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 Climate.gov, 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.

Shila Wattamwar is founder of Radiant Global Advisory, and VP of RE Tech Advisors.