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Fast Company
15-07-2025
- Business
- Fast Company
A focus on sustainability's return on investment
For the past year, I've had the opportunity to apply my experience in sector diversified financial services, sustainability, and operational leadership at RE Tech Advisors. I oversee a suite of solutions and services allowing real estate portfolio managers/owners a pathway to integrate and communicate their sustainability efforts. What I've seen in this sector aligns with many other sectors I've worked with. ROI is the predominant motivation for action—short-term ROI via operational cost efficiencies and revenue attraction, and long-term ROI setting up operational resilience in a changing environment. The ROI focus applies to both traditional initiative and sustainability initiative decisions. The line begins to blur when key sustainability initiatives are considered as key operational efforts, the same way as traditional ROI. This is how RE Tech Advisors helps real estate owners find key ROI initiatives with strategic action plans to manage risks and optimize performance. Reduce greenhouse gas emissions (GHGs) Whether you are creating an action plan to reduce your GHG footprint to comply with building performance standards policies, or you're developing a proactive decarbonization action plan to reduce a building's carbon footprint, these can significantly reduce costs: Reduce energy consumption costs: Implementing high efficiency HVAC, better insulation, and smart system integrations such as smart lighting, can reduce energy cost estimates by 30% to 50% in new and existing buildings. Identify operational inefficiencies: Through real-time data analysis and continuous performance monitoring, building managers can adjust or replace systems to improve efficiency based on actual usage energy and water usage patterns. Reduce maintenance costs: Increase energy efficiency and conduct proactive maintenance to realize cost savings through reduced emergency repairs and extending building components' lifespans. Avoid noncompliance fines: Fine amounts varies by jurisdiction, but penalties for policy noncompliance can be a significant expense, based on location and building size. Tax incentives and green financing: Decarbonization roadmaps can unlock millions in funding from programs such as NYSERDA and Fannie Mae and Freddie Mac's Green Financing program. Physical risk management Physical risk management plans help mitigate potential physical building damage from sporadic weather events such as floods, hurricanes, and tsunamis, plus increasing temperature severity and climate pattern changes. Action plans can include installing flood barriers, storm shutters, upgraded drainage systems, impact-resistant windows, reinforced roofs, and elevated foundations. These investments can lead to short-term cost savings, better resilience, and longer-term ROI. Recognized benefits include: Lower insurance premiums: Most insurance companies now integrate physical climate risk scenarios in stress test modelling to calculate premiums accounting for potential risk of future loss. This increasingly influences insurance premiums. Lower costs from severe weather damage: According to from 2020-2024, the cost of climate-related damage in the U.S. was $746.7 billion; the annual average exceeded $149 billion. This financial impact is more than double the annual average of $64.8 billion from 1980 to 2024. Build to higher standards: A study by the U.S. Chamber of Commerce showed that for every $1 invested in disaster preparation, communities save $13 in economic costs, damages, and cleanup. One example showed, '$83 million of investments in resilience and preparedness for a serious tornado hitting Nashville would save more than 5,300 jobs. The amount of production and income saved would be more than $683 million and $464 million, respectively.' An S&P Global Sustainable1 report found that companies could face physical climate costs of up to 28% of the asset value annually without mitigation efforts. Supply chain risk mitigation: Building more resilient supply chain operations and avoiding disruptions from physical building damage and labor interruptions can lead to longer-term ROI. These risks pertain to both U.S. and off-shored supply chain facilities. Transition risk management Climate change and its associated risks continue leading to longer term economic changes. These bring transitionary risks that are important to consider to avoid higher resource and material costs. Through transition risk management, real estate owners can position themselves for: Less exposure to energy supply volatility pricing: Through decreased energy consumption or using alternative sources. Resource scarcity: Can lead to increasing costs and lack of availability of land, water, timber, and steel. Improved capital and lending rates: Rates may consider transition climate risks in risk analysis, or provide green financing with lower rates. Stranded assets: Avoid real estate assets that can be devalued by not appropriately mitigating transition risks. These stranded assets may not be aligned with building energy performance standards such as New York's Local Law 97. Noncompliant buildings could see value reductions of 10–20% due to penalties and retrofit costs. Furthermore, a First Street study suggests that a $1.4 trillion devaluation will occur across real estate assets over 30 years if they fail to meet decarbonization pathways. Communication is key In creating strategies for cost efficiencies and resilience, the owner's ultimate desire is to create a portfolio of attractive assets that are optimal operationally to gain short-term and long-term ROI. It is vitally important to communicate how the company is pursuing these cost saving and resilience initiatives to appropriate stakeholders including investors, banks, employees, operators/tenants, and communities, to help each stakeholder understand the assets' value. Key ways to drive this communication include: Green building certifications: These include LEED, BREEAM, and IREM certifications, which provide stakeholders with independent validation of key energy and carbon management initiatives. Investor reporting frameworks: GRESB and UNPRI provide investors a detailed look at initiatives being pursued, along with gaps, allowing them to benchmark and compare them to peers. Corporate social responsibility reports: These tell stakeholders, such as employees and tenants, about the sustainability efforts being addressed, offering better transparency. Last thoughts Many are pursing the ultimate goal of creating an environment that allows us and future generations to prosper and thrive. Looking at initiatives under the return on investment lens offers a sustainable pathway to meet people where they're at, speak a language they can connect to, and invite them to join the journey leading to a more sustainable economy and world. I look forward to continuing the discourse on how sustainability initiatives can best help drive for cost efficiencies and resilience so that these initiatives move from being an overlay to being deeply integrated into operational excellence.
Fast Company
19-05-2025
- Business
- Fast Company
Why Energy Star works so well—and why the private sector can't replace it
To Deb Cloutier, president and founder of the sustainability firm RE Tech Advisors, the news that the Trump administration is planning to get rid of Energy Star simply didn't make sense. Trump's claims that he wants to reduce Americans' energy bills is 'completely at odds with this move to scrap the program that certifies energy efficient appliances. And she sees no viable way for private companies or nonprofits to fill this gap. She would know what it takes: Cloutier is one of the original designers of the program. Energy Star officially launched in 1992, under President George H. Bush. Cloutier helped shape the program's focus on building efficiency, and then worked as a consultant every year since its launch. In the past 30 years, Energy Star has 'exceeded all expectations,' Cloutier says: It saves consumers more than $40 billion every year on their bills, and helps certified buildings use 35% less energy, which means lower operating costs. Energy Star is voluntary, not mandatory Energy Star was specifically intended to be a voluntary, nonregulatory way of getting businesses to adopt and understand energy efficiency. The program doesn't force businesses or building owners to participate. And yet more than 16,000 companies and organizations do—from appliance manufacturers to school districts. 'Dozens of voluntary programs exist today, but Energy Star was the seminal first program that proved that businesses working in concert with government in a collaborative fashion could learn from one another, and develop resources that would not be brought to market by the businesses on their own,' Cloutier says. It has been a model for other public-private partnerships since, some even directly taking Energy Star's tools: Canada uses Energy Star's buildings portfolio manager for how it rates and ranks its own buildings. Businesses don't often want to be the first to adopt something new like energy efficiency metrics; it's a risk, and not always clear how the market will respond. But Energy Star was able to convene industry leaders together so multiple businesses could adopt these standards at once. Then, it started recognizing the top 25% most efficient products, buildings, and manufacturers. 'It really helped spark that competitive nature of businesses to try and set goals to have X percent of their portfolio that has energy Star certification,' Cloutier says. An impartial agency, and a recognizable symbol Because Energy Star is a government program, it provides an impartial scoring metric for efficiency, based on rigorous scientific research. Energy Star's iconic blue label is also easily recognizable by consumers: According to the program, nearly 90% of American households recognize the symbol. Without one symbol from a trusted, third-party source, manufacturers or retailers may put their own efficiency labels on products, which would make for a confusing and crowded landscape for consumers. It also wouldn't be clear if those labels are consistent in what they measure or reward, or who's verifying those claims. And if a nonprofit were to take over Energy Star's role, it's unlikely that it could cover the same array of industries—retail, manufacturing, residential, schools, and state and local governments—that the federal government does. 'It would be a tall order to find something that replicates the federal government's impartiality and breadth,' Cloutier says. Energy Star simplifies the efficiency process The federal government is in a unique position to have the national energy data, the research from national laboratories, and the industry expertise that underpin Energy Star's tools and standards. The program draws from other government agencies like the Energy Information Administration, and it incorporates state and local regulations around emissions caps and what information buildings must disclose around their energy consumption. 'If you own and operate buildings in more than one state or multinational jurisdictions, it's already a very complex compliant landscape,' Cloutier says. But Energy Star helps simplify the process through things like its portfolio manager software tool, which allows entities to enter their buildings' energy consumption and receive a score between 1 and 100, and to track their improvement over time. The private sector not only would struggle to access all the national energy data and laboratory research crucial for Energy Star, it would also face challenges from businesses themselves. 'I think most entities would be hesitant to give what they would consider to be confidential business information around energy usage to a third party,' Cloutier says. Private businesses likely couldn't carry out Energy Star at a large scale either. Its portfolio manager is used by more than 280,000 properties. For a private business to fund such an expansive, far-reaching tool, it would likely have to charge for it, Cloutier says—which would burden American businesses, buildings, and families directly. As a government program, Energy Star is incredibly cost-effective: For every federal dollar invested, it delivers a return of $350. 'When you look at the very small budget to run Energy Star, I would say it's sort of the little engine that could in terms of its results,' she says. The program supports more than 750,000 U.S. jobs, and Americans purchase 300 million Energy Star-certified products a year, worth $100 billion in market value. Energy efficiency benefits everyone Energy Star has long had bipartisan support, and for good reason. Making products and buildings more efficient helps the entire country—not only by lowering people's energy bills, but by putting less pressure on the national energy grid. That means less blackouts and brownouts, too. 'The more wecan help drive down the amount of energy used to live, work, and play in buildings, that helps produce more bandwidth on the grid,' Cloutier says. U.S. energy demand is only growing, especially with more data centers to support AI and cloud services, which will also likely raise energy prices for consumers. Without Energy Star, Americans might be more likely to choose the cheapest option at the appliance store, not realizing that doing so will actually increase their energy bills over time. It's not easy, without a third-party label like Energy Star, to translate that trade-off in purchase price versus long-term savings. But by having the Energy Star product, consumers know that item inherently saves energy; Energy Star also details the annual energy use of a product—and how much that use compares to the federal standard. Consumers can even search for items like dishwashers and the Energy Star website will sort them by energy use. Losing Energy Star also means buildings might lag on efficiency, in part because the process to meet efficiency standards and implement energy-saving tools will be a more difficult undertaking. Building operators may then pass those increased utility costs on to residents, in the case of apartment buildings, or customers, in the case of hotels. Cloutier has seen numerous examples of how aligning with Energy Star standards has helped building operators save money; thousands of school districts, she says, have saved on operating costs that can then make more resources available for teachers. And Energy Star is authorized by Congress, which means it can't legally be ended in this fiscal year. What happens after that isn't clear, but Energy Star's benefits are. During his first term, Trump tried to end the program but faced strong opposition, and Energy Star survived. 'I am highly encouraging our clients and peers in the industry,' Cloutier says, '. . . to defend the value of Energy Star again.'
