Between near-term inflation, restrictive fiscal policy, and currency turmoil, many of the world’s wealthiest countries are starting to balk at the cost of Net Zero initiatives. While progress on the path toward Net Zero still holds global appeal, economists have warned the immediacy of budget constraints has led some to consider delaying their emissions objectives.
This view is shortsighted in many respects. First, not all spending on Net Zero initiatives, particularly in the property sector, should be counted as a cost. Many investments, including digitisation of property operations, deliver economic returns that far outweigh their cost. Such expenditure can improve energy efficiency, lower maintenance costs, boost team productivity, improve ternant comfort, and increase asset value.
Additionally, any delay can be costly. Investing for the short term may well lead to long-term missteps that are expensive to unravel. In comparison, taking the first steps towards Net Zero consistently require minimal cost outlay, particularly when offset by its measurable benefits. For example, improving tenant leasing conditions for a commercial property through an enhanced tenant experience and higher sustainability ratings will have direct and tangible implications for WALE, occupancy and asset value.
In this article, we’ll compare the burdensome cost of inaction against the low- or no-cost starting point toward Net Zero, including real-world examples of how such an investment can pay for itself many times over.
The true cost of inaction
As public discourse around the cost of Net Zero heats up, researchers remind us that the cost of doing nothing is far greater. A recent report from McKinsey reveals that the global transition to a Net Zero economy will cost far more than originally expected. Still, researchers find evidence that the rewards of the Net Zero transition are ample and go beyond avoiding the potentially catastrophic impact of climate change.
Immediate economic opportunity, combined with the potential to resolve the challenges of rising energy costs and more scrutinous governance, would be the rising tide to lift all boats. The report states, “While the immediate tasks ahead may seem daunting, human ingenuity can ultimately solve the Net Zero equation, just as it has solved other seemingly intractable problems over the past 10,000 years.”
McKinsey’s findings may sound optimistic, but other research supports their conclusions. According to Deloitte, inaction on climate change could cost the world economy US$178 trillion by 2070. A recent study by the University of California at San Diego estimates the current cost at US$250 billion per year in the United States alone. If warming levels reach 3℃ by the century’s end, the toll on human lives would negatively impact productivity and employment, food and water availability, health and well-being, and the global standard of living.
From a real estate perspective, the availability of funding for property owners now depends on their adoption of sustainable practices, as investors and banks prioritise green financing for companies that pursue decarbonization. The use of green bonds has surged in recent years, with companies borrowing a record $859 billion last year alone, a 60% increase from 2020. Bank of England Governor Mark Carney warned that companies that do not adapt will inevitably face bankruptcy. Therefore, property companies that neglect to invest in technologies, tools, and innovations that drive the operational efficiency of their new and existing properties will be left behind and suffer financial consequences.
Another area of consideration for the real estate sector is the avoidance of brown discounts. While achieving superior performance through "green premiums" is important, avoiding "brown discounts" provides another compelling reason to prioritise sustainability. By postponing efforts to make their portfolios more sustainable, companies risk losing value to their competitors with each passing period. Other important areas of concern for property owners and managers are Scope 3 emissions stemming from the electricity consumption in leased assets, and, of course, more demanding tenant expectations around sustainability performance.
The impact of energy drift
For property owners, another very real outcome of failing to act is energy drift. Complacency means you are actually going backwards in terms of efficiency. Generally, the operational efficiency of plant and equipment will drop over time without intervention. This gradual loss of efficiency is known as ‘energy drift’ and can be traced back to various causes, including:
- Mechanical wear and tear,
- Malfunctioning equipment,
- Alterations to BMS controls,
- Changing site conditions,
- Building design defects,
- And human error.
Buildings can lose as much as 30% in energy efficiency every 1-2 years due to energy drifts. This can translate into billions of wasted dollars, as electricity and maintenance costs account for ~$3.5 of ~$8 spent per square foot (~0.1 sqm) in annual operating costs. Drift can also prompt capital expenditures, disrupt tenant comfort, and initiate safety risks due to unchecked equipment issues.
Digitising and monitoring costs (nearly) nothing
So how can property owners and managers continue to make progress towards Net Zero initiatives while embattled by doomsday macro predictions? The most achievable initial step is to focus on collecting and analysing the data at your fingertips.
Digitising and monitoring your commercial property portfolio should be a foundational focus of any Net Zero roadmap. Operational data provides a benchmark against which all subsequent initiatives can be measured. It is impossible to identify opportunities for sustainable improvement without an accurate way to gauge your starting point—and that is where data comes in. Data-based monitoring of plant and equipment must be established as an initial step toward any sustainability goal, no matter how modest.
Data is foundational to enhancing a building portfolio’s operational performance and energy efficiency over time. Through consistent monitoring, you can first identify and take steps to improve your lowest-performing assets, later shifting focus toward increasing efficiencies at assets that already perform well. Put differently, streamlining your operations cannot be done without data to point you in the right direction.
As an added incentive for firms feeling the weight of fiscal and regulatory pressure, monitoring and optimisation strategies are the easiest costs to control. While investing in capital upgrades, renewables, and offsets can get expensive, the cost of an effective building analytics platform are negligible and generally pay for themselves within months in most cases. The ROI is reaped via boosted team productivity, equipment lifecycle extension and energy savings.
Even the best-quality, most expensive equipment in commercial buildings can operate at suboptimal levels without constant monitoring and performance analysis. As Charter Hall’s recent case study demonstrates, data can make all the difference. Energy consumption has remained nearly on par with 2020 levels, even as building occupancy has increased. Collectively across the properties where CIM’s PEAK Platform is operational, Charter Hall has saved 17.4 million KWh of energy since 2019, avoiding 12,000 metric tonnes of carbon emissions.
The advantages of a digitised portfolio
Property owners and managers must gather historical and real-time equipment-level data to identify and prevent energy drift and other inefficiencies. Constant monitoring of equipment allows you to identify and rectify failures immediately, preventing massive triggers of drift such as overnight operation, BMS overrides, schedule overrides, fire alarm failures, or construction or fit-out activity.
Digitising operational data is invaluable in helping property owners make informed operational decisions, minimise energy drift, and stay the course toward Net Zero.
Additional benefits include:
- Continuous monitoring of all plant and equipment so that failures, major anomalies or tuning opportunities can be immediately identified.
- Reducing the onus on technical knowledge within the property team as all the requisite data, insights and steps for resolution are readily accessible.
- Supercharging collaboration between property operation teams as workflow modules enable effortless assignment of actions to the right team member, enabling speedier resolution of issues.
- Visibility across entire portfolios as data is consolidated into a singular, consistent source of truth, enabling outliers and multi-asset trends to be easily spotted.
- Benchmarking team and supply chain performance, thermal comfort, indoor air quality, energy consumption, emissions avoided, etc. and monitoring trends.
The result is a data-driven approach to facilities management whereby real-time, data-led insights drive operational efficiency, optimise energy consumption, reduce building drift, and mitigate risk.
Experience ROI with digitised operations
Our customers have more than paid for the cost of CIM’s analytics platform PEAK in a short period of time, turning digitisation from an expense into a net gain. We saw fantastic results with our client Burlington Engineering at a single office property in Dublin, with €62,000 of realised energy savings in 2022 alone.
The time to digitise property operations, reducing both spend and carbon emissions, is now. The cost of delay far outweighs the investment in making initial advancements toward Net Zero. Those who act now gain the security of knowing that their climate debt will not exceed their ability to repay it.