00:00:01 Andy Anderson
But one slide that we try to summarize this with clients is the first step is baselining, right? Understanding your energy expenditures, which to do that you need to understand your consumption which you need the consumption to derive your emissions. So Baselining kind of covers everything. If you were, you know, set it up the right way from the start.
00:00:20 Andy Anderson
So it can be as granular as possible, but then can feed all these other different use cases as you grow and mature, right. You might not care tomorrow, this year or next year as much about the emission side of it, but.
00:00:34 Andy Anderson
That the data you need in order to optimize energy management done the right way allows the emissions side to happen.
00:00:46 Chris Sass
Your trusted source for information on the energy transition. This is the insiders guide to Energy podcast.
00:00:58 Chris Sass
Welcome to another edition of the Insiders Guide Energy. This week, we're happy to have with us Andy Anderson. Andy is the EVP of Energy and Sustainable Solutions sustainability Solutions and Chief Sustainability Officer at Tango. Andy, welcome to the podcast.
00:01:14 Andy Anderson
Thanks for having me.
00:01:16 Chris Sass
So we're going to talk about buildings and the contribution contribution that they can take to reducing carbon and particularly monitoring buildings. I think you know the the old adage that comes to mind is what gets measured, gets managed? Is this your focus at watch, whatever and tango, is that what we're going to be talking about or is this more about regulation?
00:01:37 Andy Anderson
It is the combination of both. We definitely take a I think unique.
00:01:44 Andy Anderson
Approach to the industry where it is the marriage of the energy and sustainability side. So sustainability is or largely derivative of energy management. I think 73% of emissions come from fossil fuel combustion where that's in buildings or industry or transportation. But the built environment itself.
00:02:04 Andy Anderson
Various statistics out there 3840% whatever it is, more so locally. In large cities like New York and 70%.
00:02:13 Andy Anderson
As contributors to emissions in the in the world, so we focus on the measurement management side in terms of how that gets reflected in the ultimate reporting and goal setting and progress.
00:02:28 Chris Sass
Now, when you're saying we're focusing on this, it's a software solution that we're talking about. Is that what we're talking about doing here?
00:02:35 Andy Anderson
That is correct from the monitoring management side, it starts with the very not sexy part of the world in terms of data acquisition, data coverage, data accuracy.
00:02:48 Andy Anderson
Very much focused on the carbon accounting is what it's really referred to now. Today it is truly accounting. It is very detailed. Clients are voluntarily getting assured or reviewed, audited by, you know, companies out there the the typical auditors that you would see the.
00:03:09 Andy Anderson
Big three, or BIG4 as it is now, plus some other specialty environmental auditing firms so they can get a stamp of approval to show the industry and investors like, hey our, our data is up to snuff.
00:03:20 Andy Anderson
So to speak.
00:03:21 Chris Sass
Now is this an evolution because in the earlier days was like LEED certified buildings and and people were trying to be greener with their buildings? How is this extension or evolution taking place that now accounting firms are looking into your buildings?
00:03:35 Andy Anderson
Yeah, I'd say.
00:03:39 Andy Anderson
I'm also a professor at NYU, the Center for Global Affairs. I teach. It's a very long name for the course, but it's energy management for portfolios. Putting policy into practice.
00:03:51 Andy Anderson
The evolution has moved from kind of point in time. Green materials, the build out lead certification to more of an operational focus, right? So with regulations being imposed by or planned to be imposed by.
00:04:11 Andy Anderson
Different governments, federal, local, state, level, etc.
00:04:16 Andy Anderson
There's lots of regulations that companies need to navigate and then really operationalizing sustainability via energy management, primarily in terms of how do you address it. So it is more of a shift towards the operational side of the world.
00:04:34 Jeff McAulay
Indy and to clarify these are requirement.
00:04:37
This.
00:04:38 Jeff McAulay
This is no longer optional. It's not advertising, it's not a lead warm fuzzy. This is a state, local, federal or international compliance requirement. If you do not comply, you will get fined. There are penalties. So tell us a little bit about that patchwork of policies.
00:04:58 Jeff McAulay
And what the requirements are for compliance and maybe the penalties for non compliance?
00:05:04 Andy Anderson
Yeah, absolutely. From the top down, when we're talking about a portfolio level, the disclosure of scope one and two emissions potentially disclosure of scope, 3 emissions, depending on what legislation we're talking about depending on geography. And then there's the bottom up approach, which is more of the local building performance standards, energy disclosure.
00:05:24 Andy Anderson
Kind of laws. If we take the top down in the US, the SEC recently voted on past their climate disclosure rule. That's voluntarily stayed as it goes through litigation. But that requires scope one and scope 2 emissions disclosure.
00:05:42 Andy Anderson
Did leave out Scope 3, which the funny part about the legislation.
00:05:47 Andy Anderson
SEC is getting sued by the left for not being strong enough in terms of including scope 3. It's being sued by the right in terms of the SEC does not have the mandate to focus on these things, so nobody's happy, which is maybe a a good sign of good negotiation, is that everybody's equally satisfied.
00:06:03 Jeff McAulay
And Andy, if I could just jump in real quick before we get too far. Give us a refresh definition on scopes 1-2 and three.
00:06:12 Andy Anderson
Yeah, absolutely. Scope one direct emissions meaning.
00:06:16 Andy Anderson
The burning combustion of fossil fuel in facilities and vehicles that you own, so natural gas used for heating and hot water, fuel oil, motor gasoline, diesel, etcetera. Scope two is indirect emissions purchased from the grid, which 99% of it is electricity.
00:06:37 Andy Anderson
Right. But in New York, it could be steam, could be purchased, chilled water from loops in San Francisco or Chicago or whatever. And then scope 3 is the.
00:06:48 Andy Anderson
I'll say catch all. It's not a catch all per se, but Scope 3 is like 15 different buckets of upstream and downstream emissions that range from like emissions associated with purchase goods and services. You know employee, employee, travel, commuting, etc, etc it is.
00:07:06 Andy Anderson
Definitely the harder part to to measure accurately and manage, but it does make up a very large portion of the emissions for companies, which is.
00:07:16 Andy Anderson
By.
00:07:18 Andy Anderson
Not including in the SEC, people are not happy about that. Also understand the reason not to include it because upstream downstream supply chain is not necessarily the public company that is being affected. It's their suppliers which could be private companies. So are you stretching who you're actually regulating? I get both sides.
00:07:39 Jeff McAulay
So going back to target, so this where is this SEC rule in the process of moving ahead?
00:07:48 Andy Anderson
Yeah. So it's been voluntarily stayed by the SEC. It is, I forget the exact numbers, but there's quite a few different lawsuits that are brought that were collapsed down into like, I think four or five that are in process of, you know, going through the the right channels. But it's not just the SEC, right, it's a lot of focus.
00:08:07 Andy Anderson
Uh.
00:08:08 Andy Anderson
You know, my LinkedIn was, you know, almost 100% post about the SEC as that was happening. But there's the European Union corporate Sustainability Reporting Directive, or CSRD, which affects 50,000 companies, 3000 of which are in the US, so it's not just a, it's happening over there across the pond. Like who cares?
00:08:29 Andy Anderson
It is, you know, affecting.
00:08:32 Andy Anderson
Companies directly in the US, but also if you have investors that are European, that is the standard. They're basically asking companies in the US to abide by that right. And we've seen that with even quote voluntary might as well be quasi mandated reporting frameworks like for the real estate industry in particular.
00:08:54 Andy Anderson
Grez.
00:08:56 Andy Anderson
If you have European investors, they basically require you to disclose to Griz, right, and then the SEC CSRD California as a state, which is the 5th largest economy in the world. I think on its way to becoming the 4th largest economy in the world by itself has SB 253 and 261.
00:09:15 Andy Anderson
SB-253 specifically.
00:09:18 Andy Anderson
Requires disclosure of scope, one scope two and scope 3 emissions. For companies that have over a billion dollars in revenue, both public and private. So you know, not just public like the SEC and qualifications being you do business in California, which is a pretty low bar to meet, but there's lots of top down regulations that are affecting companies and.
00:09:39 Andy Anderson
Whether or not the SEC ultimately goes through as it does with the teeth that it might have.
00:09:46 Andy Anderson
Companies should be, and a lot of companies are preparing for that disclosure already, right? Because it's not from them. It's gonna come from somebody else.
00:09:54 Chris Sass
What what you just described sounded complex and when Jeff said patchwork and and I go through the alphabet soup of regulations, whether it be New York, whether it be California, whether it be in Europe it it's it's quite a bit to manage. So if you've got a corporate footprint going.
00:09:57 Andy Anderson
Yes.
00:10:14 Chris Sass
Across real estate, across multiple jurisdictions and and it seems like the regulation can go down to the city or even a regional level. This isn't just the federal mandates.
00:10:21 Andy Anderson
Yes.
00:10:24 Andy Anderson
Right.
00:10:25 Chris Sass
How is anyone supposed to manage this and and have a a strategy that that allows you to remain compliant?
00:10:33 Andy Anderson
Yeah, it's it's a great question. Frankly, it's part of the reason we're in business, right. Complexity is good, I think was it Sarbanes-Oxley was referred to as the the Full Employment Act for accountants and the SEC rule was jokingly referred to as the Full Employment Act for ESC Consultants, right.
00:10:50 Andy Anderson
I didn't get to you. You mentioned alluded to at the city level, but like building performance standards, so not SEC, not CSRD, not California State, not what's coming from New York State and others that bottom up approach of local legislation that is mandating compliance with either emissions caps per square foot.
00:11:11 Andy Anderson
For based on your use type or in some cases energy use intensity. In some cases Energy Star score which is derivative of energy, use intensity.
00:11:20 Andy Anderson
So there's 13 building performance standards that are currently passed, plus you can say 14 because there's a national building performance standard for the government, for the federal government and the Institute for Market Transformation, who's involved in a lot of this is involved in quite a bit more. The National Building Performance Standard Coalition has 40 plus.
00:11:40 Andy Anderson
Members that are also aiming to add these laws, so Long story short, a lot of complexity. They all vary enough. It's not just copy and paste that if you have a distributed portfolio like some of our clients where.
00:11:54 Andy Anderson
They have locations in New York subject to local on 97 DC they're subject to BEPS in Denver, subject to energized Denver, do a lot of business in California. They're over a billion in revenue. They're gonna be subject to California's SB 250-3261. They're public companies. They're going to be subject to the SEC.
00:12:11 Andy Anderson
It's a lot going on and we just had our customer, our customer event called integrate 2 weeks ago and one of the panels was specifically about navigating.
00:12:23 Andy Anderson
Compliance versus action, right, because you can easily get swept up and spending six, eight months doing reporting and then you need a month vacation and then you have no time to actually do stuff. And the reason that we pitch the energy and sustainability side is we are trying to simplify the reporting. So it's not 6 to 8 month.
00:12:43 Andy Anderson
Process. It is more of.
00:12:45 Andy Anderson
Ongoing again, operational process that doesn't take so much time and hopefully as as automated as possible in order to give the tools and the metrics to the energy team who's not always the sustainability team, right, not always usually not the sustainability team.
00:13:05 Andy Anderson
That energy team is the OR. They're the ones who are doing projects right? Energy efficiency. They're responsible for procurement. So on decarbonization, you can pull levers from buying wrecks and on site generation and Vpas those kind of things or you can be doing capital capital upgrades that are going to be necessary.
00:13:24 Andy Anderson
As a result of a lot of the building performance standards, right, a lot of them effectively push towards electrification to get off of burning of fossil fuels.
00:13:34 Jeff McAulay
When you talk about that trade off, it feels like you could spend all your time tying your shoelaces and forget to run the race. And the point here is actually to decarbonize. It's to reduce energy consumption, resource consumption. So how is that balance manifesting with your cup?
00:13:41 Andy Anderson
Yes.
00:13:53 Andy Anderson
Yeah, I like that analogy. I'm going to steal that moving forward and we'll when I'm required tribute that to you, the the balance in terms of you know.
00:14:06 Andy Anderson
I think it it shifts as companies mature, right? Usually if they're like year one, year two, year three of doing the reporting and trying to get the feet under them it for sure it takes more time because you gotta get more buy in from.
00:14:18 Andy Anderson
You know, when I started in the industry in energy procurement, I was never talking to the Chief Financial Officer and the Chief Information Officer, the SEC, you know, corporate reporting group IR or whatever. Now all of this stuff is board level, right. Goals are board level. People involved are executive level.
00:14:38 Andy Anderson
They need to understand so you do spend a disproportionate amount of time upfront educating the right people.
00:14:46 Andy Anderson
The hope, then is that as you mature and evolve, you're doing so not to prepare for, you know, reporting to six more places, but you're doing so and maturing to make it more automated. So then the effort can be put into the decarbonization aspects because there are.
00:15:05 Andy Anderson
Using something called creem, the carbon real estate risk monitor.
00:15:10 Andy Anderson
Carbon risk real estate CRE M started in Europe.
00:15:16 Andy Anderson
More prevalent now in the US as it expands effectively, decarbonization curves and plans to show when buildings are going to become quote stranded assets, right, like when their actual emissions are crossing over the.
00:15:35 Andy Anderson
The actual limits or vice versa to say like OK do we spend money to invest in decarbonization or do we consider this asset kind of not not investable, right? It's we're gonna make it somebody else's problem or it needs to be completely.
00:15:54 Andy Anderson
Shift it into a different use case or whatever it might be, so that's the that is the evaluation that clients are going through now in terms of, OK.
00:16:04 Andy Anderson
I've got a portfolio of 500 properties. Where am I going to have the largest penalties first?
00:16:10 Andy Anderson
Timeline wise, because the timelines vary across all these different building performance standards, let alone the top down.
00:16:18 Andy Anderson
Reporting. So they're trying to evaluate. They're trying to juggle, you know, a lot of things, right? Comply. Make sure you're not getting fined, but also make sure I have enough time, capital budget expertise internally or higher expertise externally to advise me on, like, hey, these fifteen of my 50 properties like really need help.
00:16:37 Andy Anderson
Like, we gotta put something together and capital planning for buildings.
00:16:43 Andy Anderson
Is a pretty long cycle, right? So even though some of these building performance standards and some of these larger top down kind of emissions disclosure rulings are 20/26/2020 seven, it's already may 2024, right? So by the time they're budgeting get it into the budget for 25, the.
00:17:03 Andy Anderson
Budget first being we need to hire consultants or auditors or whatever to figure out what to do, then budget the money to actually do the projects that happened in 2026.
00:17:13 Andy Anderson
You know, let's say happened day 12026, you have a year of results, but you're tuning it that entire time. So you're not going to really see the benefits until 2027. And by that point, like in New York.
00:17:25 Andy Anderson
Build performance standards already happened in New York City, right? It's based on calendar 2024. So like what's happening right now is already affecting what the quote penalties or payments might be for client.
00:17:37 Andy Anderson
It's a lot.
00:17:39 Jeff McAulay
We'll come back to the compliance and the underlying streams that are getting monitored, but I do want to focus on the actions that can be taken. You highlighted a few. So thinking about what these building owners and reporting any of these can do, it might be buying wrecks in a local jurisdiction.
00:17:58 Jeff McAulay
It might be buying offsets if that's an option, it might be offsite projects like community solar or virtual Ppas, or on site capital projects that are actually energy efficiency or energy retrofit.
00:18:12 Jeff McAulay
How do you see actions filtering across those four different?
00:18:17 Jeff McAulay
Types of projects.
00:18:21 Andy Anderson
So what I'll say, what was actually said by somebody at our customer event a couple weeks ago was like there's no silver bullet, right? There's not one thing. It's a little of everything and it's determining what that mix is based on one, what's allowed and what's you know, what makes sense financially, right cuz.
00:18:39 Andy Anderson
There's.
00:18:41 Andy Anderson
It's it's a business, right? The the easiest. The easiest way to comply with things is not having any emissions, which would require.
00:18:49 Andy Anderson
Today, essentially no consumption, which means you're out of business, so there's no penalties. But then you're out of business, right? That's like not a it's not a realistic approach. So what do you do?
00:19:00 Andy Anderson
For some of the building performance standards, you are allowed to purchase a certain amount of wrecks within certain parameters, right? They've got to be deliverable to that. That part of the grid or within the state, or they've got to be new as of 2015 or 20, whatever. So those are all the little nuances.
00:19:17 Andy Anderson
Locally, if you have a global, say global like a goal for the organization of like achieving net zero in line with the science based Target initiative 1 1/2 degrees C Those kind of things, you can't use carbon offsets to achieve these goals, right? But maybe you might be able to use carbon offsets to.
00:19:37 Andy Anderson
Negate some quote penalties in certain markets so.
00:19:41 Andy Anderson
Again, no silver bullet. All of it needs to be on the table for evaluation and then it becomes OK what are super quick payback? You know what requires a certain amount of capital outlay. How am I going to finance it where it's going to come to if I have a multi tenant kind of building, whether I'm in office, landlord or maybe?
00:20:00 Andy Anderson
Yeah, I'm not. And I'm like, subleasing space, who's in a very responsible for any of that.
00:20:07 Andy Anderson
You know compliant non compliance penalties payments right the tenants is that the landlord? Is that going to price people out of a certain market, push them to a different market across the river.
00:20:18 Andy Anderson
All those things are part of the calculus and again, Chris, to your point, it is it is complex, right? And this is nobody's entire job internally. No companies really have all of this expertise in House, nor should they really. There's a reason that.
00:20:39 Andy Anderson
Consultants exist.
00:20:40 Chris Sass
But it also sounds like a great use case for AI, right? Where you have a lot of regulatory things, a lot of natural language processing where you have rules and things to understand and understand what the implications are and summarize. That seems like an AI use case to me, right? Other than the fact that that perhaps uses quite a bit of energy to do the calculation.
00:20:59
Yeah.
00:21:00 Andy Anderson
Artificial intelligence, AI definitely applicable and useful in this industry, both from the energy optimization side and the sustainability reporting side right, using AI for parsing large language model stuff for all the sustainability regulation.
00:21:15 Andy Anderson
That are evolving very quickly rapidly, more so faster than most people can keep up with it. Frankly, on the energy optimization side, AI typically use for.
00:21:29 Andy Anderson
You know, temperature adjustments, reading occupancy, optimization of the operational side of facilities, right?
00:21:40 Andy Anderson
Our company watch wire, which is now the tango energy and sustainability division. Within Tango, we were purchased back in August. I was the CEO of that company watch wire. Our website was watch wire dot AI. We did and still do use AI more from the perspective of the data acquisition.
00:21:59 Andy Anderson
Data automation accuracy and particularly on the.
00:22:07 Andy Anderson
Mapping of the cost line item side. So in purely sustainability, if you need to check boxes for reporting you need consumption so you can drive the emission to know where the consumption happened and at what time right? Because it's all time based and location based.
00:22:25 Andy Anderson
For quite literally checking boxes, you don't need the cost side, but to take action on sustainability to actually do something to provide the right metrics and insights and data to the engineering teams, the property management team, the asset management teams, etcetera, you need the cost side married with it, right. So we as a company started pretty sustainability.
00:22:47 Andy Anderson
Focus on energy procurement very much on the energy data analytics and metrics side of things and we had to focus on the cost side, budgeting the accounting, tariff analysis, etc. So our AI models were AI machine learning models were used to.
00:23:06 Andy Anderson
Parse the hundreds of thousands, if not millions. At this point, line items across the roughly 5000 utilities across the world that are automated into our system, plus all of the data that we received from the bill pay companies and some of the manual data that's uploaded from companies across.
00:23:21 Andy Anderson
The world taking all that into effect into account in terms of, you know, mapping the correct line items to, as an example on the electric side, this cost is associated with your kWh consumption. This cost is associated with your demand. This cost is associated with your reactive power. So when you're looking at projects on a building level.
00:23:41 Andy Anderson
That affect consumption versus demand shifting versus demand reduction versus reactive power, you can understand from a decar person.
00:23:49 Andy Anderson
To where to put the money first from a payback. Right. So understanding the ROI of these projects, not just from an emissions reduction or avoidance perspective, but from like an actual dollar savings bottom line kind of perspective.
00:24:04 Chris Sass
Because it's utility, then basically white labeling or using your solution out and then are they charging a premium for it or is it a value add that they're generally giving to their customers?
00:24:15 Andy Anderson
Typically a value add, they're usually not in the business of being allowed to charge a premium for these things. Some utilities can, because of their regulatory structure, regulated versus deregulated ius versus munis, co-ops, etc. But typically it's a value add to help them serve their large C and I customers.
00:24:37 Andy Anderson
Better, right? So the value is not. What can I charge these customers? It's more of how can I engage with them better to keep them happier and cruise my CSAT scores, which, by the way, some of that CSAT scoring stuff does impact performance based regulation kind of kickers.
00:24:56 Andy Anderson
Incentives for certain kinds of utilities. So you can interpret that how you want, but that is typically what's.
00:25:06 Chris Sass
Now, where is this all going? You mentioned Sox compliance early on and the whole spun up industry and and the the amount of time we spend being Sox compliant. Is this something that's going to continue to grow? I mean Sox is an entire industry as you said right? I mean it it is so.
00:25:24 Chris Sass
Is this going to continue to grow or is this going to be something that just becomes mainstream and works into corporate culture or and it's just another check box that we need to do? Or do I need to hire?
00:25:33 Chris Sass
Team.
00:25:34 Chris Sass
To manage this in the future.
00:25:36 Andy Anderson
I think it's more the latter in terms of. It does continue to grow. What we're seeing now is more consolidation of reporting standards, right globally, you have the IFRS right and your gap accounting and the US ISB internationally who owns IFRS.
00:25:56 Andy Anderson
Bring out a lot of acronyms here. You mentioned alphabet soup earlier. A lot of that in the energy and sustainability industry. IFRS has taken over TCF D which was you know, a lot of these.
00:26:10 Andy Anderson
A lot of the qualitative sustainability reporting disclosures that are required in reporting are based on T CFD guidelines, again collapsed into IFRS. IFRS also don't know if they took over or absorbed sasb sustainability accounting standards.
00:26:31 Andy Anderson
So.
00:26:33 Andy Anderson
It continues to grow.
00:26:34 Andy Anderson
With consolidation, I think a lot more focus moving forward on interoperability between between reporting standards. So you don't necessarily have to file a separate report for one and a separate report for another and hopefully you know the one that is most stringent will be satisfactory to the rest, right. So again.
00:26:54 Andy Anderson
Getting away from spending eight months reporting put together one make that satisfactory for for the rest of them, I think.
00:27:05 Andy Anderson
It's not going to go away. I don't think it really matters who's president, who's in charge? You know? You know, Republican versus Democrat. It's it's A to shift generationally. It's a shift in terms of.
00:27:20 Andy Anderson
I think good risk management, right? It's not about hugging trees. It is, you know, for some people it is, which is fine, but think the business case for it in terms of reduced energy, you're reducing risk, you're saving money, you're avoiding potential.
00:27:41 Andy Anderson
You know, potential large catastrophic dollar issues as it relates to physical climate risk and climate transition risk, those kind of things. So I think all it is just good business from a risk management perspective.
00:27:55 Chris Sass
Well, Andy, I appreciate you taking the time to join us here on the insiders guide to energy today. It's been a pleasure, quite a bit of acronyms. As we've said, we we hope those people are commuting, have been able to understand them and keep up with them as they're driving down the road today.
00:28:09 Chris Sass
But thank you Andy so much for sharing with us.
00:28:11 Andy Anderson
Yeah. Thanks for having me. I really appreciate it.
00:28:14 Chris Sass
For audience, we hope you have enjoyed getting this view and understanding of what's happening with the real estate market and how understanding and monitoring and compliance are becoming important or are important and the tools available to you to understand and take action. We'll talk to you again next time on the insiders guide to energy, and don't forget to like and follow us on.
00:28:34
We'll see you soon.
