The Business of Sustainability

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Some basic tips for using sustainability to drive shareholder value, such as the importance of lifecycle metrics and being deliberate.

Some basic tips for using sustainability to drive shareholder value, such as the importance of lifecycle metrics and being deliberate.

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  • 1. The business of sustainability Michael Jordan, EVP Jones Lang LaSalle January 2014 Michael.Jordan@am.jll.com @thetravellingmj
  • 2. Michael Jordan Bus Driver, Waiter, Internet Entrepreneur Public Policy IT Communications Six Sigma Business Ops U.S. Congress Bracewell DC IT CONSULTING Sun Micro Louisville Univ. of Oregon Corp RE JLL Oregon Colorado Palo Alto ^ Glacier National Pk. MBA Chicago
  • 3. • Global service provider • Green building, energy, and  sustainability management  consulting services • >150 LEED certifications • Energy services to >20,000 facilities
  • 4. The physical layer of the corporate  ecosystem
  • 5. The system is subject to important  constraints 5
  • 6. Systems approach Why The Natural Step 5‐Level model 6
  • 7. The JLL Approach To deliberately combine sustainability strategies and  drivers of shareholder value for maximum benefit. Goal is to move the big needle. 7
  • 8. Drivers of shareholder value Profitability x Capital Efficiency ‐ Cost of Capital x Economic value Growth + Real Options Strategic value Market Confidence Make products greener Lead by influencing business context + / ‐ Intangible, direct influence on stock price Build brand and culture Open new markets Improve operations 8 Shareholder value Manage risk Source:  “The Sustainable Company”, C.Laszlo, 2003
  • 9. Existing building must be part of the solution Nearly 75% of the U.S. commercial building stock is over 20 years old. U.S. Commercial Building Space By Age 14,000 Million s.f. of Commercial Building Space 12,000 10,000 72% of the commercial building stock was constructed before 1990. 8,000 6,000 4,000 2,000 0 Before 1920 1920 to 1945 1946 to 1059 1960 to 1969 1970 to 1979 1980 to 1989 2000 to 2003 Year Constructed Source: EIA data - http://www.eia.doe.gov/emeu/cbecs/cbecs2003/detailed_tables_2003/2003set9/2003pdf/c3.pdf 9
  • 10. The new gold standard is green Recognized throughout the world 3.8 million visitors per year 102 stories and 2.8 million square feet CO2 emissions of 24,000 tons per yr The Empire State Building, an iconic, pre-war trophy office building, can catalyze change by cost-effectively reducing greenhouse gas emissions while attracting world class tenants. $11 million in annual energy costs Peak office building demand of 9.5 MW 88 kBtu per SF per yr for the office building 10
  • 11. The Business Case $500mm capital improvement program Capital Budget Adjustments for Energy Efficiency Projects Total ESB Capital Budget (million $) 120 100 80 60 40 20 2008 Capital Budget for EnergyRelated Projects = $93m+ 0% Energy Savings Sum of adds / changes / deletes = +$13m New Capital Budget w / Efficiency Projects = $106m + 38% Energy Savings 0 11
  • 12. Key findings ESB can achieve a high level of CO2 and energy reduction cost-effectively. A solution that balances CO2 reductions and financial returns is in this range. There are diminishing (and expensive) returns for greater efficiency. 12
  • 13. Corporate sustainability strategy is influenced by multiple stakeholders Executives NGO Interest Groups Competitors Customers Education & Research Investors Suppliers Media Employees Governments Regulators 15
  • 14. Source: OgilvyEarth Research (2011 17
  • 15. Institutional Investor Requirements Overview • Transparency and disclosure of policies (of everything) is what SRI-focused institutional investors look for from any company, regardless of industry • When considering the banking industry, SRI-focused institutional investors look for a strategic analysis of climate change and climate opportunities: - Consideration by the company of its regulations, competitive and physical risks which would impact the company, its supply chain, the market in general and possibly its reputational risk. • One of the biggest issues that SRI-focused institutional investors now look at is green financing 19
  • 16. Example Drivers of Value from Current ESG Programs Annual Cost Savings Annual Revenue 1. 1. Energy Reduction Brand @P/E = 10 Intangible, direct influence on stock price Community Development Banking 1. Managed risk 2. LEED Certification 3. Competitive Profile 4. Employee Engagement 2. Digitization 3. Air Travel Reduction 2. Wind 3. Solar Facilities Reduction 4. Green Banking Products 4.
  • 17. Drivers of shareholder value Profitability x Capital Efficiency - Cost of Capital x Growth + Real Options Strategic value Market Confidence Make products greener Lead by influencing business context Economic value Shareholder value +/- Intangible, direct influence on stock price Build brand and culture Open new markets Improve operations Manage risk 21
  • 18. Some observations for business leaders 1. Know what drives shareholder value for your company and make the business case from there 2. Use lifecycle financial metrics such as NPV (as opposed to payback or first cost) 3. Know enough about the science 4. Be deliberate 5. Make an impact 6. Do more good not just less bad Organizations I like: ecoDistricts The Natural Step Net Impact Ceres / INCR 22
  • 19. The business of sustainability Michael Jordan, EVP Jones Lang LaSalle January 2014 Michael.Jordan@am.jll.com @thetravellingmj