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The tech to sustain – JLL and Carbon Pathfinder

Brian Sommer Profile picture for user brianssommer July 18, 2023
Summary:
A number of technology vendors have already or will soon release new ESG tools. These mostly help with the reporting of key ESG data elements. Property firm JLL has just released a new tool, Carbon Pathfinder, that works very differently. It looks at several potential de-carbonization activities for one or more properties and assesses which ones will deliver the best economic returns.

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(JLL)

The heating and cooling of buildings (i.e., homes, offices, plants) is the largest generator of carbon emissions globally. Some studies estimate that heating/cooling related emissions account for just under 40% of total carbon emissions.  Obviously, this is material and likely is a concern for almost all firms as an expense and/or regulatory reporting matter. 

Property owners, especially owners or operators of large commercial or multi-family facilities, are especially interested in reducing their carbon footprint. Sometimes the motivation to improve their carbon emissions record is due to economic self-interest and sometimes it’s due to increasing regulation. 

In a recent Bloomberg BusinessWeek article:

Local Law 97, a pioneering climate mandate passed in 2019, aims to cut emissions from New York’s largest buildings 40% by 2030 and 80% by 2050. Next year, the city will begin penalizing owners of inefficient properties, with fines growing considerably in 2030.  New York’s density makes it an outlier among US cities. The largest share of its greenhouse emissions comes from buildings, not cars or power plants.

That same article also tells us that boilers and heaters in NYC annually emit some 17 million tons of CO2. That’s not exactly insignificant and it also illustrates that sustainability requirements can affect not just big manufacturers but also apartment complexes and other kinds of entities.  

Recently, I had a chance to chat with Greg Bolino, Head of Global Sustainability Strategy & Assets at Jones Lang LaSalle, IP LLC (JLL). JLL is “one of the world’s largest consultancies specializing in real estate, with $19.4B in annual revenue and a global workforce of more than 102,000.”  Greg and I discussed a number of ESG concerns and technologies in the effort to decarbonize buildings. 

Economics

One of the items we discussed concerned the rationale being used to justify environmental enhancements to commercial properties. Bolino stated that previous decisions were based simply on an ROI basis. For example, the decision to upgrade a building’s HVAC equipment to more energy efficient heating and cooling machinery was driven by the cost of the new equipment, the cost to install the equipment, the disposal of the old gear, etc. versus the expected annual cost savings (and any applicable tax incentives, rebates, etc.).

That was then. Today’s real estate market, especially for commercial office space, is full of buildings with low occupancy (This is due in a large measure from Work From Home (WFH) initiatives.) and rapidly falling valuations. Property owners are struggling to find tenants, any tenants. An energy inefficient building is even harder to lease as a low rent is only one cost that lessees consider. The energy cost being another major expense. 

Interestingly, those landlords with more energy efficient properties may find the value of their properties to be higher than those of peers. Lessees want to be in more efficient buildings for both cost savings and because it helps these lessees in their own ESG initiatives.

Greg indicated that the adoption of more energy efficient technologies in commercial buildings is uneven. For example, hotels are behind on this because of the both the building’s design and how the heating and cooling settings are adjusted by each guest in each room on a daily basis.  In contrast, he indicated that cruise ships can be far more efficient. These ships know at any given moment how many people are in specific locations on the ship. That information lets the ship’s systems dynamically adjust heat and cooling to save on fuel (and reduce carbon emissions). 

Other energy savings

Bolino and I discussed a number of other methods that building owners are employing to reduce the carbon footprint of their properties. For example, there are now films that can be applied to an office building’s windows (and some other surfaces) to generate electricity. This basically turns the building’s façade (not just the roof) into a giant solar energy device. 

Other technologies are reducing the amount of water consumed in a building. This is often the second largest environmental concern with office and other commercial buildings.  To address this, firms may implement a variety of new technologies in washrooms. Some factories are installing water reclamation technologies to minimize the amount of water waster and/or placed down sewers.  

Carbon Pathfinder

JLL Technologies is releasing a new application, Carbon Pathfinder, to help building owners or operators understand their options with regard to decarbonizing their physical plant. According to JLL:

Carbon Pathfinder is the latest innovation developed in-house by JLL Technologies (JLLT), the technology division of JLL. It is a dynamic de-carbonization planning technology that forecasts climate transition risk for investors and occupiers to plan capital projects and evaluate return on investment. Producing insights at both the portfolio and individual building level, Carbon Pathfinder allows companies to assess performance against science-based targets, create actionable decarbonization plans and use data to inform prioritization and capital allocation decisions.

The technology behind Carbon Pathfinder will be part of JLL’s market offering: De-carbonization Strategy. JLL is marrying technology and consulting services to help corporate real estate owners and investors fully comprehend the emissions footprint and economic consequences of their investments. 

Carbon Pathfinder does more than identify emissions/building. It adds a capital investment focus to help owners/lessees understand the financial and environmental impact of potential upgrades. What is interesting is that it calculates an expected increase/decrease in property values based on these potential changes. JLL positions this tool not as a carbon reduction technology or app, per se, but as a tool to help property owners ‘protect value across their portfolio’. 

Bolino also hinted at how the tool can be used in evaluating evolving environmental trends (e.g., impact on rising global temperatures and the effect of this on local real estate pricing). 

JLL’s services can also include insights into “helping companies meet sustainability goals, retrofitting buildings to make them smarter and more efficient, providing data to make real-time adjustments to equipment and more.”

My take

JLL certainly has the vertical industry credentials for this application. The firm has over $20 billion in annual revenues helping clients “buy, build, occupy, manage and invest in a variety of commercial, industrial, hotel, residential and retail properties.” Additionally, the company claims to have over 1000 subject matter experts focused on finding better de-carbonization solutions for its clients.

This new tool is actually value-focused first and not stuck on just one aspect of ESG reporting. That’s key as most of the ESG technologies that I have reviewed (approximately 40+) are predominately focused on reporting ESG regulatory values with some focused more on environmental or social metrics. Carbon Pathfinder is not a regulatory-first focused tool. It’s more focused on finding the right mix between improving environmental AND business outcomes. That’s what is refreshing to see.

Another nice capability is that it can assist in structuring de-carbonization initiatives at the individual property or entire portfolio of properties level. 

There also appears to be a real-time component to this solution but I didn’t get time to pursue it further. Readers should look for this and determine if it can help them making decisions regarding specific de-carbonization decisions based on the latest property value, equipment costs and other factors. 

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