Facilities Management and the New Economics of Sustainability

Posted on January 25th, 2011 by

Energy Management is a term, which more and more, is becoming synonymous with facilities management.  Throughout the private and public sectors alike, facilities directors are spending more of their time focusing on strategies to improve how their facilities use, and even source, energy and organizations are expanding the amount of resources, which they allocate towards “managing” energy.

This increased focus on energy use in organizations (particularly in their facilities) is more than just a green fad.  It reflects a fundamental transformation in the way that corporations are assessing their balance sheets. Buildings and facilities, which account for the bulk of measurable energy consumption for corporations and government, have become the main focus of this drive to manage energy.  High performance buildings, therefore,  are a critical component to a broader trend of corporate sustainability practices and accountability.

The economics of Green building, once defined in simplified, cost of construction terms, now factor into a much more complex economic framework.   In this framework, corporate financial accounting practices are called-on to place greater emphasis on expenditures related to energy and utilities, and they are measured alongside the carbon footprint of enterprise organizations.  One of the most critical areas of focus for these organizations is their facilities, and it is through strong emphasis on sustainable operations, energy efficiency, and Green building practices that some of the world’s largest companies are improving their environmental performance, expanding their profits and influencing  partners and competitors.  Key examples of this can be found in companies like Wal-Mart which has made high performance construction the centerpiece of new superstores and which, through the incorporation of high efficiency lighting, and enhanced building features, has reduced electricity consumption and claimed improved environmental performance.  Also, by instituting energy and carbon guidelines for suppliers, Wal-Mart tightly controls the carbon footprint downstream to its suppliers’ manufacturing bases, and it has influenced green building retrofits and large-scale facility improvements outside of the organization.  By this measure, Wal-Mart is a key example of the new economic framework in its full glory – that there exists a correlation between environmental sustainability and increased share value for the stock holders.

The major drivers of corporate sustainability, and green building at its epicenter, include operations and energy costs, and changes in regulatory oversight.  An expanded conceptual awareness of how energy is embodied in every aspect of a company’s operations, whether manufacturing, transportation, waste management, facilities, or even administrative activities, has reshaped economic thinking on sustainability to calculate energy on the basis of a unified waste stream.

Operations costs continue to rise, and as fuel prices have increased, these have impacted both the energy costs for running a building, as well as the cost of building materials.  According to data from the EIA, US commercial sector has seen its electricity costs escalate approximately 8% from 2004 to 2010.  With the added strain of rising oil prices yielding higher cost to extract, manufacture and transport building materials, the building industry has shifted focus to making all buildings more energy efficient and making better use of materials, with less waste during construction.  Increased fuel costs also means higher cost to manage waste – to fuel the trucks that carry it off, and to power the incinerators or recycling plants that become the final destination for garbage.  For corporate entities, this is not just a matter of safeguarding profit margins, but an important factor of their accountability to shareholders as well.

On the regulatory side, reporting requirements set by the EPA, and a push by the SEC for companies to disclose their exposure to Climate Change Risk has led to the establishment of C-level sustainability leaders and strategic priority given to sustainability.  Major hotel chains and office developers are impacted by federal guidelines for GSA employees regarding the LEED or Energy Star status of buildings where they lease office space or seek accommodations.

At the bottom line of corporate sustainability reporting lay the nexus between carbon output and operations costs.  As companies use less energy, extract fewer resources, and manage tighter operational waste streams, they emit less CO2 and spend less.  Innovation in buildings and facilities is at the center of this.  So is innovative accounting, which can correlate these waste streams to an organization’s cost summary.

Written by Yoni Bedine, Sela Energy

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