How Sustainability Affects Your Capital Plan

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In a previous article, we introduced the “four pillars” concept of sustainability in real estate. The concept is quite simple. Many organizations are investing in sustainability. But to be effective, these investments need to meet corporate goals. That includes financial, energy, social and economic objectives—the four pillars. If the four pillars aren’t balanced, that could result in long-term operating inefficiencies.

For example, consider the pursuit of LEED certification for a building. What are the estimated labor and reporting resources involved? A green building may improve energy savings, but it may not be the most balanced investment over time. If it drives unsustainably high operating costs, it’s not a sustainable investment.

In this article, we focus on how the four pillars concept relates to building capital plans. Deciding how to allocate the budget is one of an organization’s most important tasks. But how does sustainability fit into a capital plan? It’s no longer enough to focus on financial performance and building maintenance. Environmental impact, employee health and wellness and risk management are important considerations, too.

So how can organizations build a capital plan with the four pillars of sustainability concept in mind? We offer three strategies.

Connect Sustainability Objectives and Implementation

For most organizations, real estate capital plans focus on individual buildings. However, starting from the “ground up” can limit the impact of a capital plan. It reinforces a competitive capital allocation process.

For example, consider a regional government with multiple facilities and departments. Each property and department manager would have their own priorities and perspectives. That can be detrimental to the capital plan. The focus would tend to fall on balancing limited funds between competing interests. There’s less of a focus on choosing projects that make the most impact.

A more effective method is to focus on business and sustainability objectives first. This allows organizations to target priority areas and set capital plans that address them. For example, consider an organization with a goal of reducing energy costs by 20%. Their capital plan should reflect this key priority, and allocate funding to make it happen.

Direction on how to achieve that target is also important. For example, what key investments would result in the most immediate energy savings? How should you deploy the capital to make the most impact? How does this align with available funding and competing interests?

Look to External Certifications to Set Standards

Corporate social responsibility and environmental, social and governance (ESG) mandates are on the rise. They are key trends in real estate sustainability. Is your organization pursuing sustainability certifications or standards? When you’re developing your capital plan, look at the criteria you need to meet. Then, use them to help you allocate funds and meet your goals.

Have a goal of reducing greenhouse gas emissions? Align your capital plan around meeting LEED or BOMA BEST requirements. Want to build in more employee health and wellness? Understand WELL building standards and develop a path towards implementation.

Scale Sustainability Initiatives in Your Capital Plan

We’ve noticed that our clients gain an understanding of how to scale their capital plan. By scale, we mean reevaluating the size of capital investment required to achieve a sustainability goal. That’s different from focusing on investments themselves.

For instance, consider a commitment to reduce water use by 5% over five years. What do you need to do to achieve that goal? Would an executive-led water awareness program and marketing campaign be enough?

Many organizations would default to making large capital investments. They might look into plumbing and bathroom retrofits to get the same effect. But these investments aren’t necessarily the best solution. Be creative in your thinking, and look for “low-hanging fruit.” This can often save money during the capital planning process. Not every business priority needs a large, financially-driven solution.

The next time your organization builds a capital plan, think of the four pillars concept. How can focusing on business priorities, third party resources and scale can help? For more information on how 4tell™ Solutions can support this process, please visit our products page.

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