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From Site Selection magazine, January 2012

Not Your Father’s
Recycling Program

Today’s corporate sustainability has a broader mandate, and a stronger focus on results.

Approval of Boeing’s new regional headquarters complex in Arlington County, Va., hinged in part on the project’s sustainability-oriented attributes.

he name of the green game today is energy efficiency, cost reduction and return on investment. Rather than throwing money at the latest cool sustainable bell or whistle, companies are refining their approaches to look more broadly at the rationale behind a specific green approach, in order to understand first what they are trying to achieve and then incorporate an increasingly sophisticated return-on-investment calculus early on in their deliberations.

Yes, it's a sign of the lean budgetary times that demand leaner, cost-shedding approaches. But other issues are at play as well.

Major firms across the industry spectrum have acknowledged this shift, and are embedding sustainability into their real estate portfolios to achieve bottom-line-oriented results. A few examples:

Renault, in partnership with Veolia Environment, is building the world's first zero-emissions, 100-percent renewable energy-reliant car manufacturing plant in Morocco. The completely green facility will begin turning out Renault's new completely green eco² cars this year, according to company officials, while significantly reducing energy and water consumption — and costs — because of efficiencies achieved.

Johnson & Johnson's 18-acre (7.3-hectare) Titusville, N.J., complex features the state's largest solar array, a 4.1-megawatt photovoltaic facility that generates 70 percent of the facility's annual electricity needs, representing a significant energy savings.

And the owners of one of the nation's most iconic office buildings, New York City's Empire State Building, recently commissioned a $550-million green makeover, including energy efficiency upgrades that reduce the building's energy consumption by more than 38 percent and will yield $4.4 million in annual energy savings.

Quantifying Returns

Of course, when it's about efficiencies, resource reduction, and savings, there's got to be a business case for adding potentially pricey enhancements to a proposed new facility on a budget.

"In this budget-constrained environment, the focus is on a strong cost analysis for proving the sustainable case," notes LEED fellow Lidia Berger, architect for commercial firm HDR. The finance team and the company's senior leadership aren't the only ones asking questions. "Lenders want to see the paybacks for proposed sustainable upgrades before they agree to finance a project," she says.

Today, firms can quantify the return on investment of various sustainable enhancements early on, a sign that the science of greening buildings is maturing, she says.

"It is both feasible and critical to calculate the sustainable return on investment of a proposed project in the planning stages," notes Berger, who has developed analytical tools to help clients with this calculus, incorporating the range of costs and benefits including intangibles such as health and productivity improvements that may result from reduction in greenhouse gas emissions.

Sustainability has become a business imperative because green upgrades can improve efficiencies, reduce resource consumption and save money, according to Cathy Stevenson, executive vice president and leader of Grubb and Ellis' sustainability practice. "It's less about doing the cool, trendy thing, and more about reducing expenses and operating more efficiently and effectively. Energy is the largest component of sustainability that has this kind of impact."

Like Berger, Stevenson emphasizes the importance of early-stage planning, to maximize energy efficiencies. "You really need to plan for these sustainable features before even putting pen to paper to design the new building," Stevenson notes. "If you've already designed it, and then you come in after the fact to add green features, it's going to be harder, more costly and take a longer time to yield a return on your investment."

This focus on the bottom line is a key component of Johnson & Johnson's energy efficiency strategy. "We require a 15-percent internal rate of return on large energy projects, plus demonstrated CO2 reduction benefits, before we move forward," notes Jed Richardson, J&J's global energy director.

One aspect of the J&J energy strategy is to install solar capacity: Currently, the company generates on-site solar energy at more than 20 of its facilities around the world.

Spike in Demand for Triple Bottom Line

While cost reduction and energy efficiencies are key drivers of the push to green the corporate real estate portfolio, there are other factors at work. It's what J&J's Tish Lascelle calls "the awakening consumer."

Increasingly aware corporate customers and individual consumers alike want to see a demonstrated commitment to what's known as "the triple bottom line" of people, planet and profit in the brands they buy. They are making purchasing decisions based on the perceived strength of these corporate commitments to environmental and social sustainability.

This public awakening is forcing companies to move forward along the green facilities continuum, whether they like it or not. New rules and regulations — such as the Environmental Protection Agency's proposed boiler major source rule, aka the Boiler MACT — are being enacted in part because public officials feel pressure from their constituencies to take action.

Locally, communities across the country are mandating green standards, such as LEED certification, for new construction. Others have created incentives such as favorable property tax treatment or density bonuses for LEED-certified facilities. According to the U.S. Green Building Council, LEED initiatives — including legislation, executive orders, resolutions, ordinances, policies and incentives — exist in 45 states, including 442 localities, 35 state governments, 14 federal agencies or departments, and numerous public school jurisdictions and institutions of higher education throughout the nation.

Even without a legislative or regulatory mandate, green enhancements for a planned new facility can be an advantage when moving the project through a locality's development process, because of growing public support for sustainable design. "If you say up front to the local planning and zoning board that you want to do a LEED building, it could speed up the review and approval process," says Stevenson of Grubb and Ellis.

Boeing experienced this first-hand last October, when approval from Arlington County, Va. for a new regional headquarters facility hinged in part on the sustainable aspects of the project.

County officials said at the time that the green and community-oriented enhancements associated with the complex and somewhat controversial project were a key factor influencing their favorable decision. Among them: LEED-Gold certification, a land swap with the county to enable construction of a large public park and recreational facility, a station for a bicycle-sharing program, and cash contributions towards mass transit-oriented features.

In a statement following the unanimous vote, County Board Chairman Christopher Zimmerman said, "This was a tough decision for the board. In the end, we concluded that the community benefits of the project outweighed its drawbacks."

The agreement allows the company's build-to-suit partner Monument Realty to construct a 453,000-sq.-ft. (42,084-sq.-m.), secure building on a 4.7-acre infill site near the Pentagon. Boeing will buy the property from Monument when construction is complete, projected for November 2013.

Because state and local approaches can vary widely, site selection teams should be sure to look at local building code requirements to see what's needed from a green compliance perspective — and what kinds of incentives are available. But site selection teams also have to consider another aspect of the sustainability issue, Stevenson says: availability and cost of water supply.

"This is a geography issue and it is a significant one," Stevenson says. "I think there will be an increased focus on water in the site selection process, because it is a scarce resource."

Sustainability as Competitive Differentiator

Growing public awareness also is increasing pressure on companies to ensure that their vendors are living up to the sustainability standards they've set for themselves. Firms across the industry spectrum are initiating new sustainable global sourcing guidelines, spanning the range of environmentally and socially responsible practices: from reducing waste in packaging to upholding child labor laws, from meeting specific emissions standards to using responsibly sourced raw materials.

It's an ongoing and evolving process, as users of raw materials and components sourced from all over the world try to figure out how to track and document the chain of origin for all of their supplies. Some firms that face similar sourcing challenges are banding together to address the issue.

The Electronic Industry Citizenship Coalition, which includes Intel, IBM, Microsoft and AMD, major users of minerals such as gold, columbite-tantalite, cassiterite, and wolframite, recently announced an alliance with the U.S. State Department to support the development of supply chain solutions for sourcing responsibly-mined, conflict-free minerals from the Democratic Republic of Congo and surrounding countries in Africa.

Meanwhile, companies like J&J, which already embeds sustainability requirements in its contracting process, continue to raise the bar even higher for suppliers. Recently, J&J decided that its key partners needed to report publicly on their sustainability goals, as J&J now plans to do.

This momentum for sustainability across the value chain means that suppliers of all types — from service providers to components manufacturers — have to up the ante as well, to remain competitive. "We often have to demonstrate our own sustainability commitments to win a project," notes Stevenson.

In fact, efforts are under way to quantify the competitive edge that a supplier might gain by producing goods at a green facility, compared to a less-environmentally-friendly plant.

"We are working on developing models that will compare goods produced at two different kinds of factories, to see if market opportunities might be greater for goods manufactured at the greener plant," says Berger.

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