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Increasingly, the path to net-zero buildings and facilities begins with the CFO’s office.
According to the 2015 Paris Agreement, the world must achieve zero carbon dioxide emissions by 2050 to avoid further climate disaster. Buildings are the largest source of emissions in any sector, accounting for 40% of global energy-related carbon emissions. Yet, only 3% of investment in new construction is currently green and efficient.
As great as the challenge is, climate change is usually classified as a regulatory issue: the domain of compliance and sustainability executives, engineers and designers.
For building owners, developers and REITs, “it is the responsibility of the CFO and his team to maintain financial viability and drive the company’s portfolio decisions,” says Julie Emmerich, head of sustainable finance at the World Green Building Council (WorldGBC). “Understanding the economics of making a building future-safe requires close communication between finance and other stakeholders.”
When it comes to the financial management of construction companies, WorldGBC identifies several reasons why CFOs should care about green construction, including greater access to investment, improved corporate reputation, higher asset value and desirability, flexible investment and low There is a possibility of risk involved. Stranded assets, increased ROI, and preferential insurance premiums.
Green buildings can also provide significant cost savings. In North America, Leadership in Energy and Environmental Design (LEED)-certified buildings reported $1.2 billion in energy savings, $715.3 million in maintenance savings, $149.5 million in water savings, and $54.2 million in waste savings from 2015 to 2018. Other savings come from reduced improvement or repair costs and potential federal, state and local government tax benefits.
Ignoring Net Zero Is Risky
Beyond the benefits of building green, CFOs need to be aware that the financial risks of ignoring the net zero carbon agenda can be significant now, as more governments are taking strict action. In France, landlords can no longer raise rent on properties with poor energy efficiency ratings, and as of January 1, it is illegal to rent the least energy efficient properties: those that consume more than 450 kilowatt hours per square meter per year. Are. In the UK, by 2025, buildings will need an Energy Performance Certificate or they cannot be rented; According to Lloyds Banking Group, it is expected that the energy upgrade will apply to 15 million homes in England and Wales.
Local governments are also pushing to reduce building CO2. Vancouver, Canada declared a climate emergency in 2019 and set a target to reduce embodied carbon (carbon from building materials) by 40% by 2030. The city has since instituted an aggressive building carbon reduction strategy, which includes new zoning requirements, bylaws and. Guidelines for new construction.
In the US, New York City local law sets limits on greenhouse gas emissions for 97 buildings, starting in 2024. As part of the Climate Mobilization Act of 2019, the legislation aims to help the city reach its target of a 40% reduction in greenhouse gas emissions. Gas emissions from buildings by 2030, and an 80% reduction in citywide emissions by 2050. Some 3,700 properties reportedly could fall out of compliance with the new law next year and could collectively face fines of more than $200 million a year. According to a January 2023 report by the Real Estate Board of New York, that number is projected to grow to more than 13,500 properties by 2030, which could cumulatively face penalties of up to $900 million each year.
Emmerich says this shows that policy risk is always on the horizon: “CFOs need to understand that the ROI they calculate today can change very rapidly if they rely on net zero or ESG considerations.” Don’t think.”
market forces
Public-company CFOs are also at the mercy of shareholder expectations — and negative perceptions can have an impact on share price.
Consider the value of REITs. Finance teams need to consider how their buildings’ compliance with net zero standards will affect future market share, Emmerich warns, and whether the company is keeping pace with its competitors in transitioning to net zero. Is.
“Future-proofing the business must include an understanding of investor demands, and it is the job of the CFO to ensure that investments or projects are in line with market demands,” he adds.
The net zero carbon initiative is also forcing CFOs to move into new territory with respect to reporting. Evolving reporting rules place responsibility for disclosure on environmental, safety and governance matters in their hands.
Lidia Neuhuber, Head of Sustainability Consulting at Deloitte Germany, says that sustainability issues in the EU fall either to the Chief Sustainability Officer or to the Strategy Department. However, in the last two years, “that has changed dramatically, and the first and foremost factor is regulation.”
This is the result of two major moves by EU regulators. “First, sustainability issues are now closely integrated with financial issues,” says Neuhuber. “Take revenue, for example. Suddenly, the sustainability department has to report a specific percentage of overall green revenue. This has resulted in the fact that one needs to understand overall revenue – and that is the finance function. So, there is a kind of convergence of the two disciplines by setting up new KPIs which are regulatory binding.
Second, the 2021 Corporate Sustainability Reporting Directive (CSRD) expanded and standardized the sustainability topics that need to be reported on – all of which require audit-assurance.
“This is a complete change, because previously, stability reports were not standardized and the information had no warranty assurance,” Neuhaber says. Now, “both the CEO and CFO are responsible for ESG information that is communicated to external stakeholders.”
Of course, the finance team alone will not address the challenge of moving to net zero carbon, she adds. But it will be up to the CFO to identify what is at stake financially and deploy the troops to act.
“That’s the main message for CFOs when it comes to sustainability,” says Neuhaber. “What really matters is that the theme is grounded within the entire organization and that Net Zero is carried forward in a cross-functional way.”
Source: www.bing.com
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