A Climate of Change

The increasing urgency of climate mandates

In 2022, the United Nations declared that it is a matter of now or never to act on greenhouse gas emissions. Their new IPCC (Intergovernmental Panel on Climate Change) report – written by hundreds of leading scientists and agreed by 195 countries – noted that immediate and deep cuts in greenhouse gas emissions are needed across all sectors to preserve a livable climate.

Despite this statement, persistent public demand and thousands of corporate pledges, many organizations struggle to prioritize decarbonization efforts, in part due to a lack of standard guidelines. In response, notable government entities across the globe are stepping up to enforce mandates that promote emission disclosures for buildings and, in some cases, all operations.

In March 2022, the U.S. Securities and Exchange Commission (SEC) proposed rule changes for the financial filings of publicly traded companies that would require the inclusion of climate-related information, including emissions data, climate-related risks and more. While the proposed rule does not include requirements for emission reductions, it marks an important turning point for U.S. companies waiting to implement sustainability strategies.

In the U.S., more than 40 municipalities have already established energy and carbon disclosure agreements, with financial penalties for non-compliance becoming a new lever deployed by governments. The City of New York City has been a longtime pioneer in the energy and carbon space – it was the first municipality in the nation to put a price on carbon and mandate energy performance reporting.

In the U.K., the government has committed to cutting emissions by 78 percent by 2035 compared to 1990 levels, bringing the U.K. more than three-quarters of the way to net zero by 2050.

Australia’s government also recently passed its climate bill committing to a 43 percent cut in emissions by 2030 and a reduction to net zero by 2050 – a move which has been viewed globally as a step in the right direction despite Australia’s preceding slow response to the impact of climate change.

Further, major companies are increasingly setting sustainability standards for potential or existing suppliers. For example, Walmart launched Project Gigaton to help their suppliers set emission targets and reductions, with more than 4,500 suppliers signed on since 2017. This means consumers and investors will have more rapid access to study and decide where they dedicate their money. All signs point to sustainability commitments gradually transitioning from competitive advantage to standard operating cost for businesses.

And while it may seem like this momentum is in its early stages and there is still time before an organization gets hit with a penalty, early adopters and innovators are making emission reduction competitive. Understanding and reporting on emissions takes consistent effort, and for FMs to stay ahead, they must act now. Benchmarking data and understanding disclosure obligations is the best place to start – but getting started will require an initial investment of time and effort.

Disclosure obligations

Knowing the requirements expected of an industry and location will be essential to embarking on an energy management plan. FMs can work with corporate sustainability or the organization’s leadership team to better understand obligations. A third party can also help navigate the specific requirements and any associated fines, whether the facility is asked to simply state emissions or show a path to carbon reduction.

Collecting utility bills will be the next step toward complying with disclosure obligations. This process can be disparate and involve a lot of vendors, but software or service providers can help cut down the energy and time spent tracking down invoices significantly.

Some U.S. states, such as Washington, require proof of greenhouse gas reductions year over year. Before embarking on reducing emissions, a further analysis of the current energy usage will be vital to identifying specific waste or the right investments.

The benchmarking imperative – how it informs investment

It is impossible to divulge what carbon reduction looks like for a specific organization without knowing what its starting point is. The first step toward reducing greenhouse gas emissions is to create a plan for benchmarking them, with the goal being to provide an apples-to-apples comparison of their facilities’ energy usage. From there, leaders and individual building managers can use that information to forge a new path for how they will meet organizational and government targets within a certain timeframe.

ENERGY STAR is a widely recognized benchmarking application in the industry, using both source and site intensity. However, like EUI (Energy Use Intensity), ENERGY STAR is also not available for all asset classes, but it is widely used for office buildings. ENERGY STAR provides a facility with a score equivalent to a school’s letter grade system. If a building receives a score of 50, the building receives a passing letter grade and if a building receives a score of 75 or better, it earns the ENERGY STAR Certification.  

Local municipalities are requiring ENERGY STAR benchmarking for buildings because it is easy to track a facility’s data and thus obtain a score. The required data includes energy data and occupancy and building data, which changes depending on asset type. The certification and benchmarking process is much simpler and more straightforward when organizations utilize a platform that can track this data and can share it directly with an ENERGY STAR portfolio manager.  

The right tools can also help managers find consumption patterns, benchmark buildings and make decisions that reduce carbon emissions more easily. With the help of real-time data through sensors, AI-driven optimization and strategic asset management, an energy management tech solution can help managers capture the exciting opportunities that lie ahead. The tools already exist – it is just a matter of leveraging them.

Taking the next step: energy management and real-time data

There is growing global attention from investors and consumers on climate change. As a result, more governments are enacting mandates for companies and properties to report on their carbon emissions. And while most facility managers have access to data that can illuminate their strides in energy management, many still have a long way to go in effectively leveraging it.

Before managers can benchmark, they need to determine what their goals are as an organization through sustainability initiatives. A municipality may want to achieve specific ENERGY STAR ratings for their buildings, a small business may want to reduce costs against rising energy prices, and a corporation may want to achieve net zero to look good for investors. All these options will create their own unique metrics to benchmark and track against over time.

Once FMs obtain benchmarks, they will then be equipped with visibility into the performance of the buildings and assets holistically. For example, they will be able to determine that, of 10 buildings, three of them are running at optimal performance and three others are running at poor performance when compared to industry peers. A great place to start would be to focus on the three with poor performance.

Further, advanced analytics will enable FMs to diagnose or understand how to optimize the poor-performing facilities. Real-time data allows managers to understand whether that performance is due to aging infrastructure or poor operations. On the low impact side, they can then triage poorly running equipment or make changes to how thermostats or lights are set. They can also identify where long-term action and investments are needed, such as replacing natural gas burners with heat pumps to reduce emissions requiring significant capital investment. FMs can also choose to evaluate energy sources for operations, such as purchasing from renewables. and third-party consulting services will make all these actions attainable.

Regardless of the specificity of the targets, however, taking these first steps will contribute to the facility’s compliance with these emerging mandates. An improved ENERGY STAR rating will likely correlate with a reduction in costs and other benefits. Reducing carbon is beneficial whether or not it is mandated.

Act today

No matter what the final SEC rule looks like in the U.S., or how these mandates continue to evolve globally, these new guidelines are a catalyst that will drive more action from industry peers, local regulators, the supply chain and stakeholders. FMs must get started on reporting their emissions today to remain competitive in their industries and create a safer, greener future for all.