Where Building Systems Fall Down on Tracking ESG Data

ESG — environmental, social, and governance concerns — has become an important set of issues for commercial real estate owners, investors, and developers. And it takes technology to gather and manage the data that is necessary, as Sudhi Sinha UL’s vice president for Ecosystems and Service Development, and Lauren Alexander, an ESG program manager with UL’s ESG Advisory and Assurance Team, recently told GlobeSt.com.

“ESG is largely driven by investors or your business partners,” Alexander says. “It’s driven by regulation and legislation as well as society as a whole. So, when we’re working with our clients in real estate, they’re largely concerned with what investors want to know. And investors want to know how your real estate portfolio is performing in comparison to your competitors in comparison to their other portfolios they’re invested in.” In addition, “we have all these local municipalities requiring you to submit benchmarking data on energy and water consumption at buildings, the SEC’s proposed climate disclosures.”

All of that requires having data available when it’s needed and in good enough shape to adequately report and draw conclusions from.

“If you look at the history of modern buildings where technology has been used to control and manage for about 100 to 150 years,” says Sinha. “Building management systems collect and provide the data. They have been around for the last 40 years. Technology has existed in the building space for a very long time unlike other [areas] where they are more recent.”

But having technology isn’t the same as having the right technology or using it adequately. Traditionally, building management systems have collected data from siloed systems that don’t talk to one another because they use different protocols and signaling. “We have seen many buildings … only using 10% to 15% [of the data],” Sinha says. “It means missed opportunities. [If] you look at the amount of data that smart buildings, what exists today — I’m not talking about all buildings, but I’m talking about only a very small subset of the buildings which have been properly [covered with sensors] and from which we are collecting information — even if I look at that small subset of buildings that exist in the world today, that data is 35,000 times more than the entire data generated by Facebook and its affiliated companies. So, it’s huge data, but it’s also very poor-quality data. So, that’s a real problem, which gets in the way if you look at buildings, means buildings, contribution to buildings overall, all kinds of buildings put together residential, industrial, commercial, everything put together is roughly about 38 to 40% of the global energy consumption,” including preparation of the materials going into them.

The lack of good data is already becoming a problem. “In the US we have all these local municipalities requiring you to submit benchmarking data on energy and water consumption at buildings, the SEC’s proposed climate disclosures,” Alexander says. “And for companies who are marketing their products to Europe, you now have to comply with European union regulatory frameworks. So, we have investors and then we have increasing regulatory compliance and legislation. And then obviously we have investors in society are calling for greater transparency. We’re seeing this everywhere. People are talking about greenwashing. They want evidence-backed data. Consumers want to buy products that are environmentally friendly from an environmentally and socially conscious company that is well governed.

“From what we’re seeing, companies that can really better measure and calculate and monitor their ESG impacts are better positioned to determine their opportunities and their risks, and they’re better positioned to make better capital allocation for capital projects as well as investment decisions. I think the biggest goal at the building level is to reduce operational costs which can help maximize returns and therefore reduce risk. And that’s the biggest goal we’re seeing at the REIT portion.” (This is the first of a two-part conversation.)