In Uncertain Economic Times, Sustainability is an Asset, not a CostApril 5, 2023
Across industries, there is a feeling of uncertainty when it comes to the current economic climate. Companies are announcing layoffs, the banking sector is experiencing volatility, and these financial pressures are raising questions about the future of sustainability commitments. According to a study by KPMG, CEOs are “pausing or reconsidering their existing or planned ESG efforts.” The commercial real estate industry joins an economy-wide crisis, as companies consider the balance between profitability and sustainability.
However, the CEOs and other leaders who maintain their commitments to sustainability may be the ones best poised to lead their companies successfully through these uncertain economic times. Clean energy assets, when implemented correctly, offer a path to improved profitability and resiliency. According to Moore Global, companies that place an importance on ESG factors have seen their revenues grow 9.7% over the past three years, with profits rising 9.1% in the same period. As many as 84% note that their ability to fundraise has also benefited from these commitments.
During these increasingly competitive times, real estate owners and investors who remain committed to sustainability will attract like-minded partners and tenants, while companies who abandon their decarbonization efforts alienate themselves from these connections that are increasingly critical. Now, more than ever, companies and investors can benefit from the opportunity to utilize sustainable practices in their buildings as a means of capturing new streams of revenue, standing out from their peers.
Solar PV systems remain a traditional, popular means of reducing the carbon footprint of operations. They enable property owners to generate their own electricity, which can be used to power operations without any carbon emissions tied to them. This ultimately supports efforts by building owners to meet city-mandated sustainability targets, and avoid associated fines. Solar energy systems are also an opportunity for building owners to attract like-minded tenants, as programs such as virtual power purchase agreements can offer long-term stability in energy costs, protection against sudden utility price spikes on the grid, and the opportunity to earn renewable energy credits.
Increasingly, solar PV systems are coupled with battery energy storage solutions, which offer additional opportunities to capture new revenue streams and attract high-value tenants. Through the use of battery storage, buildings can save power (either from the grid or the solar system) that was generated or purchased when it is abundant (and therefore lower cost) and used during peak demand (when the cost of energy is higher) for later use through a process referred to as ‘energy arbitrage.’ Battery storage saves building owners and operators money on demand charges, helps in optimizing the use of clean energy over fossil fuels, and also offers resiliency against potential grid outages. Additionally, with policies such as NEM 3.0 in California changing the dynamics of how buildings can profit from their relationships with the grid, energy storage solutions are becoming an essential tool in securing the ability to profitably sell power back to the utilities.
Property owners are also growing increasingly aware of the profitable opportunities tied to electrified transportation. For example, many businesses are electrifying their fleets, reducing fuel and maintenance costs, lowering emissions, and improving fleet performance. Even without fleets to operate, many building owners are installing electric vehicle (EV) charging stations as an amenity for tenants, offering existing EV owners an added incentive to select their property over others, and potentially signing on to higher priced and longer lasting leases. As the electrification of transportation rapidly advances, commercial properties are poised to play a key role in meeting the growing demand for chargers, presenting a reliable new revenue stream.
These solutions are not a ‘one size fits all,’ and require expert analysis to understand the best configuration for each specific property. Considerations include whether onsite or offsite solar is best, the size of battery systems that are appropriate, and how renewable energy credits generated by these assets should be managed to maximize profitability and/or the ability to meet specific ESG targets. When mismanaged, the installation and operation of clean energy assets can be costly, time intensive, and ultimately unsuccessful.
However, the leaders who continue their commitment to decarbonization, and execute it correctly, will be the ones who not only survive economic uncertainty, but emerge from it ahead of their peers. Resources and partnerships exist that can help property owners navigate the technical, regulatory, and financial complexities associated with clean energy assets. By working with partners who have a track record of successful, profitable clean energy solution planning, installation and operation, organizations can secure the profitable opportunities that sustainability brings.