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Toyota, the National Geographic Society, and many other organizations are discovering that environmentally responsible facilities can also deliver financial benefits.
Russ Banham, CFO.com | US
August 11, 2004
Toyota Motor Sales USA likes green the way Henry Ford liked black. Not that Toyota is offering customers a Camry "in any color they choose, as long as it's green" — the division's new Torrance, California, headquarters is one of the largest environmentally friendly building complexes in the United States.
Christened in April 2004, Toyota's new South Campus complex — 624,000 square feet of office space in two large buildings on 40 acres — was designed and constructed according to guidelines established by the U.S. Green Building Council, a nonprofit organization promoting facilities that are environmentally responsible, profitable, and healthy places to do business. Toyota USA's efforts earned it gold-level certification from the council's Leadership in Energy and Environmental Design (LEED) rating system, its standard for a green building.
How does one win the gold? LEED is based on a system of points awarded for undertaking various architectural and construction activities. Toyota's South Campus, for example, offers energy-saving natural daylight for 90 percent of occupants; recycled water for all cooling towers, landscape irrigation, and toilets; and a photovoltaic rooftop system that could power more than 500 homes with the electricity it generates from sunlight. All this makes for great relations with employees, shareholders, and the public, but there's more to building green than winning the kudos of environmentalists. "We're achieving a very strong financial return from our green building complex," says Tracey Doi, group vice president and chief financial officer of Toyota Motor Sales USA.
''Green,'' as in ''Greenbacks''
All good intentions aside, Toyota went green more for the payback than the praise. At a minimum, notes Doi, the LEED-guided design for the complex had to surpass a 10 percent return on investment. "The project focused on long-term operational savings to increase the rate of return," she says. "For example, the use of highly efficient air-handling units, and gas-fired chillers in the HVAC system, resulted in a 58 percent energy saving compared with California's stringent Title 24 Energy Code. The extensive solar rooftop system provides 20 percent of the electricity powering the complex. Besides the benefit of reduced energy costs of $1.5 million per year, we also save approximately 5 million gallons of water, or $22,000 per year, through the use of reclaimed water and the various water-reducing features of the buildings." Compared with another major Toyota facility, the complex is achieving a 40 percent reduction per square foot in energy costs, by Doi's calculations.
Higher job satisfaction and morale are additional benefits, contends Doi. "Office workers are often dissatisfied with the temperature, indoor air quality, acoustics, and lighting of their work environment," she says. "We worked hard to ensure that over 90 percent of the associates in the complex have views of natural daylight and the outdoors. This makes a big difference," adds Doi, since many of the employees in the South Campus complex "are part of the customer service team and are on the phone the majority of the day."
While Toyota has not added up the dollar value of these productivity gains, Doi maintains that several studies of environmentally friendly office buildings "have documented productivity gains as high as 16 percent. With an annual payroll of $140 million at our south campus complex, even a 1 percent improvement in productivity would reap a saving of $1.4 million," she adds. "With South Campus, we have been able to show that building an environmentally sensitive office complex can bring financial benefits — if your decisions along the way make good business sense and you keep your financial objectives front and center."
Toyota USA is not the only company leveraging greenbacks from green construction. "Green is the new color in corporate buildings," says Thomas Leppert, chairman and chief executive officer of The Turner Corp., a national general builder that last year completed more than $6 billion of construction. "A few years ago, we saw examples of green buildings in higher education, health care, and government, and a few in the business sector, where the motivation was 'being the good corporate citizen,' " says Leppert. "Today, the list of companies for whom we're constructing green buildings would fill five pages, single-spaced." Their motivation: "bottom-line value, through higher worker productivity, healthier employees, and substantial energy and water savings."
Turner was the general contractor on Toyota's complex in Torrance, and it has just completed work on the new headquarters building for biotech giant Genzyme Corp. in Cambridge, Massachusetts. "Most of the building was constructed out of recycled materials, including the aluminum framework, drywall, and ceiling panels," says Rod Wille, Turner's senior vice president and manager of sustainable construction. "We also installed heliostats on the roof of the building — motorized mirrors that track the sun in its path across the sky and reflect the light into a central atrium, where it is then redirected by another set of mirrors into adjacent office spaces. And we wrapped the building in an outer shell called a 'loggia' that holds heat in the winter and cool air in the summer." Genzyme awaits expected LEED certification.
Not surprisingly, Wal-Mart Stores Inc —which operates more than 3,200 facilities in the United States — is also looking to pare its high power bill. Leppert says that Turner is working on two Wal-Mart superstores that will use photovoltaic rooftop panels like those at the Toyota complex. "Every company has to anticipate what the cost of energy will be in five years," adds Leppert. "Let me tell you, when I look into the future, I don't see it costing less."
What's Old Is New Again
Reducing energy costs was also a factor in the decision of National Geographic Society to "green up" its existing headquarters complex in Washington, D.C. The society owns four adjacent buildings in the District; they're 20, 40, 60, and 100 years old, respectively. "We decided that we would renovate all four buildings simultaneously, following the guidelines of the new LEED program for existing buildings," says Chris Liedel, the society's executive vice president and chief financial officer. "Given our historic love of the environment" — as well as the society's status as a scientific and educational nonprofit organization — "green buildings were just a natural fit."
The society's facilities staff of 20 building operators, managers, and maintenance employees fall under Liedel's oversight. The CFO challenged the staff to work with him and the Green Building Council to pioneer a new LEED program addressing the renovation of existing buildings, "in the spirit of the explorers who formed the society more than a century ago," explains Liedel. "We had these four buildings from four historic eras of the 20th century. Not only could we renovate these facilities with keen attention to their historic features, we could go the extra mile and make them environmentally sound and more financially valuable."
The project called for upgrading heating and cooling systems, interior lighting systems, and facilities operating practices. Liedel estimates that the upgrades have increased the market value of the property by $4 for every $1 invested. The society also is reaping significant reductions in energy costs. "Previously, we were heating the entire buildings; now we heat them on a floor-by-floor basis, which has pared our energy costs substantially," he says. "We upgraded all the lighting to be more energy efficient and retrofitted the roofs of the buildings to reduce the 'heat-island effect' — the heat that builds up inside a building when the sun cooks the roof. We also installed waterless urinals and other water reduction systems and brought the building up to compliance with the Americans with Disabilities Act. Overall, we reduced our total operating costs by as much as 14 percent."
The society received LEED silver certification. "We were a couple points away from the gold, but for a nonprofit organization constrained by capital considerations, we're immensely pleased with the silver," says the CFO. "We just wanted to get certified." Liedel adds that the society "is still waiting for our plaque, which we plan to affix to the façade. We're very proud of what we accomplished."
Green designs run the gamut. Pittsburgh's new convention center, considered the world's largest green building, purifies bathroom sink and toilet water with ultraviolet light and then recycles it for reuse in toilets and for landscape irrigation. Ford's renovated Rouge Complex in Dearborn, Michigan — whose belching smokestacks were proudly displayed on 1940s postcards — today is topped by living greenery to reduce the heat-island effect. Both efforts won LEED gold. And the National Resources Defense Council, an environmental action group, boasts a headquarters building in Santa Monica, California, with organic linoleum floors and steel rebar made from melted handguns. The group won LEED's top rating of platinum.
LEEDing the Way
The U.S. Green Buildings Council, founded in 1993, today comprises 4,600 member organizations and companies that intend to renovate buildings to embrace environmentally friendly principles, or to build them from scratch. In just the past four years, the council estimates that more than 168 million square feet of commercial building space have been either registered or certified under LEED. "People spend 90 percent of their lives inside buildings, most of that at work, where indoor air pollutants are two to five times higher and occasionally more than 100 times higher than outdoor levels," says Nigel Howard, the council's vice president and head of the LEED program. "We're trying to drive change that ensures the workplace is a healthy, productive environment."
LEED certificates are awarded when applicants achieve the requisite number of points in six categories of performance: sustainability, water efficiency, indoor environmental quality, materials and resources, energy and atmospheric features, and design innovation. Companies make all sorts of choice when renovating or when building anew, says Howard, "from proximity to mass transit to issues having to do with the ecology of the site to how storm water will be handled."
Howard continues: "A company can build an energy system that is from renewable energy sources, it can purchase materials that are recycled, it can buy plant- and grass-watering systems that use reclaimed storm water. We have found that companies that choose to invest their money in eco-friendly ways are differentiating themselves as ethical organizations. People from practically every corner of society scrutinize firms' environmental activities with an eye to environmental impact. Previously, this scrutiny was largely focused on how products were being made. Now, it is extending to the kinds of office buildings companies develop."
Although a company might trim its power bill by situating a building to capture as much daylight as possible, the payoff isn't limited to reducing costs; it reaps enhancements in worker productivity, too. A study prepared for the California Energy Commission found that call-center workers processed calls 6 percent to 12 percent faster when they had views to the outside, compared with workers without a view. They also performed 10 percent to 25 percent better on tests of mental function and memory recall compared with their "shut-in" co-workers.
A similar study of daylight and productivity, by Carnegie Mellon University, found an average increase of 7.1 percent. A study of the effects of skylights on retail sales, by Sacramento, California-based consultancy Herschong Mahone Group, found 40 percent higher sales at stores with skylights than at stores without them. Herschong Mahone also studied the effects of daylight on the academic performance of more than 8,000 third- through sixth-graders. During one year, students who had the most daylight in their classrooms progressed 20 percent faster on math tests and 26 percent faster on reading tests compared with students who had the least daylight.
Howard maintains that companies can build green and earn gold certification at little to no extra cost. "Our own studies indicate most green buildings involve an additional 2 percent cost up front, compared with traditional buildings, but we have certified a number of buildings that involved no additional cost." That little bit can go a long way. A study by California's Sustainable Building Task Force found that an up-front investment of 2 percent in a green building design results in an average saving, over the life of the building, of 20 percent of the total construction cost — 10 times the initial investment.
It's a compelling prospect. As Howard puts it, "Small improvements in the efficiency of buildings, the cost of energy and water, and the productivity of employees add up very quickly into real financial value." That's the kind of green Henry Ford would understand, too.
Russ Banham is a contributing editor of CFO.com.
When Toyota Motor Sales USA contemplated its new South Campus headquarters in Torrance, California, it didn't start out with the idea of building green. Toyota's goals were to consolidate employees at the campus, reduce occupancy expenses, and provide future flexibility. But the automaker also wanted to demonstrate to its shareholders that a green asset was more valuable than conventional buildings. "We were housing employees at a number of sites in the Torrance area," says Sanford Smith, corporate manager of real estate and facilities at the Toyota unit, and an architect by training. When the company considered how much time employees spent driving back and forth between buildings, he adds, we "felt we were losing productivity."
Notes Smith: "We also were losing the cultural identity that comes with having a close-knit community. The goal from a planning standpoint was to bring everyone back to the headquarters campus. But we had to do this without increasing occupancy costs — that was the financial hurdle. In effect, the South Campus buildings had to be cost neutral."
The division's chief financial officer, Tracey Doi, says that financial considerations were always at the forefront of decision-making. "Rather than go out and say 'let's build a green building' and 'how much does this cost?' we instead asked ourselves how we could build a complex that was sustainable and cost-effective," she explains. "It turned out that by pursuing LEED certification, we would get what we wanted financially. Ultimately, the structure did not have a cost premium."
The LEED system of providing points for specific design and construction decisions guided Smith in planning the complex. "When we set out to design the exterior of the building and were deciding what to enclose it in, either pre-cast concrete or a metal panel, we were swayed by the fact that metal 'skin' — basic warehouse-type construction — was more economical to build and offered significant sustainability benefits," says Smith. In fact, the metal-skin building enclosure is 30 percent more efficient than California energy requirements, which delivered a saving on the company's operational costs. Toyota took that saving, continues Smith, "and applied it to more thermally efficient, insulated, double-pane glass windows, which offer similar sustainability benefits. Had we built a traditional pre-cast concrete enclosure, we'd be looking at additional energy costs of $1.2 million a year."
Doi concurs. "At $63 per square foot, the building shell is in the lower half of the $54-$76 range for a campus," she says, "while the interior costs were at the lower end of the $22-$40 range. You don't need to sacrifice efficiency for green."
The South Campus complex incorporates 95 percent recycled materials, based on LEED calculations, including more than 250 miles of reinforced steel reclaimed from Camrys, Corollas, and other recycled automobiles. More than 95 percent of the construction waste — 113 tons in all — was either recycled or reused rather than discarded in landfills. All the wood used in the complex was cut from trees specifically planted for logging. The complex sports one of the largest commercial solar electric systems in North America, covering 53,000 square feet of rooftop. Underground is a special pipeline to supply recycled water to the complex for cooling towers, landscape irrigation, and toilets. Even the buildings' copy rooms have a separate ventilation system from the office space to reduce the drift of toner fumes into work areas.
Smith and his team also made some striking changes to the architectural design of the complex: "We took the stair towers, which typically are located inside a building and are dark and gloomy, and situated them on the outside," he says. "We opened them up with big windows, which encourages workers to use them because, well, because it's cool to use them."
The upshot: South Campus employees use the elevators less often, and they get a cardio boost, to boot.