The Securities and Exchange Commission (SEC) has proposed rules that would require listed companies to disclose a broader range of climate-related risks and impacts.
Although environmental, social and corporate governance (ESG) initiatives are typically implemented by sustainability professionals, this new framework would require the leadership suite to better understand the costs and benefits of various approaches to reducing sustainability. environmental impact of a company.
ESG solutions can be complicated to implement and the results can be difficult to quantify. This is one of the reasons why “greenwashing” is prevalent in business and why the SEC is trying to combat it through stronger standardization. Under the proposed rules, SEC-registered companies would be required to disclose their Scope 1, Scope 2, and Scope 3 emissions. Scope 1 and Scope 2 emissions. Meanwhile, only 14% of real estate companies report Scope 3 emissions, which constitute a substantial portion of a company’s total greenhouse gas emissions, but are notoriously difficult to quantify and to mitigate.
A company’s ability to quantify emissions reductions is paramount to the development of ESG as a core competency and source of competitive differentiation. When it comes to negotiating with purchasing managers and corporate buyers who favor ESG ratings, companies with sustainability programs have a clear advantage over those without.
For real estate companies looking to improve or implement ESG efforts, solar energy is a simple, immediate, visible and economically viable solution. Solar is a substantial decarbonization solution with real and measurable results. Switching to solar power immediately reduces reliance on fossil fuels and can offset up to 100% of a property’s electricity consumption. Additionally, solar projects are relatively easy to implement and do not require behavioral changes within an organization. Solar is now the cheapest way in history to build new power generation, making it a cost-effective way to execute ESG initiatives.
Solar offers a range of financial and operational benefits to businesses of all sizes, especially in states with renewable energy incentives or climate goals. Companies can also deduct 26% of solar project costs from federal income tax through the federal solar investment tax credit (CII).
In addition, utility rates tend to fluctuate and increase. By investing in solar power, businesses can keep electricity rates low and predictable for decades, resulting in significant operational savings. Solar power combined with battery storage can also reduce downtime due to outages, which are more frequent due to extreme weather conditions. In addition, solar energy can increase property values without altering the structure of a building.
Fortunately, investing in solar power has never been easier. In recent years, a variety of increasingly sophisticated financing structures have been developed to meet virtually any business objective. Businesses can determine which one best suits their needs by analyzing their tax appetite, access to capital and credit rating.
If a business has a moderate to large tax appetite, they will want to consider a cash purchase, a bank loan, a Property Assessed Clean Energy (PACE) loan, or a structured solution with a specialist finance company. In each case, the company owns the solar system and can redeem the associated tax benefits.
For businesses that don’t have a tax appetite, but have good credit or can require an investment-grade entity to provide security, opt for an operating lease or property purchase agreement. electricity (PPA) are excellent alternatives. With these financing structures, a third-party developer owns the system on the company’s property and resells the energy to it at a discount to utility rates.
Representing 21% of global greenhouse gas emissions, the commercial real estate sector must play an active role in the fight against climate change while maintaining its status as a safe and lucrative asset class. Along with the changes proposed by the SEC, many states have already passed legislation requiring new buildings to be built “solar-ready,” indicating that the decarbonization trend is here to stay. Adopting solar power is one of the simplest and most meaningful steps a company can take to reduce emissions while increasing its competitiveness with cautious investors in this new financial landscape.
David Heyman is the CEO of Safari Energy, a solar developer.