostered increased productivity of up to 20 percent and reduced absenteeism by up to 25 percent.
• A building with a sustainability plan and active programs can lower emissions and therefore lower the potential liability of emissions fines or taxes. At this time, emissions regulation, such as cap-and-trade or carbon tax, is not fully defined, nor implemented. However, future regulation in this area represents the potential for significant financial risk.

3. Enhance Brand

• Companies are seeing an increasing number of customer requests for information about sustainability efforts. A buyer for more than 60,000 suppliers, Walmart has been a visible example of this trend.
• Existing and potential employees are increasingly emphasizing the "green" features of their office in choosing employers, impacting companies' ability to attract and retain talent. According to the Green Lifestyle Survey, 47 percent of the respondents indicated that a commitment to green/environmental issues is moderately or very important when choosing an employer.
• Investors are using environmental criteria in investment decisions as the benefits become clearer. For example, emissions information is now available through investment information services such as Bloomberg. According to the most recent data from the Social Investment Forum, Socially Responsible Investing (SRI) assets in socially screened mutual funds are north of $200 billion.

As I discussed above, there are important benefits to integrating sustainability into the lease process. Some of these benefits may lead to energy efficiency and some may lead to broader sustainability goals. I have heard tell of Sustainability 2.0, which is typically in reference to a holistic sustainability strategy and includes the revenue opportunities associated with sustainability. 

While I am not a fan of the moniker, it resonates with my long-term sensibilities. While identifying savings opportunities for my host company has been rewarding, supporting the bigger picture by developing sustainability strategy is frankly, more sustainable.

Rich Tesler is an MA candidate at Steinhardt, New York University, and a Net Impact member. He is a 2010 EDF Climate Corps fellow at SunGard Data Systems Inc. Further coverage of the Climate Corps program is available at GreenBiz.com/edfclimatecorps. This content is cross-posted at the Environmental Defense Fund Innovation Exchange Blog.

Image CC licensed by Flickr user JoshuaDavisPhotography