Delivering on Carbon Budget, in an ROI-Obsessed World

Written by: Catherine Humphrey and Daniel Gosselin

Selling a decarbonization program could be likened to negotiating passage from a burning building, when the guy on the door won’t accept the building is on fire.

It can be a tough sell.

The end of life as we know it sounds dramatic and is far too frightening to think about, and therefore can be met with cynicism or sometimes anger.

Never mind how much we hear in the media, or apparent commitment from corporations or politicians to climate measures, when it comes to securing money to initiate these projects, it often seems they are deemed as ‘nice to have’s’ rather than critical for the environment, the country or indeed the planet at large.  The minor ‘emergency’ of a refit or a re-paving project is frequently the winner due to ‘noise’ or perhaps recognized ROI.

Regardless of the reasons why decarbonization programs, or other energy/sustainability projects often take a back seat in favour of other projects, the problem for the people invested in delivering them is a sales problem; how to persuade those with the money to invest in an area perceived to show little return for the cash injected. 

For the general populous, there can arguably be a certain malaise observed on the subject of climate change, or perhaps even disbelief.  “There’s nothing I can do about it, so I don’t want to hear about it.”  “I don’t know where to start.”

The end of life as we know it sounds dramatic and is far too frightening to think about, and therefore can be met with cynicism or sometimes anger.

For the accountant, it’s more a case of justification for investment, rather than observance of alleged government or corporate commitment, or want of saving the planet.  ROI for decarbonization projects must be measured in a more complex way, which can make for problematic selling to a financial decision maker on merit of return. 

However, the current system in place for the business justification of projects is what it is, and so as a team determined to drive these projects forward (and putting any emotions about the planetary importance of these projects to the back burner), there was nothing for it but to bite the bullet and find a way to make these projects compete using the existing system of analysis and justification.  It’s more about focusing what’s in it for the client rather than any assertions surrounding ethical ‘duty’.

Firstly, we looked at the owner investor’s asset management strategy from a profitability point of view, to establish the likelihood of project obtaining funding in the first place.  For example, if the organization has a portfolio of buildings made up of strategic buildings, and buildings planned for divestment in the short and long-term, then projects of any kind are more likely to be granted funding in buildings deemed ‘strategic’ or scheduled for divestment in the long-term.  For those slated for short-term divestment, it is difficult to demonstrate attractive ROI for any systems upgrades as the payback time is likely to exceed the organization’s use of the building.   Additionally, we targeted buildings where base building infrastructure was reaching end-of-life, and was draining maintenance budgets at a rate which raised financial hackles, as operational teams frequently administered palliative care to systems.

After building selection, we considered the best ways to utilize the budget available for the biggest possible impact on greenhouse gas (GHG) emissions across a building portfolio, and it occurred that – as with many other situations in life – the 80/20 rule may service us well.  For a purist, this may appear a despicable approach, however, when competing with other projects assessed and justified in the current system of classic ROI, it makes perfect sense.  It is far easier to sell carbon reduction projects across eight buildings, representing an 80% GHG reduction at the end of the project, for a budget of $20M, rather than 100% GHG reduction in one building only for the cost of $200M (it’s the last 20% of GHG reduction which demands the greatest investment – eg envelope upgrade).  In fact, with GHG hit rate and carbon budget theory in mind (cumulative GHGs that can be emitted for a given temperature rise), the reduction of 80% GHGs across 8 buildings amounts to a far greater GHG reduction than 100% in one building.

We presented the case for a decarbonization program for each building in terms of life cycle costing and ROI, maximizing energy and maintenance savings.

The final headline item observed in the sales strategy was tenant disruption.  Afterall, the requirement for swing space for a displaced tenant population raises the cost of projects dramatically.  Therefore the work planned for a building must take into account whether the work can be undertaken in a way which minimizes displacement or interruption to tenant operations, to have the best possible chance of being ‘attractive’ to fund.  That said, where it is necessary to displace a tenant population, this can create a strategic opportunity for decarbonization /systems upgrade in other buildings in the portfolio which can be utilized as swing space in the event of a building rehabilitation/decarbonization project in a strategic building.

Balancing all the variables discussed can provide us with a portfolio decarbonization plan, and list of buildings which have a greater probability of seeing funding granted.

In short, the checklist, or formula we have observed for ease-of-sale and making decarbonization projects more palatable to the financial decision makers could be summarized as:

  • Building status/divestment plan: Strategic or long-term
  • Payback: As short as can be achieved
  • Disruption: Low

Check these boxes and the sell on your project is far more likely to succeed. 

The final sell is a critical step in the process and not something energy managers are typically trained to do.  In our experience, consulting with team members with a sales and business development background has increased the likelihood of obtaining project approval.  These individuals are often savvy as to the broader organizational goals of a client, their vision, mission and other driving objectives which may be in focus, and which offer further synergies when aligned with the benefits of the project.  Therefore leverage those with marketing experience who can get inside of the head of the buyer, and help craft a professional presentation that speaks to your audience.  Also consider allowing a business development manager to make the final pitch, especially if the client is non-technical. So in summary, we have to get smart when selling these projects, as the benefits and ROI must speak to the financial decision maker, while also demonstrating their other far-reaching merits and advantages, not to mention their very real urgency to the planet.

Catherine’s career path has taken an eclectic route; she has published two books and worked in marketing, sales, and media, and spent the last 20 years spent in construction project and portfolio management.  She has worked across a variety of challenges, from implementation of civil projects on the UK capital’s London Underground network, heritage restorations, through fit-ups and new builds in Canada. She currently leads a team focused in implementation of energy, sustainability and innovation projects for BGIS Major Capital Projects, on a large real-estate portfolio.

For more than 20 years, Daniel has specialized in the execution of capital projects. Over the last 17 years, he has focused his attention on delivering practical sustainability solutions, including facilitating LEED design and construction services. More specifically, he has led teams in the delivery of energy conservation projects, primarily focused on Heating, Ventilation and Air Conditioning (HVAC). Currently Daniel is responsible for BGIS’ Professional Services team that is planning and implementing a carbon neutral roadmap for a large real-estate portfolio.

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