Open Letter to CFOs on Sustainable Finance Leadership

By Dan Boucher, P.Eng. - Chairman and Co-Founder @ vadiMAP

7 janvier 2024

Open Letter to CFOs on Sustainable Finance Leadership

As we kick off 2024, thank you for taking the time to read this.

I hope you will find this letter relevant to your role and CFO duties, especially if you are operating real estate assets.

Having just returned from the 28^th Conference of the Parties (COP28), I am writing to share with you a highly important value proposition. Sustainability fulfills a sense of responsibility, but it must also be good business. Your company’s energy transition must be a profitable proposition to remain a sustainable opportunity.

Here is a breakdown of the value proposition.

Trends

I was fortunate to meet state leaders and renowned business leaders to appreciate, once again, how imperative finance will be to decarbonize the private sector. My view is that the First Stocktake Agreement (page 5, paragraph 28.a) since COP21 in Paris is the best we could hope for because, finally, we reached a milestone with the powerful wording "transitioning away from fossil fuels".

Regardless of how the ambitions of the various countries are formulated, and intensifying pressure, implementing actions at the local level is far more important. In other words, these actions can only materialize with your buy-in and your finance leadership. Why is that? Stakeholders now expect an ongoing balancing act – will you manage risks or regulations, reputation or asset valuation, carbon credits or local carbon reduction?

New considerations are now impacting your business projections. Sooner rather than later, you should manage the opportunity to benefit from a real estate capital reallocation of up to 40% by 2030, not to mention ESG to comply with Building Performance Standards and IFRS S1 S2.

Implications

A question you have probably asked yourself: What if we don’t lead a timely transition plan? I can only hope this letter strengthens your ambitions for your company. Let’s bear in mind what leading an energy transition also means, in terms of cost savings, operational resilience and regulatory compliance.

The US introduced the Inflation Reduction Act, the European Union started massive renewable energy projects and Canada just guaranteed carbon credits to a value of $86.50 per ton of CO₂. Will these initiatives be enough to put the planet on the path to net zero by 2050? Without the private sector, no chance.

Accelerating your transition with your real estate assets allows you to seize new opportunities. Optimizing energy efficiency and renewable energy usage increases the value of your building assets.

With innovation zones and a local supply chain, the new battery industry in Quebec is a great demonstration that the private sector believes in the economic outcomes resulting from a net zero future.

Possibilities

A recent survey revealed that 14% of companies are climate visionaries, 17% are committed, 26% are enthusiastic, 18% are not ready, and 25% are carefree. What is your company’s profile?

If you are reading this letter, you are more likely among the 31% leading a true energy transition. Whether you prefer traditional approaches or a non-traditional approach like vadiMAP, your leadership will serve all your stakeholders, improving your company’s valuation, employee retention and customer loyalty.

Solutions

Three questions can help you manage and control a business-oriented plan to convert your building assets into positive economic outcomes:

Are you truly committed to a net zero plan? Ambitions don’t count.
Is your path the best one in terms of return on investment? How do you know?
Are you organized to measure results against your 2030 goal? Again, how do you know?

Interpreting return on investment or return on equity (ROE) for large building portfolios is possible with a methodical process, which you manage over time without trial and error. For example: install solar power, a LED lighting project, electrify HVAC equipment here and there; this is not a plan. A plan requires a process for systematically managing opportunities and risks until you reach the net zero goal.

An opportunity may be the replacement of a natural gas rooftop unit by an electric heat pump, a risk may be to ensure elevators don’t stall with battery backup power during a blackout. A good plan will require you to go back to a) b) and c) periodically to make your company more appealing to investors, customers, creditors and insurers. In short, energy efficiency and renewable energy must be part of the plan, for all your buildings, year over year.

All things being equal, investors prefer to invest in companies with a higher return. Employees prefer climate-friendly companies. And customers prefer or must buy from responsible companies.

In summary, as CFO, your role is crucial for your company's success. Sustainable financial leadership is key for overcoming challenges and ensuring continued growth. Investors, employees, and customers all rely on your expertise for the company's prosperity.

I wish you a wonderful 2024, both sustainable and prosperous.