The CFO Agenda: Enabling CFOs to See Sustainability as Central to Core Strategy
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New Metrics 2012 Friday 9/28 13.45 - 14.15 Lauralee Martin
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The CFO Agenda: Enabling CFOs to See Sustainability as Central to Core Strategy
- 1. Sustainability: Engaging the CFO
- 2. CFO Responsibilities • CFO is responsible for financial planning and reporting – technical skills • CFO has a major role in corporate governance with responsibility to the audit committee for the control environment – uncompromising integrity and ethics • CFO is the financial spokesperson and advocate for the business to investors – value creation • CFO’s major stakeholders: Shareholders, Lenders, Board, CEO/firm management Language of the CFO – Net Income; EPS; ROE/ROI; GAAP, $$$
- 3. Language of Sustainability CO2 3
- 4. Effective CFOs • Communication skills • Basic business knowledge and strong understanding of company operations • Strategic vision and Leadership Skills • Problem solver – identify risks and opportunities • Confidence to take a stand • Results – oriented • Value Creation
- 5. Jones Lang LaSalle – platform, people, processes We are the only global real estate services and investment • Moody’s: Baa2 (stable outlook) 2011 revenue management company with investment-grade ratings from two • S&P: BBB (stable outlook) ratings firms. $3.6B S.F. under management $2.1B Employees 45,500 Brokers 3,000+ Researchers 300+ Corporate offices 200+ Americas EMEA Asia Pacific •8 countries •31 countries •13 countries Locations •74 owned offices •76 owned offices •62 owned offices 1,000+ •42.5% of 2011 revenue •27.1% of 2011 revenue •22.8% of 2011 revenue The remaining 7.6% of our revenue originated from LaSalle Investment Management 5
- 6. Jones Lang LaSalle - Services • Single point of contact • Financial analysis of occupancy alternatives • Long-term occupancy aligned with business goals • Flexibility • Consistent standard of delivery Transaction • Better deal economics Management • Best in class practices • Senior level broker leading transactions • Mitigate monetary and delivery risk Project & • Consistent standard of delivery across portfolio • Schedule and budget controls Development • Base building development Services • Project interiors • LEED certification and gap assessments Jones Lang • Move management LaSalle • Critical date management Lease • Certified SOX compliant Administration • Auditable accounts payable & receivable procedures • Reliable management reports • National platform • Lease audit services 6
- 7. Buildings are a primary user of energy • 39% of all U.S. energy use US Energy Consumption - 72% of electricity - 55% of natural gas • 39% of carbon emissions 7
- 8. Jones Lang LaSalle Carbon footprint
- 9. Global reported GHG emissions (Absolute figures) Data qualification notes: The charts above and below present Jones Lang LaSalle's reported greenhouse gas (GHG) emissions from building- related energy consumption and business travel. Former King Sturge offices in EMEA (the majority of which are in the UK) are not included in these figures due to the 2011 merger. We have re-stated our 2009 and 2010 GHG emissions figures due to change in emissions factors and methodology. Global totals 2009 2010 2011 GHG emissions (metric tons of CO2e) 37,461 43,797 49,003 Corporate office employees 12,157 12,867 14,276 9
- 10. Global reported GHG emissions overview Percentage change in reported GHG Scope of emissions Type of metric emissions from 2010 to 2011 Total Absolute ↑ 12% increase Intensity Total (CO2e per corporate office employee) ↑ 0.8% increase Building-related Absolute ↓ 8% decrease Intensity Building-related (CO2e per corporate office employee) ↓ 17% decrease Data qualification notes: Total refers to Jones Lang LaSalle's reported greenhouse gas (GHG) emissions from building- related energy consumption and business travel. Building-related is a sub-section of the total measured emissions, which consists of natural gas and electricity where Jones Lang LaSalle is billed directly and estimated building-related energy consumption where Jones Lang LaSalle's landlords obtain and do not sub-meter our use of energy. Former King Sturge offices in EMEA (the majority of which are in the UK) are not included in these figures due to the 2011 merger. 10
- 11. Sources of reported 2011 GHG emissions (Absolute figures in metric tons of CO2e) Data qualification note: A large proportion (84%) of Company-owned vehicles emissions stem from the Americas Mobile Engineering Services business. Natural gas and electricity are where Jones Lang LaSalle is billed directly. Estimated leased building carbon is where Jones Lang LaSalle's landlords obtain and do not sub-meter our use of energy. 11
- 12. Source of 2011 emissions – 25,000 tons from buildings Electricity and Estimated building- natural gas Business travel and related carbon company-owned vehicles 22% 29% 10,698 metric 14,381 metric 49% tons CO2e tons CO2e 23,942 metric tons CO2e Data qualification note: Electricity and natural gas are consumption where Jones Lang LaSalle is billed directly. Estimated building-related carbon is where Jones Lang LaSalle is not the direct obtainer of energy. 12
- 13. Where JLL has direct control over GHG emissions Percentage of properties where JLL Data qualification note: The chart Year on the left refers to the percentage reports actual consumption of properties where Jones Lang 2011 43% LaSalle receives direct bills rather 2010 44% than estimating GHG emissions from floor area. 2009 38% 13
- 14. Our Sustainability Commitment • Lead the transformation of the property industry by reducing environmental impacts - New construction that uses technology and best practices to move toward zero carbon impact - Lower consumption in existing buildings through sustainable operations and renovations • Invest in energy and sustainability expertise - Hire and train sustainability accredited professionals (LEED, BREEAM, NABERS, Green Star, etc.) - 200 by 2008, 500 by 2009, 1000 by 2011 - Expand benchmarking tools to measure performance - Leverage procurement power - Expand Sustainability University to educate our teams in best practices • Reduce our impact through ACT, A Cleaner Tomorrow - Measure and reduce carbon footprint - Carbon savings for clients = 10X our own footprint - Occupy sustainable certified space - Reduce space per employee - Reduce CO2 impact of corporate travel - Educate and engage our workforce 14
- 15. Industry-leading sustainability achievements Recognized leader Making an impact • ENERGY STAR Partner of the Year (2012, 2011, 2010, 2007) • Documented $125 M in annual energy savings for clients • ENERGY STAR “Sustained Excellence” Recipient in 2012 • Reduced 563,000 tons of greenhouse gas • World’s Most Ethical Companies, Ethisphere Institute (2010, 2009, 2008) emissions • U.S. Green Building Council Leadership Award (2009) • Saved 912,000,000 kWh • California Sustainability Showcase Award for Commercial Buildings (2009) • Provided 20,000 facilities with specialized • Who’s Who: Leaders in Energy Management and Sustainability, Buildings energy services Magazine (2009) • Managed 200+ LEED projects – 50Msf • Sustainable Cities Award, Financial Times and ULI (2008)—First annual • Over 1,000 LEED accredited professionals
- 16. Green Buildings – Value Creation 16
- 17. The Empire State Building – landmark sustainability project “ I’m a capitalist…I want to make money. If we put the best minds together on this particular task (ESB), it could fulfill all my objectives in life…from making money to making the world a better place.” - Tony Malkin
- 18. 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 $11 million in annual energy costs change by cost-effectively reducing Peak office building demand of 9.5 MW greenhouse gas emissions while attracting world class tenants. 88 kBtu per SF per yr for the office building 18
- 19. As program manager, Jones Lang LaSalle… • Energy efficiency costs about $ 13 million – but $ 93 million upgrade costs spent differently. - Window upgrades with 10 year pay-back first rejected – but with small office space converted to full-floor users, the leasable space increase required a new chiller - cost of $27 million. The window energy reduction load meant that the existing chiller capacity was sufficient for an “integrated” pay- back period of 3.3 years. - Retrofit top line improvement – average rent of $26.50/s.f. before – new leases signing between $40 - $60/s.f. 19
- 20. Bottom line: Sustainability reduces energy costs Implementing an energy management program can result in up to 40% in cost savings 20
- 21. Do Building Investors Care About Sustainability? 21
- 22. Investment owners becoming proactive on green buildings • Aetos Capital • Jones Lang LaSalle • AvalonBay • LaSalle Investment Management • Beacon Capital Partners • Paramount Group • The Blackstone Group • PATRIZIA Immobilien • DEXUS Property Group • Prologis • Douglas Emmett • Prudential Real Estate Investors • Equity Office Properties • RREEF / Deutsche Bank Group • GE Capital Real Estate • Sonae Sierra • GLL Real Estate Partners • TIAA-CREF • Hines 22
- 23. Occupier Decision Drivers – Only 8% Not a Factor Sustainability is a fundamental factor in location decision Source: Jones Lang LaSalle and CoreNet Global Sustainability Survey 2010 23
- 24. Attempts to prove value through sustainability Average rent premium for LEED Difference = € 12.28 Difference = €6.50 Difference = € 2.58 24
- 25. Occupancy rates Difference = 8.2% Difference = 5.4% Difference = 1.6% 25
- 26. Large Energy Savings are Achievable REDUCTION OPP SIMPLE PAYBACK 50% +5 years 40% 3-5 years 30% 2-3 years 20% 1-2 years 10% immediate 26
- 27. Drivers of Sustainability Value Managing Risk Reducing Rental Costs Value Future proofing Protecting assets and Protecting and Value and Enhancing Enhancing Asset Value reputation Gaining Good Asset Planning management Permission
- 28. Industry Trends – Impact of NGOs 28
- 29. Suggested actions to change the industry Industry Develop energy and sustainability policies and reduction targets 5 Factor energy, sustainability 4 Implement measurement and climate risk into all real and reporting systems estate location decisions 3 2 Engage CFO and high level Develop capital programs 1 risk managers in developing to fund GHG reduction projects climate change investment 0 and risk assessment strategies Drive carbon and climate risk Communicate and promote reduction into your supply chain successes–publish an annual report Implement an internal carbon Implement cap and trade program–recognize employee engagement carbon as currency programs
- 30. Role of NGOs - What is the CDP? • An independent not-for-profit organization that holds the largest worldwide database of primary corporate climate change information • 3,000 organisations in 60 countries measure and disclose their GHG emissions, water use and climate change strategies “The Carbon Disclosure Project launched to accelerate solutions to climate • Acts on behalf of 551 institutional change and water management by investors, holding $71 trillion in putting relevant information at the heart of assets under management and business, policy and investment 60 purchasing organizations decisions” - CDP website 30
- 31. Overview of the CDP programmes Investor CDP Supply Chain CDP Purpose Purpose • Provides institutional investors with • To drive action on climate change through comparable information to inform their both purchasing companies and their suppliers investment decisions and understanding of risks and opportunities • Information gathered is used by senior management in some of the largest • Encourages high standards of both disclosure organizations worldwide such as Walmart, and performance through Carbon Leadership PepsiCo and Dell indices Status to date Status to date • 57 global corporations are members • 3050 responding companies in 2010 • 1,000 companies respond in 2010, where (including 70% of the S&P 500 and 82% of the emerging markets’ (e.g. India & China) Global 500) response rate was 2x Investor questionnaire 31
- 32. Outputs for GHG emissions – Carbon and CSR reports 32
- 33. SEC recognizes Investors need to know the physical impact and regulatory risk of Climate Change • Companies must disclose impact of climate change on the business: - Impact of International Accords - Indirect Consequences of Regulation or Business Trends - Physical Impacts of Climate Change - Impact of Legislation and Regulation 33
- 34. Key drivers for risk • Energy costs • Reputation • Regulation • Physical Risk of Climate Change 34
- 35. Reputation risk or enhancement? Fortune World’s Most Financial Times Admired Companies 2009 Sustainable Cities Award 2008 35
- 36. Energy and Sustainability Partners 36
- 37. Actual actions being taken Actual Develop energy and sustainability policies and reduction targets 3 Factor energy, sustainability 2.5 Implement measurement and climate risk into all real and reporting systems estate location decisions 2 1.5 1 Engage CFO and high level risk Engage CFO and high level Develop capital programs 0.5 risk managersdeveloping climate managers in in developing to fund GHG reduction projects climate change investment change investment and risk 0 and risk assessment assessment strategies strategies Drive carbon and climate risk Communicate and promote reduction into your supply chain successes–publish an annual report Implement an internal carbon Implement cap and trade program–recognize employee engagement carbon as currency programs
- 38. Sustainability: Engaging the CFO
Editor's Notes
- Stats are updated. Percentages for regional revenue add up to 95%. The extra 5% is classified as other but wasn’t sure how to show that on the slide.
- Our reported total absolute GHG emissions have increased from 2010 to 2011. Among other factors, we believe much of this increase is due to improved measurement of business travel. Growth in our Mobile Engineering Services fleet has also driven some of the growth in GHG emissions. Our reported building-related absolute GHG emissions (from directly purchased energy and estimated emissions based on floor area) have decreased from 2010 to 2011. There are many factors that could have affected this change in GHG emissions, which may include management actions to reduce GHG emissions. However, to understand what is driving these changes we need to look at a sub-section of data (for instance, directly purchased energy at the building level).
- Estimated leased building carbon decreased from 43% to 29% as a percentage of emissions from 2009 to 2011 Business travel increased from 17% to 26% as a percentage of emissions from 2009 to 2011
- 2010 survey showed: From the 40 countries we surveyed, the response showed: Landlord controlled: 55% JLL controlled: 43% Unknown: 2% A large proportion of building-related GHG emissions is estimated. While the percentage of estimated building-related GHG emissions decreased substantially from 2009 to 2010, it remained relatively stable from 2010 to 2011.
- JLL IS A LEADER The point here is that we are serious about this, are investing, are training, part of our core business. We are attacking this on many levels..existing business, new business, factoring in…so important that we’ve taken on e of our senior guys Leads to what we’ve done and where we’re going conversation. We don’ t want them to think we’re just beginning on this road…we want to make it clear we have a plan and have been executing…we have dedicated resources, tools, process, standard reports..you have a voice
- Dollar and Sense of Green Retrofits Published February 23, 2009 Deloitte and Charles Lockwood
- Greenprint Foundation is a worldwide alliance of real estate owners, investors, financial institutions and other industry stakeholders committed to reducing carbon emissions across the global property industry. Greenprint measurable actions to generate solutions that improve the environment through energy efficiency while demonstrating the correlation with increased property values. Members enter energy and other information into a database in the hope that they will find a correlation. You’re looking at the list of founding members. With the exception of JLL, almost every name on the list is a major investor, owner or financial firm. These are for-profit organizations, whose clients expect them to seek the highest possible return on investment, regardless of whether buildings are green or not. So why are they focused on carbon reduction? Because they know that a building’s carbon profile affects property value, but they don’t have the data to prove it. Without the data, they may have trouble justifying their strategy of focusing on green buildings. But if they don’t spend money greening buildings today, their investments will not perform to client expectations in five or seven years.
- The survey also identified some interesting results in relation to the shifting importance of sustainability in their corporate decision making These results reinforce trends that Jones Lang LaSalle has experienced in serving corporate real estate clients worldwide. The focus on containing operational cost remains a driver of many sustainability programs, but Corporate Real Estate executives also recognize the value of enhancing workplace effectiveness with strategies that promote employee health, well-being and productivity. For example, More respondents said that they consider sustainability as a factor in their location decisions, up to 92% in 2010 from 89% in 2009 and 76% in 2008.
- CoStar, a building listing and research service, has conducted several studies that look at the impact that LEED certrification and ENERGY STAR has have on rent and occupancy levels. The 2007 study was not widely accepted – the difference in rent was so vast and brokers were not seeing any premium at all. The general feeling was that the methodology was wrong. The 2009 study was seen as closer to the truth, but the premium might still be overstated
- It’s easier to believe that green buildings will fill up faster than other buildings. In fact, when tenant demand dried up in 2008 and there wasn’t much hope of getting any kind of rent premium, we saw more owners pursuing LEED than ever. They obviously realized that if they were going to attract quality tenants, they needed a competitive edge. A 20-point difference in occupancy levels is actually a much bigger deal than a $5 boost in average rents—and it’s more achievable.
- Least expensive strategies are usually first They may have a small impact but the payback is too good to miss Three years ago we could usually get 5 or 10 percent energy savings as soon as we took over management of a building. Now, that’s not a guaranteed strategy. Other managers have already done the work. But we can still save energy through strategies that cost a little more and save a little more, or that cost a lot more and save a lot more.
- Whether you’re a multi-tenant owner or a corporate owner-occupier, you’ve got a lot of reasons to engage in sustainability today. We’ve talked about some of these but we haven’t touched on risk mitigation or good asset management. One large asset management firm will no longer consider acquiring a building that is unsuitable for LEED certification, or if energy efficiency isn’t financially viable. They’re thinking seven to 10 years from now. If the building isn’t functionally obsolete now ,I twill be then.
- Locations CDP is voluntary, launched in 2000 HQ in London with offices in New York, Berlin, Paris, Sao Paulo, Stockholm and Tokyo. Five programs Investor questionnaire was first Supply Chain Public Procurement Water CDP Cities Initiatives CDP Carbon Action (new in 2011): 35 investors are asking companies to 1) make year-on-year reductions 2) implement initiatives with positive ROI 3) set reduction targets CDP Mittelstand Initiative: For Germany’s unlisted companies CDP Reporting Services Foundations: Nathan Cummings and Esmée Fairbairn Foundations Governments: UK, US, Sweden, France, Holland and Australia Corporate sponsorships CDP member packages Global partnerships
- Investor programme Signatories (e.g. banks, fund managers, insurance companies – those who manage assests) request information from publically-listed companies by market cap 235 responding companies in in 2003; 3050 by 2010 2010 response from 84% of the Europe 300, 82% of the Global 500; 70% of the S&P 500 and 74% of the South Africa 100 companies Supplier programme Companies like AT&T, BOA, IBM seek to understand their impact from supply chain. Send requests to company like us who provide a service and/or a product. Extends awareness of an organization’s carbon footprint, moving beyond the measurement of direct greenhouse gas emissions to include climate change risks and opportunities across the supply chain General Both programmes ensure a common approach via an established independent and cross-sector organization like CDP Minimize different companies asking the same questions to the same suppliers multiple times and/or in different ways This common international approach helps to minimise overwhelming suppliers with paperwork rather than enabling them to take real action.
- Leadership in sustainability means aligning with key players. ENERGY STAR is the standard way to benchmark performance in the U.S., Canada and anywhere in the world owners are seeking LEED cert ENERGY STAR participation is required in some US cities, and more are moving in this direction. JLL an ENERGY STAR Partner since 1998 Three time ENERGY STAR Partner of the Year (2007, 2010, 2011) Now a Sustained Excellence Winner for leadership in energy efficiency LEED is an increasingly popular standard worldwide LEED cert buildings in 30 countries JLL has more than 800 LEED accred in US, another 100 around the world Also about 100 people accred in some other green building standard – BREEAM, Green Star, etc. Close relationship with USGBC Won Leadership Award (2009) Our professionals sit on several USGBC committees Our APs in other countries coordinate with their International director to implement LEED in new places Got to know Clinton Climate Initiative in 2008 as part of Empire State Building energy retrofit CCI led to partnership with Better Buildings Challenge JLL commitment to reduce energy at 98 MSF of client properties by 20% in next 8 years Joined Ceres in 2009 – still the only CRE services firm member Ceres advises companies on carbon reporting Runs BICEP – business coalition in favor of sensible energy strategies JLL officers have participated in several White House and Congressional meetings Carbon Disclosure Project – 80 percent of Fortune 1000 companies report carbon and other energy and carbon data JLL sponsor of CDP Cities program to launch