Jones Lang LaSalle: Better Buildings

By Dan Probst

(Want more on sustainability and best practices in building management? Read Better Buildings, a new supplement to Real Estate Forum.)

Four years ago, just as business leaders were starting to look beyond surface aspects of sustainability in the workplace, the global economic downturn forced a realignment of priorities. For many firms, sustainability initiatives centered on energy-cost reductions, while leaders were preoccupied with ways to shore up financial performance by increasing worker productivity and improving client service. Now, it’s starting to sink in that the road to long-term financial success runs through the sustainability initiatives that many companies rejected as too difficult or costly just a few years ago.

This point is illustrated most strongly by increasing corporate interest in two aspects of sustainability: workplace designs and practices shown to enhance employee productivity; and sustainable supply-chain initiatives in response to client demand. Ultimately, a company is only as green as the products and services it buys.

Some business leaders may have touted sustainability initially because they look good in corporate social-responsibility reports, but more than ever businesses are getting serious about green strategies to further their financial goals. They’re pursuing sustainability that drives productivity. Studies by the California Energy Commission, Michigan State University, Carnegie-Mellon University and many others have consistently shown productivity gains in office environments with superior air quality, daylight and views, individual temperature and lighting controls—all common features in sustainable workplaces.

How big are the potential gains? Acknowledging the challenges of isolating the impact of one factor on productivity; one study estimates increased productivity of 5 to 15% for daylighting alone, while another shows a 44% decline in the cost of absenteeism after a move to a LEED building. Companies shouldn’t bank on increases like that. But even a 1 or 2% gain in productivity represents a major boost to the bottom line.

For comparison, look at US Department of Labor statistics on productivity—measured as the change in national output compared to the change in total hours worked--over the past five years. Non-farm businesses saw a 1.5% rise in productivity in 2007, 0.6% in 2008, 2.3% in 2009, a whopping 4% in 2010 and 0.4% in 2011. In years where year-over-year output fell, hours worked fell further, keeping productivity positive; but the rise of unemployment over the same period suggests that fewer workers have been working longer hours. As companies return to hiring, business leaders want workplaces that will help attract and retain talent as well as maintain the high productivity of existing employees.

We see the effects in the real estate market. Corporate real estate directors instruct their tenant reps to seek buildings with features and operations that enable sustainability. One large tenant with hundreds of locations has found that a high degree of sustainability in leased space can be attained at market-rate rents, as long as tenant reps are given clear priorities. Most commercial interiors today pursue workplace strategies that include open-plan designs and other features that support sustainability and collaboration. Building owners have also gotten into the act, setting up advisory boards composed of large and small tenants to help their employees understand the goals.

As important as productivity is to business growth, customer retention and expansion is even more important. Consumer-facing companies were quick to respond to calls for green strategies with aggressive carbon reduction goals, sponsorship of green causes, and other programs to show their commitment to the planet. Increasingly, companies throughout the supply chain are responding to demands from clients to demonstrate a green commitment, and also demand that their suppliers and the suppliers of their suppliers, do the same.

Establishing a sustainable supply chain is not an easy task. Companies must first decide what criteria they care about—should a supplier be reducing its carbon footprint, sourcing raw materials locally, delivering products in recyclable packaging or all of the above? How does each supplier’s industry affect its environmental impact, and how should different suppliers address those varying issues?

The challenges become more complex for every additional link in the supply chain: What sustainability issues of my suppliers are most important to my clients? How do I measure the effectiveness of suppliers in reporting to my clients and other stakeholders? How do I balance environmental and carbon criteria with other supply-chain issues, such as price, reliability and other social responsibility concerns such as labor practices?

The complexity of ensuring a sustainable supply chain has forced companies to move more slowly on the issue than they have on low-hanging fruit such as energy management and employee engagement. Meanwhile, reporting frameworks such as the Carbon Disclosure Project and Cradle to Cradle have emerged as a way for companies to benchmark and report progress more consistently. A few large companies—Wal-Mart and Procter & Gamble among them—have developed advanced systems for directing and measuring suppliers, who in turn have a basis for pushing sustainability through successive links in the supply chain. Thus, the concept of a green supply chain is now coming of age.

A recent survey of our procurement managers who collectively manage $1.5 billion in annual expenditures for corporate clients showed that 57% of those companies are looking for ways to improve to the environmental and carbon footprint of their supply chain. About 71% of sourcing managers see supplier sustainability growing in importance at the companies they serve.

Since corporate real estate departments and their third-party representatives are often at the forefront of sustainable procurement for their companies, we have developed a large database of green products and services relating to facilities and the workplace. In recent years this capability has expanded as clients have asked our firm to help them develop supply-chain and procurement processes that integrate sustainability factors with cost and quality criteria. The latest innovation is the ability to align corporate procurement processes with LEED, CDP and Cradle to Cradle frameworks.

Sustainability is just one element of the corporate focus on the supply chain, in the same way that it just one avenue among many to enhance employee productivity. Both strategies require more advanced corporate decision-making than relatively straightforward strategies such as energy-cost reduction, which is why companies have not pursued them as strongly in the past. But if the level of difficulty is greater, so is the potential to make a positive impact on financial performance.

Dan Probst is chairman, Energy and Sustainability services for Jones Lang LaSalle in Chicago. He may be contacted at dan.probst@am.jll.com. Views expressed here are the author’s own.