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Getting the Built World “In Shape” Through ESG Energy Data

The ultimate goals of ESG’s environmental standards and EUI mandates is to foster in cleaner, more sustainable environments.

ESG reporting is becoming increasingly important for organizations around the globe, as they seek to differentiate from competitors, meet complex compliance requirements, and deliver on commitments made to investors and other key stakeholders. To meet the increasingly stringent requirements of these reports, the need for access to verifiable energy usage data pertaining to Scope 2 and Scope 3 emissions can be a challenging task for many corporations based on how the facilities they own or operate in are metered.

What data is needed for ESG emissions reporting?

Organizations are required to share Scope 1, 2, and 3 emissions data for their ESG reports. Scope 1 is the emissions directly associated with the production of goods or services. Scope 2 relates to the energy supplied by the utility for the facilities operated by an organization, which can include leased space used by an organization. Scope 3 can be more difficult to quantify, as it’s the indirect carbon footprint of input from suppliers, or output from customers related to company’s goods or services. While Scope 3 can include a wide range of emissions including fuel used by delivery vehicles, employee commutes, or business travel, for businesses who lease space to other organizations, it also includes the energy used by the tenants. This is true whether or not the owner of the facility the company is billed for energy use by the utility or not.

Depending on the way a facility is metered, there are often challenges in collecting verifiable data for Scope 2 and Scope 3 emissions for either building owners or their tenants.

Today, for tenants in many commercial properties, reporting Scope 2 emissions may not be possible unless their individual spaces are metered. Many facilities including many office and retail spaces, are mater metered and any allocation of energy costs is done based on square footage. Clearly, this presents issues as an arbitrary allocation will not account for business operations that may have significantly different energy requirements. Despite using the same square footage, a restaurant with numerous refrigerators and ovens will undoubtedly use a lot more energy than an apparel store with LED lighting, however this is unaccounted for in many multi-tenant scenarios. In order to get specific, verifiable emissions data from an individual unit, the facility (or tenant) would need to introduce dedicated submetering. Historically, this has

been cost-prohibitive and impractical, but with advances in IoT, cloud data, and other technologies it’s becoming more and more possible. Today, organizations can get verifiable, “behind-the-meter” revenue-grade energy insights cost-effectively without involving legacy metering or even the utility.

Similar challenges exist for the property owners and managers of millions of buildings, regarding Scope 3 data. According to a 2022 Politico article by Lorraine Woellert and Zach Colman, “Scope 3 emissions account for 75 percent of electric utility emissions,” but remain largely unaccounted for due to complexity of collection.

While many buildings are master metered (making Scope 3 data simple to collect), there potentially as many or even more where each unit is metered separately by the utility. Whether it’s a multifamily residential property (MDU), an office building, strip mall, or even a NNN (triple net) lease – this occurs when one tenant manages all aspects of the building maintenance and operations – the building owner will need to report the cumulative total of the tenants (Scope 2) emissions as their Scope 3 emissions. If the facility owner does not have access to the utility data (which in nearly all cases is true), they will become increasingly dependent on their own ability to track and collect energy usage data. In all practicality, this will require significant expansion of solutions like “shadow metering”, simply defined as the use of various measurement technologies to mirror the utility metering.

Given the rising importance of ESG data for the investor community, it is imperative for property portfolio owners to have verifiable data to differentiate themselves and in some cases even to raise new capital.

EUI Mandates

Similar to the challenges of Scope 3 emissions for ESG reporting, in a growing number of states and municipalities (including major cities such as New York City and Boston), building owners are required to meet “Energy Usage Intensity” (or EUI) building performance and efficiency standards. These standards typically phase in over a period of years, during which the building owner must be able to demonstrate the facility meets a level of envelope efficiency. If the building fails to achieve the efficiency goals, the owners will face financial penalties. The goal of the mandates is to reduce the carbon intensity of the local building stock over time, so the goals in many cases become more aggressive relative to the starting benchmarks.

Since collecting data via utility bills is complex when tenants are metered directly, the building owner faces challenges to provide an accurate report of the building’s energy usage envelope, as well as identify which units or building systems should be prioritized to improve the overall performance. Once again, shadow metering, if it utilizes technologies that are not cost-prohibitive, can provide an elegant solution to the problem.

Making Bigfoots Extinct

Meeting compliance requirements is one thing, actually doing something to improve your sustainability is another. “Compliance executives are facing big challenges, with multiple changes happening at high speed. In a phenomenon we call “compressed transformation,” we are seeing five-year plans become one-year plans as companies cope with change throughout the enterprise while trying to create value and grow. Not surprisingly, compliance resources – both human and financial – are becoming overstretched,” (Steve Corp, Forbes, 2022).

The ultimate goals of ESG’s environmental standards and EUI mandates is to foster in cleaner, more sustainable built environments. It will be difficult, if not impossible to use offsets alone and achieve scaled carbon reduction goals. “We need more emphasis on the ‘net’ part of the net zero, so that companies don’t pretend that they’re going to rely, to an absurd degree, on offsets,” (Al Gore).

Providing accurate envelope data alone does not address to reduce usage. Going “behind the meter” into individual units, and monitoring critical equipment is essential to discovering underlying inefficiencies and creating RIO cases for improving building performance.

Utilizing advanced, non-intrusive, scalable submetering technologies can address reporting gaps for compliance, while also improving “behind the meter” visibility, which will enable insights into opportunities for operational efficiencies. This emerging IoT device category will effectively be the fitness tracker to get the built world in to shape.