59 min read

🎧 #125: Sara Neff on the roadmap to absolute zero carbon

“A building can only run as efficiently as its engineer knows how to run it. Unless you have an engineer-first mindset, none of your energy efficiency efforts is ever really going to reap the rewards."

—Sara Neff

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Episode 125 is a conversation with Sara Neff, Head of Sustainability at Lendlease Americas.


Lendlease, as Sara says, has the most aggressive net zero target in the industry, absolute zero by 2040, and she’s here to tell us how she plans to get there, including the role for efficiency, retrofits, procurement, how to solve the split incentive problem, and much more.

Before we jump into the conversation, I wanted to make sure you all know about our new Thought Leader program. Once a month, I’ll be cowriting a piece with one of our sponsors. We’ll dive deep and make it non-salesy and educational and tell stories that are outside my core expertise. Check the link the show notes to learn more.

Without further ado, please enjoy this epiosde of the Nexus podcast with Sara Neff.

🧠 A message from our sponsor, BrainBox AI 🧠

Transform your existing HVAC system into a predictive brain that learns precisely how to use less energy to optimize comfort in all building zones, at all times. With BrainBox AI you can reduce your carbon footprint, lower energy bills, and increase equipment life.

Learn more by checking out this success story: Westcliff shopping centre made more efficient with AI for HVAC.

  1. Lendlease (1:11)
  2. Aware Super (5:16)
  3. Ivanhoe Cambridge (5:22)
  4. Rocky Mountain Institute (40:47)
  5. REBA (40:48)
  6. Third Act (54:57)
  7. Institute for Market Transformation (58:59)
  8. Green Lease Leaders (59:08)
  9. California Burning by Katherine Blunt (1:06:28)

You can find Sara on LinkedIn.



  • About Lendlease (4:47)
  • Sara's role at Lendlease (6:25)
  • Roadmap to net zero (12:07)
  • Renewable procurement (22:22)
  • Energy efficiency and deep energy retrofits (41:10)
  • Carbon accounting today (48:48)
  • Change management and internal leadership (50:44)
  • Split incentive (56:32)
  • Carveouts (1:06:07)

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Full transcript

Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!

[00:00:33] James Dice: Longtime listeners will remember. Brainbox AI from way back on episode eight of the podcast. And that episode we unpacked how brainbox allows you to add AI, specifically reinforcement learning to your existing HVAC control system, turning it into a predictive brain that learns precisely how to use less energy and optimize comfort in all buildings zones at all times.

With brainbox you can reduce your carbon footprint, lower energy bills and increase equipment life. [00:01:00] Learn more by checking out the Westcliff shopping center, success story at the link in the show notes.

[00:01:06] James Dice: This episode is a conversation with Sarah NEF, head of sustainability at Lend-Lease America's. Lend-Lease as Sarah says, has the most aggressive net zero target in the industry. Absolute zero by 2040. And she's here to tell us about how she plans to get there, including the role for efficiency, retrofits, procurement, how to solve the split incentive problem, and much, much more.

Before we jump into the conversation. I wanted to make sure you all know about our new thought leader program. Once a month, I'll be, co-writing a piece with one of our sponsors. We'll deep dive and make it non salesy and educational and tell stories that are outside of my core expertise, but hit at other topics in the smart buildings ecosystem.

So check the link in the show notes to learn And without further ado, please enjoy this episode of the nexus podcast with Sarah NEF.

[00:01:53] James Dice: Welcome to the Nexus podcast. Sarah,

[00:01:55] Sara Neff: Thank you so much for having me. I'm delighted to be here.

[00:01:58] James Dice: I'm delighted to have [00:02:00] you. Uh, can we start with your background? Can you talk about your, uh, educational background and then kind of launch into what got you here to where you're at today?

[00:02:10] Sara Neff: Absolutely especially cuz my educational background doesn't make a ton of linear sense. So, um, I'm Sarah Neff. I'm head of sustainability at Lendlease in the Americas. Um, yeah, and my background, um, I, I went, uh, to Stanford and I majored in like a human computer interaction major. It was the.com times, you know, I was, it was, it was, everything was wonderful.

Um, back in the early two thousands before the crash. Um, and so since, uh, the dot-com crash occurred, um, I spent a lot of my twenties post-college just flailing around. Um, I lived in India for a while, lived in England for a while, I at a Shakespeare nonprofit. Um, I spent three years working in television, um, and got to the point of how many more shows about white people in New York do I really need to work on before I die?

Um, and so, uh, that inspired me to, um, [00:03:00] go to business school. Um, cuz I thought that the fastest way to save the world would be some sort of combination of financial and environmental interest. Um, so spent a year, uh, at Google cuz uh, the entertainment hours were so bad I would never have been able to get any applications done.

Um, and then went to Columbia, uh, which is a really strong social enterprise program, um, in New York and graduated and sort of, uh, fell backwards into real estate. Um, did not manage to take a single real estate class in business school. I really thought I was gonna do renewable energy project finance, um, because that's what most green MBA folks do.

You know, getting the big solar and wind arrays, uh, financed and then ended up in real estate and it's been fantastic. So I spent 11 years, uh, creating and growing, um, the sustainability programs at Killroy Realty, which is a West coast, publicly traded real estate investment trust, um, office in life science.

Um, and then a bit over a year ago I hopped over to Lendlease, um, where I run sustainability for our America's region.

[00:03:58] James Dice: Okay. So I want to ask you [00:04:00] about India and England real quick. I just got back from London and I had Indian food three times, and I'm wondering if you have, what's the best Indian restaurant in England?

[00:04:11] Sara Neff: Hurry Curry and Baron's Court was always my favorite

[00:04:14] James Dice: Okay. All

[00:04:16] Sara Neff: fantastic

[00:04:16] James Dice: Adding it to my list.

[00:04:18] Sara Neff: Yeah, I once said Vidoo from there, that was so spicy that my boyfriend and I were just weeping, like we were just


[00:04:25] James Dice: I want I want that.


[00:04:27] Sara Neff: so delicious

[00:04:29] James Dice: Awesome.

[00:04:30] Sara Neff: in tears.

[00:04:31] James Dice: Okay. Our, uh, our London based audience will probably

either go there or argue with you about,

about their favorite.


[00:04:42] Sara Neff: I don't even know that. I don't, my memory is that they don't even have seats. It's just to take out place, but it was delicious.

[00:04:47] James Dice: Brilliant. Okay. Um, Lendlease, so you're at Lendlease now. Can you talk about what Lendlease is for people that, um, aren't as familiar

[00:04:55] Sara Neff: Yeah, absolutely So, um, Lendlease in the Americas is five business [00:05:00] units. So we are, um, traditional investment management and development and, you know, raise a fund with a JV partner, go in a land deal, build that property, you know, that's the development team, and then operate it in the long term under the investment management business unit.

Um, so we do that. There's a billion dollar fund with Wear Super, which is an Australian superannuation fund that's a multi-family fund. And then we have a separate life science fund, um, with Ivanhoe Cambridge, which is a Canadian pension. and then we have a, um, pure construction business. Um, so we are, uh, 3 billion a year of construction.

Um, for, um, projects that are in places where we have both construction development. We, um, we are in an integrated model, so our construction team builds those projects, which is really fun. About half of that is multi-family, but they do a lot of healthcare. They did the nine 11 memorial, you know, the remodel of the Statue of Liberty, you know, all that.

Um, and then we have a 15 million square foot development with Google in the Bay Area across four districts. Um, that's a size of lower Manhattan. So it's a large, large, um, [00:06:00] partnership where, um, we are owning the master plan. We're building a bunch of residential retail. Google is running other parts of it, so it's a lot of collaboration, coordination.

So that's its own separate thing. And then we're also the largest operators of military housing. So we have 40,000 military homes and all of their hotels, and that's across 18 communities, 12 states, 135,000 people. Um, and that's, uh, obviously in partnership with Department of Defense.

[00:06:22] James Dice: Mm-hmm. . Cool. So, , I think what we're we're gonna focus on today is your role. Can talk about a little bit more detail about your role?

[00:06:33] Sara Neff: absolutely. Happy to. Oh, what I do, what my goal it,

[00:06:38] James Dice: Yeah.


[00:06:39] Sara Neff: Um, so my role at Lendlease ultimately is to get everything I just described to absolute zero carbon across every scope, scopes one, two, and three by 2040, which are the most aggressive, um, target environmental targets in real estate.

Um, we also wanna create 250 million of social value by 2025. Um, and we have [00:07:00] milestones. We have to get to scope one and Scope two, carbon neutral by 2025, um, and then a hundred percent renewable electricity by 2030. Um, um, but that's across every business unit. Um, and so basically when I, when I got to Lendlease, it was my job to create the roadmap.

Um, every business unit had to create their roadmap to meeting their goals, and then those had to roll up, you know, get all of the approvals. Everybody really getting on board and excited and bought in. And then, um, uh, rolling that up into America's roadmap, which ultimately had to get signed off by our whole C-Suite.

Um, and then now that has oversight by risk management. And so we're really on the hook for meeting all of the interim milestones. And so it's my job ultimately to make sure that we're on the roadmap, uh, to, um, carbon neutrality, um, by, by 2025, and then absolute zero carbon by 2040, which is nuts. So, um, I, I spent a lot of time with all of our business units, you know, how do we get low carbon concrete?

How do we get low carbon steel? How do we cure concrete without the use of fuels? Um, because a lot of things fall out of the roadmap that are, the conclusions from [00:08:00] that are pretty crazy. For example, we know we just can't use fuel anymore. The electric grid can get a hundred percent renewable. The guest infrastructure cannot.

Um, and so we just have to fully stop using fuel. And that means all electric new buildings, even in cold climates, it means electrifying all of our construction equipment and all of our military maintenance vehicles. Um, and so just that one piece of it is pretty intense, um, as, as an example, but also means our tenants have to be on board.

So I launched all of our green leasing programs and all of our tenant engagement. Um, so it's a big team and a really fun, really fun job. Um, and so I'm, yeah, I'm implementing sustainability on scopes one, two, and three Embodied carbon and, you know, tenant emissions across every business unit, you know, as appropriate and making sure that we're staying on target.

[00:08:48] James Dice: That sounds like you're, you're kind of busy

these days,

[00:08:52] Sara Neff: fun. I like it.

[00:08:53] James Dice: So it sounds like, so you guys said you, you have the most aggressive target in real estate. Do you feel like, [00:09:00] What I've noticed is people start to ratchet up their targets or maybe readjust. Their targets upwards. So you still, people started out with we're gonna offset a hundred percent.

Right. And then they've ratcheted up a little bit more. I haven't seen it as much. You know, usually there's like one press release, but they're not gonna do another press release and be like, Oh, we've, we've actually increased our target here. Do you feel like other organizations will eventually match what you guys have set the target as, or how, How do you think that'll work?

[00:09:28] Sara Neff: I, I would hope so. Um, I think where we are right now is real estate doesn't even understand what Scope Three emissions are. Right. Um, you know, I think a lot of folks are in the very, very early stages. Um, we've been defining what that inventory is, um, and, and we are almost done with that inventory, so we hope to have that published, uh, by end of calendar year, um, 2022.

So if you're listening to this after that, you should be able to come to our website and, um, we will, we will have what's in and what out, what's out of our Scope three. Um, so, you [00:10:00] know, we've made a commitment without even knowing what it is that we have to deal with and we aren't allowed to use offsets.

So it's, it's pretty crazy. Um, and, um, I will say this, you know, when Killroy, uh, made its commitment to being carbon neutrally operating, so scopes one and two, and that we, that decision was, um, made, that announcement was made in 2018 and that, and that it was gonna get done by 2020. That had been the first time that had been done in real estate and everybody thought it was fairly nuts at the time.

And then before December 31st, you know, uh, 2020, um, you know, another competitor had come in and said, Yep, we got there in September and like a couple others came in. And so, and then we're seeing, and now there's, you know, I think nearly 10 or 12, you know, real estate companies that are now have achieved Scope one and Scope two.

So I think it's really important for leaders to show how this is possible. And then a lot of other folks come in. I will say the other thing, um, is that you have to sort of be the change you wanna see, um, in real estate. So it's not like we're waiting around until [00:11:00] 2039 and wondering why we can't get enough all electric construction equipment, Right?

So we've done this study that says, you know what, on current projections, there's not gonna be a hundred percent electric construction equip. universally available. You can, Scandinavia has it all day long. It's we're, we can barely get it anywhere in the states and unless something rapidly changes. And so now we have to partner with the makers of construction equipment.

We have to, you know, join the organization, send the market signals, do the procurement, figure out how you charge them, calling the fire departments. I mean, this is what I was doing all morning, is how you get permitted permits for a battery to charge your electric cranes so that you can not use fuels for them, because it doesn't count if you're then using a diesel generator.

Right. And so I think that companies are often really nervous to, you know, be part of that change to collaborate with their supply chains. And so, and nobody wants to, you know, not meet their goals. And so, yes, I think some do, but I hope that, you know, when we, when you sort of catalyze the market transformation, um, there'll be enough pressure, frankly, from [00:12:00] investors and other folks to, to set goals and achieve them.

[00:12:03] James Dice: Totally. I hope so.

[00:12:05] Sara Neff: Yeah, too.

[00:12:07] James Dice: Okay. So you had this target that, and you got brought in to say, what's the roadmap to this target? What, what is, Can you describe what that sort of, maybe, maybe start at the strategy level, like what is the strategy to hitting that target? And then can you maybe describe in broad terms like what that roadmap is

[00:12:26] Sara Neff: Absolutely and we will leave, um, in the, in the comments, you know, link to the roadmap so anybody can see it. The

[00:12:32] James Dice: Cool. Nice.

[00:12:34] Sara Neff: available as it is for all of our regions. Asia

[00:12:36] James Dice: Yeah, we'll link to

[00:12:36] Sara Neff: and Australia all theirs as well. Um, so yeah, let's start um, with scope one. So Scope one right is fuels and it's refrigerants.

Um, so, uh, we know we have to start using zero emission refrigerants. Um, again, harder to get in America, not that they don't exist. You can absolutely cool your building with ammonia. I suppose I've heard this is possible. I've never seen it done. Um, [00:13:00] uh, I know of one dairy farm in upstate New York, thesis ammonia.

That's, that's the only project I know of. Um, but so we have to use, um, figure out how to use zero emissions refrigerants. Um, these are better understood in Japan and in Europe than they are here. So we are preparing for them now. Um, and then we have to never build with, uh, with a gas line again. Anywhere in any climate.

And that includes not just heating and cooling, but that includes retail, that includes residential, that includes, So when we're building new very class A condos, um, those are have induction stoves, new military housing, all electric. Um, yes, we do that in the department, in the military communities as well.

They're absolutely, you know, on the same, they don't get a buy. Um, they're on actually absolutely the same trajectory as we are. So we can't build with new fuels, Uh, crazier is that we know that we are gonna have to start ripping out the gas at some point, you know, in the early 2030s of, um, assets that do have it.

[00:14:00] Um, the high rise, multifamily mixed fuel to all electric retrofit is, uh, not for the faint of heart. And, um, we currently don't know how to do it, but we know that's gonna be on there as well. We also have to stop curing concrete using fuel at. Currently, you know, in the middle of a New York winter, Chicago, Winter, Boston, all these places where we build, um, you know, we're heating the air up using fuel to high degrees.

Um, and that is a lot of scope one emission. So have to figure how, how to do this without fuel. Is it that we somehow do it electrically? Is it that there's a mixture that goes into the concrete that helps it cure without the use of the heat, like we do in California, right? We don't keep the air, like I live in la like I just watched this pour concrete last week.

Like there's no heating. You know, like is there a way to get all concrete, uh, to be like that no matter what the temperature is? And then, um, all electric construction equipment, so we can't have, you know, our backhoe loaders and our cranes and our excavators and whatever use fuel. So, um, those also all have to be electric as do all of our maintenance vehicles.

So Scope one is a, is not, [00:15:00] is not easy. Um, but it is something that is, I'm, I'm seeing so much progress so quickly, especially in terms of cold climate. Oh, electric buildings. Especially in terms of, uh, all electric cold climate buildings. Um, for example, we have our first geothermal building that's our one Java project in Brooklyn.

Um, all electric, it's cold there, it's still all electric. The geothermal, uh, takes care of about 50% of that building's, um, energy consumption. And, and that's the kind of thing we're gonna have to start commissioning our envelopes. Um, all that really fun nerd stuff. So that's scope one. Um, scope two, uh, is all things electricity that we control, right?

So, um, that's a lot of, um, pushing on energy efficiency, um, in every asset military and, um, you know, everything in investment management, whatever that ends up being. And also construction. You know, how are we efficient there? Are we, do we have occupancy sensors in the temporary lighting? Are we, you know, do we have the minimum out of lighting required by code at night?

You [00:16:00] know, are we, you know, wasting

Um it also means we need a lot more. Both onsite and offsite, right? So we have 40 installed megawatts of solar, um, in our military, uh, portfolio. Um, we need a lot more. I mean, 40 mi watts is fantastic, but you know, we're gonna need more than that. Um, I'm also working on offsite renewables, so we're working on an offsite power purchase agreement.

Current energy markets are not making that easy, although the inflation reduction Act is. .

[00:16:24] James Dice: Yeah.

[00:16:25] Sara Neff: And then obviously we want more onsite renewals, not just geothermal, but onsite solar, which we do have in several projects. Um, we're looking at other things like solar thermal and whatnot. So we have to be really efficient.

We have to set energy intensity targets and meet them. We have to maximize our use of renewals. We also need batteries, right? So the sun is wonderful, but it has this terrible habit of going down at night. Um, and so how do we store the renewable power that we're making, um, so that we can use it, you know, when the grid isn't able to provide a hundred percent renewable energy.

And then it's also getting those, um, uh, procurement contracts, which we. Currently in all of our stabilized assets for a hundred percent renewable energy from the utility. [00:17:00] You know, how do we get more of that? So that is sort of everything within scope two. Um, I'm really hoping, um, that the, that I get to close an offsite power purchase agreement deal.

I'm having to do all sorts of shenanigans around, you know, how do I hedge the pricing volatility and kinda have a flexible start date and all this. Um, you know, the energy markets are not easy right now. Um, but that would take care of our scope to emissions, um, through 2040. Um, cuz that would have that additionality that we're looking for.

Um, scope three and materials is nuts. Um, so we, uh, we need zero carbon concrete ultimately at the end of the day. Um, and, you know, zero carbon steel is available, at least not zero Carbon. Steel is a. On the market now, it's a fully electrified arc furnaces and a renewable energy contract to cover that. And then a hundred percent recycled scrap.

That's wonderful. Um, we need a lot more of it. Um, and we need to be cost competitive. Um, and so we are practically working with our procurement teams to, to get more of all of that low-carbon stuff. [00:18:00] Uh, low-carbon concrete. We're seeing a lot. I don't see zero carbon concrete available on the market yet. Um, but we are seeing a lot of, not a lot, but increasing amounts of zero carbon Portland cement replacement, um, which is really, really exciting since that's the largest source of emissions within concrete.

Um, we're trying to do procurement deals. Um, so right now we have like a non-binding letter of interest for a zero carbon Portland cement, um, replacement company to help them get the financing to scale up. And this is what I really hope more folks in real estate are willing to do, is really partner with your supply chain.

Say if you build it, we will come. Please go take on a bunch of debt so you can build your factory and scale up and create the market transformation. You know, I don't need. Uh, the amount of Portland cement that I can fit in here, right? I need enough to build districts, neighborhoods, you know, that is the kind of thing that sort of moves the needle.

Um, so from seeing a lot of progress on that, you know, that same project in Brooklyn, um, was able to replace 40%, um, of its cement, uh, for no money. Um, you know, it was fantastic. The stuff sort of reduces [00:19:00] permeability and it was for our foundation and other ways we're gonna need silica fume, which is really expensive.

We delete that. So I'm seeing a lot of progress, but we need a lot more of it and at scale, and then all the rest of the materials as well, you know, aluminum, all the facade stuff, you know, it's not, it's not easy. Um, you know, most of the emissions are in the concrete and steel, so that's what we're focusing on.

But, you know, aluminum's gonna be, I. And others as well. And then it's about tenants. So we have to, all of our tenants need to be, um, you know, on a hundred percent renewable power, not using gas, you know, all on board with all of it, ideally driving all electric cars. Um, and so we, we do support that infrastructure.

And then corporate emissions, you know, how do we have, we're a big global company, we fly around a lot, you know, how do we get to a zero carbon flight? Um, how do we work with our airline partners to make more of that available? So those are the major things on the roadmap. Um, green leasing supports a lot of the tenant work.

Um, truly align tenant landlord interests on energy, both with when we are the tenant, cuz we have, you [00:20:00] know, obviously we have offices and then for our own tenants who, who live in our buildings. So yeah, there's sort of a lot of places, um, on those, on the roadmaps and different business units are starting at different times, right?

So, you know, the Google folks, bless them, are so forward thinking and they're already kind of figuring out how to pilot low carbon refrigerants. You know, it's something that's much harder. Um, You know, in, in development where we, you know, in other development projects where we don't have that in those markets, you know, electric construction equipment, easier to get, um, in Los Angeles than it is in the middle of Kentucky.

You know, where we, you know, we have Fort Campbell for example.

[00:20:35] James Dice: Mm-hmm.

[00:20:36] Sara Neff: yeah, different, different, different start times on different roadmaps, but ultimately we're all going to the same goal. And hopefully, you know, the market transformation from one roadmap, you know, in one business unit helps another one, you know, get going.

[00:20:47] James Dice: Totally. You had a lot on your plate Absolutely. So,

[00:20:53] Sara Neff: am lucky. I have a big team, so it's not just me. So I, I am, I, One of the things I wanna say about lends that I love is, you know, we are [00:21:00] a, um, we're a team of 14 and so, uh, you know, every business unit, um, you know, has folks. And then, and then I also wanna say that we also have to create all that social value, and that's its own roadmap and its own thing.

Um, we are, and so we have somebody on my team who just focuses on, on our foundation work, um, and it is, uh, , you know, And that, that itself is a whole lot of measurement. You know, when we donate to this, um, non-profit versus that non-profit, you know, what is the social return on investment? And there's a really sort of deep calculus around memorizing that. So, uh, creating, um, all the social value is really important. So, for example, one of the things we've learned is that when we actually measure social value impact, um, that, uh, we get, for example, better return giving like a larger donation to. Pro partners versus a smaller amount of money too.

A lot. And maybe that is intuitive to you. That was not intuitive to me. Um, because then we're sort of able to take advantage of more co-benefits. So not, we're not just funding your, um, job training [00:22:00] program, but also there's some mental health benefits because we're able to sort of offer more robust services.

Um, and so, you know, we, we have, uh, you know, a dedicated team that does that as well. So it's, um, it's a lot of work. It's really fun. Um, and I, I'm really grateful that I have, I think, the right number of people to really, you know, really be making meaningful, um, progress on all the things we wanna do.

[00:22:22] James Dice: Absolutely. Um, I wanna circle back on this bucket there that you talked about that you might label procurement, but I'd love for you to delineate between. Um, so you mentioned onsite renewable procurement, you mentioned offsite power purchase agreements. How are those similar or different or inclusive of renewable energy credits and offsets?

And can you just talk about where each of those kind of fit? And it's okay if you repeat yourself from what you said earlier. I just wanna like delineate between those four sort of buckets.

[00:22:57] Sara Neff: Absolutely. So we're talking about energy [00:23:00] procurement and energy procurement. If you can sort of think of a, think of a sort of a, a line that has increasing amounts of additionality, but also increasing amounts of complexity

[00:23:11] James Dice: Hmm.

[00:23:12] Sara Neff: of what that takes. So the

[00:23:13] James Dice: Can you, you pause real quick? What's, what's additionality for people that haven't heard that term before?

[00:23:18] Sara Neff: I'd be happy to explain Additionality just. Hold it. I'm, I'm

[00:23:22] James Dice: Okay.

[00:23:23] Sara Neff: So, um, over here, the easiest thing is to just buy renewable energy certificates, right? So you can just buy them for any broker on the market. They are increasing in price, but they're not hard to buy. People who've been doing it for, um, green building certifications for a long time.

Um, the, so that's great. Their ease of transaction is wonderful. The issue is that they don't have what we call additionality, which is nothing was changed about the.

[00:23:47] James Dice: Yeah, it was an existing solar somewhere

[00:23:51] Sara Neff: Renewables facilities I think they are still important because they create a price on carbon.

Right. And so that market is something that we, we need, [00:24:00] right? In order to be able to put a value in all of this. And so I think there's always gonna be a place for that. And also they make renewables deals, pencil, because you can sell them. And that's important. So I don't wanna, I don't wanna give the impression that I'm, I am anti, um, the renewable energy certificate.

A lot of the energy work that I'm going to rely on really needs them to exist, but they have not changed the world. And so for, because a renewable energy certificate is thrown off, um, by a, you know, a solar or wind farm or something like that. Um, and then that, that renewable energy certificate or environmental attribute is sort of split off from the generation of the energy itself, which is, is sold into the grid.

And then this, this other product, this environmental attribute, can be bought and sold like any commodity.

[00:24:42] James Dice: Mm-hmm.

[00:24:43] Sara Neff: nothing has sort of changed about the world. And so we are okay using those until 2025 and then, or sorry, through 20 we can, we can meet our 2025 goals of scope one and scope two neutral, um, using renewable energy certificates if we want to.

And then by 2030 we have to [00:25:00] stop using them, if not earlier. So then the next sort of to me, easiest is to get your a hundred percent renewable energy from your utility, right? So certain utilities have them, certain don't. Um, for example, where I'm beaming in from Santa Monica, we are on a hundred percent renewable power tariff through the Clean Power Alliance with the community choice.

So, That's binding. I had to sign up. Um, in certain places you pay a little more. I pay a little more in my home. But where we do this in Chicago and Boston, we actually pay less for doing it, um, for how the energy markets work. Those are longer term. So now we're, now we're a little more binding. Um, and those do have some additionality because the utilities do use those monies to then invest in new green projects.

So those are a little more so not available everywhere. Pretty easy to do, but still has a financial obligation to it. And there's some pricing exposure, let's call it either for good or bad.

[00:25:53] James Dice: okay.

[00:25:54] Sara Neff: Um, within this, you know, even I say more difficult, I say, well, the next [00:26:00] sort of most difficult is the offsite power purchase agreement.

Um, so what that is is where you. Basically being a hedge provider. So you're saying, Okay, you know, renewable developer person, um, please develop your wind farm. Um, you will always get a guaranteed price of power from me. And so if the pricing fluctuates, um, you know, if prices go above, you know, a price called a strike price that we've negotiated, um, you're gonna cut me checks.

But if prices fall below that, I'm cutting you checks. Um, you hope that both of you have guessed correctly, that one per, you know, you think you're getting more checks to you than maybe they're, you're given out. Um, and uh, that's great in the sense that that is additional. They will then go build the facility that did not exist before.

So you've added that power to the market. There's obviously financial obligation, uh, uh, implications, there's tax implications, there's obviously legal implications and whatnot, but it's not on site. So you're not sort of dealing with, you're building infrastructure. Um, I really like offsite power purchase agreements.

Um, I think they're very meaningful and they're at a high [00:27:00] scale, um, on site. You know, renewables tend to be very small. Um, then often I think the juice isn't worth the squeeze. So, um, offsite power purchase agreements are, are longer. We're talking now 12 to 15 year deals, if not longer than that. So there's a lot more obligation for a company for a much longer period of time.

But you have added the power. And I think sort of the most complicated is onsite renewables, which we've people have done for a long time, but they're hard, You know, you're having to get not just tax and legal and finance on board, but also you're building, you know, your insurance and your engineer, you know, is the solar gonna make the roof leak?

Is the, you know, when can I do a roof replacement? You know, asset management has to be involved. Um, you know, the installation of solar is really difficult. You know, I definitely had solar where they, you know, like had caused a fire in the electrical room at another project. They shut off the water accidentally in a building.

I mean, it's not easy to put these things in. I think it's very important and meaningful. And obviously you have all the additionality there. Um, and then those things throw off renewable energy certificates that you can then sell if [00:28:00] you'd like. Um, So, so those are sort of the most complicated. So within the world of energy procurement, easiest, I think renewable energy certificates hardest on-site or off-site power purchase agreements

[00:28:12] James Dice: Got it. Got it. Okay, so when you then, just in that last example, onsite renewables, you sell the credits. Are you then able to then claim your net? How does that work for your net zero or your car when accounting?

Then when you buy it and then sell the

[00:28:28] Sara Neff: Mm-hmm excellent question. So, if you sell your environmental attributes, um, and then you do not replace them with other environmental attributes, you cannot make any environmental claims on them. So a great example for us is our military housing. Um, we don't get the renewable energy.

We don't get the renewable energy certificates from the 40 megawatts of solar, and those go to the Department of Defense. So Lendlease can't make any. Around them. So we have it, we can announce that we have this amount of solar, but we're not using that for any kind of neutrality or anything because we [00:29:00] don't have those attributes.

So normally what people do, depending on what they're generating is they do something called renewable energy certificate arbitrage. So they sell their, their renewable energy certificates, which have a higher value than the cheapest ones on the market. Then they buy that volume to cheaply. Uh, typically Texas wind credits are the cheapest and they buy that back.

So I'll give an example. Um, you know, a good friend for a long time ran the sustainability program for, um, a company that had a lot of buildings in Washington dc. Those renewable energy certificates were worth over something like $300 a megawatt hour. The Texas Wind Renewable Energy certificates were like a dollar a megawatt hour, right?

So you could sell all your $300 a megawatt hour, renewable energy certificates, and then. Buy the same volume of Texas wind for $1 and have that arbitrage, keep the revenue stream and still be able to make the claim.

[00:29:53] James Dice: Hmm.

[00:29:53] Sara Neff: how people, um, are able to do

[00:29:55] James Dice: Interesting. What do you think about that practice?

[00:29:58] Sara Neff: I think that is wonderful. [00:30:00] Listen, we have to get these deals done and I want whatever will exist in the market that makes us you. That makes the deal viable. So for example, people ask me if I'm like, sad that the Department of Defense gets our renewable energy certificates. And the answer is that's how it got financed, right?

Like it wouldn't exist without that part of the equation. Um, and the same thing with the Washington DC example. You know, the, the sale of those was how those projects got justified. And so to me, as long as you have the right amount of environmental attributes, at the end of the day, you've done the right thing.

And so I think that, that, yes, there's some people who only want to retire what's called retire the renewable energy certificate soon, that they don't sell them, they don't do their arbitrage. I think that's wonderful as well. But I think we need more renewable power as fast as we can get it, and whatever makes those deals, pencil is what we should be doing.

So I think getting in the way of more solar being created is not a good thing.

[00:30:58] James Dice: totally. [00:31:00] Okay. I want you to, I don't want you to know how to sort of rehash all the different, like the whole spectrum you just went through, but when you think about each of those options, and again, these questions are just me learning on my learning path, trying to understand this, um, where does location and then time of day come into play in terms of, if you buy Texas Wind, for example, but your building's in Seattle, um, and the wind's blowing at night and you're using power during the day, for example.

How, how does that in your, in terms of your carbon Lendlease,


[00:31:37] Sara Neff: Yeah. And it's really, I I love that you mentioned my carbon accounting, right? Because companies have different goals and so we, we go, um, we have third, so for example, our fund with Aware super. All those buildings have to be net neutrally operating from day one, from the day that they stabilize, including the emissions associated.

Construction operations and tenant emissions. Right? And [00:32:00] so we have to go through a third party process for that. Um, so, but other companies have different ways of defining success. Um, so for us, um, what, basically what happened in the world of, because this happened in very much in like real time when I was doing my first offsite power purchase agreement in 2018, um, which was that the, the guidance basically changed.

And instead of having to locate your asset, um, in the same utility territory or geographic area as your project, you could put it anywhere in the United States and it would be fine. Let me tell you why. I think that's a great thing. Um, so let's take, uh, let's, let's take Seattle. I used to have property in Seattle and now I'm switched companies.

Now I don't. But Seattle's great. Seattle is, um, like 80%, uh, hydro powered, right? They, they have so much hydro. Well, that's great, except why. Does it do a particularly lot of good to put more renewables in that area? Right. Wouldn't I want to [00:33:00] put the renewables like in the Dakotas or in West Virginia and coal country, right?

Where I'm actually maybe getting some fossil fuel off the grid. And so I think it's a great thing that we can, we can do these deals where it makes financial sense for us to do, to do them, which is often places that are more carbon intense, depending, Like I'm in California right now, a, it's a highly regulated market, so it's really hard to do deals here.

And second of all, you know, our grid is, uh, depending on where you are in the state, where I am, I think is 45% renewably powered anyway. That's great. Right? But like, maybe there's places that are where it's more meaningful, where that, where that standard is less. So I, uh, you know, I'm, I'm happy that we have the geographic freedom again, we need more renewables.

We know we need a lot more, We don't wanna get in the way of these deals being done. And so I think the geographic.

[00:33:49] James Dice: Mm-hmm.

[00:33:49] Sara Neff: really important. Um, in terms of like the sun goes down or what's happening at night. Um, we, uh, Lendlease doesn't have a 24 7 carbon-free energy goal, but Google [00:34:00] who is our partner, um, and that big development project does.

And so for them it is important to know, you know, what the grid mix is at any one time and to make sure you have the right number of batteries and are generating enough during the day and storing it that you can then deal with the grid when it's less clean. Um, know, so that, so then all of a sudden those kind of calculations that you're talking about become really, really important.

Um, and you have to have storage, um, to, uh, to, to make, to meet that. And so, yes, we do have storage. Um, I did a lot of storage deal. It's my last company. I'm trying to figure out how to do more here. Right now we're storage really focused on, like I said, is the construction equipment. Um, but we want to, you know, figure out more stationary storage as well.

So it really depends on if you have a 24 7 carbon-free energy goal, which would then very much make you worry about grid mix when you are in the day or night as opposed to a net goal where as long as you're generating the right amount of power, you're not gonna sort of worry about what's gonna, what's happening with the [00:35:00] cleanliness or not cleanliness of the grid at any one time.

[00:35:01] James Dice: And net goals are happening like on an out, on an basis,

basically. Okay. Got it. Okay. All right, So I feel like I'm like following you then. Where does offsets, where do offsets into that

[00:35:15] Sara Neff: offsets refer to natural gas. So renewable energy certificates address electricity consumption, carbon offsets, address fuels, um, offsets are a, a much more difficult space, frankly. So a renewable energy certificate, as long as it's greeny certified, these are non-controversial. Like you can point to the solar when you buy the certificate, you know exactly where it came from.

You can Google Earth the picture of the wind farm, the solar farm, it's there. It's generating, there's no sort of concern, at least none that I've ever heard in my career about sort of the veracity of those claims. Carbon offsets are rough, so we purchase them to deal with our fuels consumption. Um, [00:36:00] and we are gonna have to do that for a long time because getting to zero fuel is hard.

I hope, I don't think that the Google project will ever have to buy an offset, cuz they're gonna be, they don't have any gas. My community's business, my military communities are, are gonna, you know, have to, you know, be on offsets for a time. And I just wanna be very clear that those offsets are purchased by Lenley's Corporate, not something the Department of Defense does.

I do not want to things in that relationship that don't exist. Um, we love DOD as a partner. Um, so, uh, so we have to, so we have to have some offsetting, um, you know, for a while. Um, there's basically. Two kinds of offsets. There are avoidance offsets and those, and there are removal offsets. And so avoidance offsets are things like when I, so I drive an electric car, um, in California, when I plug in that car that, um, that charging station is eligible for lcsf low carbon fuel standards credits.

So [00:37:00] because I am driving, not a gas car, an electric car, I've avoided the emissions, right? That would have been generated if I had been driving a gas car. And then there's some carbon credits that come through that. That's great. But to, to really resolve climate change, we're going to have to remove carbon from the atmosphere.

That's harder. It's more expensive. Um, but so Lenley's has, uh, at some point, We'll, we'll move away from avoidance offset into removal offsets. Currently the best way to remove carbon atmosphere is a tree. Um, trees are complicated things. Um, they're wonderful, beautiful, complicated things. It is really hard to, um, do all the claims verification around the amount of carbon a tree has taken out of the atmosphere.

Things get really complicated really quickly as, for example, mature forest is storing a lot of carbon, but it's not removing much new carbon, right? But you don't wanna clear cut that forest and then plant a bunch of new trees, right? [00:38:00] You don't wanna create perverse incentives. Um, and so offsets are complicated.

We only want the highest standard certified offsets, which are, VCU is one, Vera is another. Um, and that's what we use for third party assurance, but it's still a very fraught area. And so we would like to move away from having to purchase. As fast as we can with the knowledge that there will be some residual purchasing, which we will do in the highest quality way that we can think of to do it.

Um, and then moving away from avoidance offsets on some timeframe

[00:38:31] James Dice: Got it. Yeah, that's really interesting thinking about Yeah. Removing or getting into the removal space. Um,

[00:38:38] Sara Neff: like carbon capture, right? That's what that is, is

you know,

[00:38:42] James Dice: Yeah, cuz I, I run, Yeah, we, we run our business on Stripe and Stripe has the stripe, I forget what it's called, uh, program where we can basically automatically, you know, take a percentage of our revenue and they fund removal projects and manner They expensive right now so we [00:39:00] could use, Yeah.

Could use some funds in that department.

[00:39:03] Sara Neff: And I would love to get a renewable natural gas like power purchase agreement, but that's sort of part of the issue, right? Is that we can't get enough renewable natural gas to get a hundred percent renewable gas, gas infrastructure. Um, you know, and those things are. Oh, I mean, almost, I'm trying to do the math in my head, like over 20 x the cost

[00:39:24] James Dice: Mm-hmm.

[00:39:25] Sara Neff: of a, of a VCU certified carbon offset right now.

I mean, it's really, it's hard to justify, um, an r and g,

[00:39:34] James Dice: totally.

[00:39:34] Sara Neff: deal right now, at least on a financial basis.

[00:39:41] James Dice: I want to remind all of you about the building analytics comparison guide, which was a collaboration between us at nexus labs and the team at clockworks analytics. It's used by industry leading facilities, teams, and service provider organizations to make the jump from building automation system alarms, to prioritize and proactive maintenance [00:40:00] using fall detection and diagnostic software.

In the guide, we show how there are actually two kinds of fault detection, diagnostic software, those that start with the first D detection and those that go all the way to diagnostics. And this guy tells the story of the second D and why it's so important. So get the guide at the link in the show notes.

[00:40:19] James Dice: Thank you for explaining all of those different categories because I feel like it can, it can happen a lot more for a lot of more people in the industry to like have someone like explain this. I'm a, We'll probably take this piece of the podcast and like cut it up and just say like, Are you just starting out on your journey here?

Like, listen to Sarah talk about this. Um,

[00:40:40] Sara Neff: your audience is welcome to listen. I also would really highly recommend, um, looking at the resources published, um, both by the Rocky Mountain Institute and the Renewable Energy Buyers and Alliance, Reba.

[00:40:51] James Dice: Okay.

[00:40:52] Sara Neff: lot of what I have just said, you can get, I'm sure better explained, um, through both of those organizations, which is, this is what, you [00:41:00] know,

[00:41:00] James Dice: Totally.

[00:41:01] Sara Neff: and this is a lot of what Reba does, is try to make energy procurement less of a scary unknown place.

[00:41:08] James Dice: Absolutely. Okay. Let's talk about something this audience is probably more expert in. So can you talk about where energy efficiency and sort of deep energy retrofits fit within this roadmap,

um, alongside all these other options?

[00:41:27] Sara Neff: Yes. So, um, the short answer to your question is that a lot of that's really focused on military housing cause that's our existing buildings. Because currently the only buildings that are in our investment management platform are those we build ourselves. So those are, I'm not gonna say that they're perfect, but they are really new and very, very efficient and very high performing.

We are gonna eventually have to get rid of all the ass, which is scary. Um, but, but for some of them, not all. but, um, but, but they're very, very efficiently [00:42:00] running. Um, for our military housing, we have, we have opportunities for energy efficiency, um, which, and, and I love partnering with d o. On those, um, opportunities, um, because, you know, to our defense very much understands that very much wants to reduce taxpayer burden on, um, on energy spend and, you know, lower utility bills, energy resilience, you know, they're great.

So the, the state of plan energy efficiency is of energy efficiency. Sort of used to be the only thing we talked about in the world of sustainability. And now I don't hear it talked about so much anymore as we focus on carbon and big renewables and whatnot. Energy efficiency really, really is important.

Um, I was just on a call this morning about local law 97 in New York, um, which is the most aggressive climate legislation around the built environment that there is in the world, in any city. And. It's hard for them to comply, um, with it. And they really, really need to be very, very energy efficient to do that.

Um, so energy efficiency looks like a lot of different things. It looks like. Um, obviously, you know, the most efficient HVAC equipment you can get, [00:43:00] it looks like an efficient envelope. So is that window film? Are we recommissioning the envelope? You know, are we doing spray foam to, you know, be able to get more, you know, uh, cooling mass, um, in, in a building?

It's also a lot of engagement around plug loads. You know, how do you get your tenants to use less power and yes, efficient lighting and all the rest of it. Um, so that's all really important, but I've just described a bunch of stuff for the most part. Um, and I cannot overemphasize if people take nothing away from this, which is a building is only, can only run as efficiently as its engineer knows how to run the building. adore building engineers. Um, you know, they are an incredibly hardworking, um, group of people. They work a lot of really long hours. They've had a major squeeze in the amount of personnel that they could have. You know, as property managers have been trying to cut costs, you know, they're being asked to cover a lot more square footage with the same amount of time.

Um, but they [00:44:00] control so much of a building's energy consumption. And I spent a lot of time as I know you do, going to conferences and you look at all this fantastic software and the answer is it will not work at all without an engaged building engineer. And there's precious little software out there that's really focused that it's really engineer first.

Um, so I'll tell you a story. So, um, at my last job, um, I've worked out of our corporate headquarters, which is in la. And um, when I was the first one to benchmark these buildings, an energy star, um, those particular ones, we had some others in Long Beach. I cannot take the credit. We're already benchmarked.

Um, and uh, and the building was performing something, I wanna say it had an energy star score of like 65 ish, like solidly, nowhere near the 75 threshold you need for energy star

[00:44:46] James Dice: Mm-hmm.

[00:44:47] Sara Neff: But I had come in, I'd been hired to sort of deal with this efficiency budget that nobody had the time to spend.

And so I got the lighting retrofit done. I got the, you know, this little upgrade here, this utility program there. And within I think two years, the [00:45:00] building had finally eed up to a 76, got it certified. And I was like, Well, my work here is done. Look at all this good that I've done. I've got, I've made the building run more efficiently.

This is as good as it could possibly get. And then that building engineer retired and the new one came in and dropped energy, use another 30%

[00:45:22] James Dice: Whoa.

[00:45:23] Sara Neff: two months he was there. And. And I liked, I really liked, I mean, I liked both of them, but you know, the new engineer, he was like, Well, Sarah, didn't you notice that in the middle of Los Angeles this thing had a gas bill, like in the summer?

Like, didn't that occur to you that maybe there was something wrong? And I was like, Nope. Thought it was for the towels in the gym, like they were on laundry. Like, I thought we just, we provide hot showers for the people who are working out. He's like, Yeah, no. Yes, we have that. But it should have been 10% of what it was.

The previous engineer was doing a lot of simultaneous heating and [00:46:00] cooling of the building. Um, and basically he, you know, got rid of all of that. Uh, you know, took away some tenant control of some of their spaces so they couldn't be heating when the building didn't need it. And, and that was a very humbling experience where I was like, you know what, that's what a great building engineer does, right?

Is can see how, but they have to want to, and they have to be empowered to, and they have to be given the decision making ability to do that. Um, that's a, that's a annoying answer because people just wanna buy a solution, you know, And you, for the most part, unless it's a lighting retrofit, like you can't, I don't care how good you are as a building engineer, like lights or lights, right?

I mean, you can ask for better lights, but, but a lot of the tools out there are visualization tools to get an engineer to change behavior. And it's like the difference between if I want a house, getting a house versus just being given a hammer, like the hammer is a tool. I need to build the house. I really do need this hammer.

But if I do not know how to use this hammer, or I don't care, or I didn't really want the house anyway, the hammer's just gonna sit there unused in a tool shed, Right? So, [00:47:00] Getting that engagement is really, really hard, especially under the constraints that we put our building engineers in. So, you know, love building engineers.

Nobody gets into building engineering for the glory, right? Like these are good people who. I wanted to do their jobs really well. Uh, but unless you have an engineer first mindset, all of your energy efficiency stuff is never really going to reap the rewards. I mean, the best year I ever had in terms of reducing energy consumption and existing buildings was the year I just did an engineer appreciation campaign for free where I made a baseball card for all of our building engineers, um, that had their picture on it and like all their building certifications and like what years and like their best projects.

And I was getting emails like, Sarah, do you appreciate me more than my wife? Like I, I'm so happy that I'm working at a company that really understands what we do and we like blew past. My energy reduction target by like almost double, you know, like I wanted 2% I got, which I know 2% doesn't sound like much, but in a really efficient portfolio is actually a lot, uh, especially when [00:48:00] half the buildings are triple net and we don't control the energies there.

So I need the ones we do control to be really good. We were like four and a half percent or something that year because the engineers were excited and they wanted to do more. Um, and they were great. Um, and we didn't see those savings erode. Um, and so just, uh, yeah, energy efficiency, really, really important, but usually misses the largest part of the.

[00:48:19] James Dice: Totally. So, okay, we, we've talked about efficiency. Um, electrification, refrigerants. offsets, Rex offsite, PPAs, uh, onsite renewables. How do you, as the person that's managing this program, sort of quantify this and see where you're going, see where you're at today compared to where you want to get in 2040?

Like, how does that carbon accounting work for you? Is it a bunch of spreadsheets? Is it, do you have for this? you,

how do you How are you doing this?

[00:48:56] Sara Neff: yeah, we have software and so I'm, I'm lucky, um, because we have [00:49:00] a team in, um, Sydney who, um, sort of are the, the management. Part of sustainability and they are really, really helpful with helping us understand what our numbers are, what our carbon budgets are. One of the things we haven't talked about is sort of the governance of sustainability, but you know, for example, FY 23, which we are in right now, cuz we're on a fiscal year, is the first year that, um, our executive compensation is tied to our carbon budget.

So like, if we don't meet our targets, like the CEO gets paid less, um, and they all voted for it. She knows, um, , but, uh, Yeah, so we have an internal system that tracks all of this stuff. Um, and then there's a lot of analytics that goes into it. I have an analyst on my team, and I do not know how we would function.

I do know how we would function without one, because we, when I showed up, we didn't have one. Everything's a disaster in terms of how am I tracking what, you know, how is this all going? How am I doing this report? How am I, because we're audited by kpmg. We do the global real [00:50:00] estate sustainability benchmark grads, but I mean, our data gets slice and dice in so many ways, and we have to have it, and it has to, and we have to know how many res we're buying and how many offsets we're buying and we don't know, and how much power for the offsite PPA we need.

And without great data, we don't know how any of that, you know, data is this constant, you know, just thorn in the side of everybody who wants to do sustainability because it is so much time and data takes love. At the end of the day, it takes manpower. Um, there is just a level at which you can automate a lot of it, but unless there are humans making sure that it's accurate.

[00:50:33] James Dice: Yeah,

[00:50:33] Sara Neff: just are going to go wrong. And any software that says up after this, you know, you won't need to QA your data anymore. It is just gonna be, the mistakes are harder to find, frankly, like,

[00:50:43] James Dice: totally. Where do you see, so you guys have an amazing leader yourself leading the group. You have 14 people on the team. You have resources, you have the people in Sydney, right? Where do you see for all the organizations, cause we gotta like [00:51:00] decarbonize all the buildings, not just your buildings, right?

Where do you see that piece going? Like, do we need. Startups to innovate in that space? Or like, where do you see the, like the technology helping us have the, the manpower?

[00:51:15] Sara Neff: I would say that where I am excited is I think the technology is scaling. So startups are great and they're solving problems that we are currently having, but we have so many solutions out there. That just need to scale. Um, and that is really getting those things to scale is really what's gonna move the needle.

So we need to move past the aid stage of this one pilot to like, let's do it everywhere kind of thing. Um, and that's really, I think what people are excited, I would, I'm excited about is how do we get, you know, you know, and I'm seeing that, for example, I think data benchmarking software has scaled, right?

So like, it feels like everybody who wants to play in this space has a solution. If they wanna just use Energy Star [00:52:00] Portfolio Manager, which is free for anybody, that's great. Awesome. If they need anything more than that. So I'm an international company, so obviously what's not gonna work for us, cuz it doesn't work.

If you have buildings in Italy, um, you know, there are solutions and those are skilled. How do we get more of that? How do we get more energy efficiency, software skill that's very engineer friendly? How do we. , you know, more, um, software that doesn't, you know, that maybe doesn't need an engineer because it's, you know, modulating, you know, building a function, um, sort of more automatically than then you can manually intervene if you need to.

You know, So those are kind of where I'm seeing is like, it's not the pilot, it's the scale. It's like the startup that's ready to maybe get, its like 10 million plus round of funding. Um, and that's really hard, um, because in clean tech, and there are a lot of folks working on this, but unlike regular, um, you know, PropTech or just tech in general.

There's this weird valley of death where there's not really late stage VC to early PE funding. So it's like not so [00:53:00] hard to raise your angel round, like be the tinkering in your garage, even raising up to your first million, like your sort of series A and whatnot. But then after that, like the, the growth capital that is needed, there's, there's just like, there's something missing and there are people playing this face.

Fifth wall is in there, you know, before she went back into public service, Christine Herrada, um, and ix, um, Investments was working on exactly this. Um, because we need the scale and one of the reasons we haven't seen the scale, it's because there's sort of a, a suffocation of capital where companies don't have enough to really get large.

Um, and that's I think one of the major problems that has to get solved. Um, and I do see more folks hiring internal teams, right?

[00:53:40] James Dice: Yep.

[00:53:41] Sara Neff: and basically every company that didn't have at least one sustainability person, that's if, especially if you're publicly traded now, has that person and a lot of the private ones do too.

Um, you know, there is, there is enough pressure from your, your external funding partners, even if you don't have stockholders that care. Um, and so, you know, for example, I feel like [00:54:00] all of private equity showed up last year and just started hiring everybody. And you know, it's, it's the, the drum work is crazy for people who do what I do.

Um, so I, I do see that that changing right now, there's a deep demand for talent. I think companies are recognizing that. But it's not just your first person, right? Your first person's dealing with data and reporting, because those are, those are the most pressing needs is to satisfy investors and deal with your SCC disclosures.

But it's like the third and fourth people who are actually able to implement and get the job done. Um, we are seeing more people do that. Um, but it's not as fast as I'd like it.

[00:54:32] James Dice: Totally. Yeah. That's one of the things that I'm thinking about more and more is how do we make, you know, decarbonize buildings that are 20,000 square feet in Toledo, Right? Like, that's a totally different answer.

[00:54:47] Sara Neff: It is a totally different answer, but people have, people know the answer. It's just unpleasant. So one of my favorite companies, um, who, uh, I'll just shout out to them, uh, uh, they're called third act. Um, this is their bread butter, [00:55:00] It's the Class B and C stuff. Right? Um, and, uh, in their, um, but it's a totally different way of, of, um, reaching their constituents, right?

Reaching their customers. Like it's not these, you know, go to a conference and hear about a program. You know, if you are a mom and pop owner of a nail salon, you're not going to a conference to learn about your, it just doesn't know they're, you're not, you're not engaged with like the utility. What part of the website.

And so it's a lot more direct contact with them, um, you know, to, you know, to get in there. And the nice things, those buildings are actually like, the, the nice things about their, your 20,000 square foot thing in Toledo is that it probably doesn't have a very complicated system, right? Like Ultimate's actually not that hard to make it a lot more energy efficient.

And so, you know, and, but they're not gonna have any funding up front to do any of this, right? So you need a completely different financing model and a completely different model of, um, reaching those folks. Um, once they do do that and they are talking to them directly, um, they actually do get a [00:56:00] really high response rate.

And so, you know, it's a kind of a, are you willing to get your hands dirty and do this? So there are folks that do this and successfully, but I will say, you know, I, I, I love her company and I wish she had more competitors. Um, not enough people kind of wanna play in the, you know, I think, what is it something like 50% or more of all of our real estate is exactly that stuff you were talking about in smaller, I know very few companies that are focused on it.

[00:56:23] James Dice: it's called Third Act.

[00:56:24] Sara Neff: third act. Yeah Run by a woman named Diane Schraeder

[00:56:27] James Dice: We'll check that out. Okay. I wanna get to, before we close off, I want to get to tenant landlord interactions around this. So,

[00:56:37] Sara Neff: totally.

[00:56:38] James Dice: maybe first if you could just start by explaining what the split incentive is and then we of jump off from there.

[00:56:44] Sara Neff: Absolutely. So the classic split incentive, um, is what I have in my military. So let's, let's take our military homes as a classic example. If you are a military family, you do not pay your own energy bill.

[00:56:58] James Dice: Okay.

[00:56:59] Sara Neff: [00:57:00] That's, that's not, that's not paid for by you. That's paid for by the project, which is sort of actually complicated as split worth.

The point is you're not paying it. So, uh, what, So if you, um, if one of your lights goes out and you, that's a bad example. But if you have the opportunity to, you know, invest in or behave in a way that's makes the, the house more energy efficient, you don't get any of. Incentive. Right? None. So how, why would you all be motivated to care?

So this is the thing, like the tenant controls a lot of the energy use, but it's the landlord paying the energy bill, you know, or the tenant's paying the bill. And it's, so the, the idea is the person who control. So it depends on how the lease works, but, um, the person controlling the, the, um, energy spend isn't the person who actually like controls the building.

So that creates a split incentive. The, like when I had a lot of triple net life science buildings, you know, are they paying their energy, energy bills? So if I invest in a lighting upgrade, they get the benefit of lighting upgrade and nothing happens to me. Right? Um, [00:58:00] so, uh, so that is the split incentive and it saw through green. All right. So, um, you know, my leases now at Lendlease and my leases before Hillary were written such that, um, I, the landlord, um, can make an investment in your property. I don't have to actually ask you about it in advance and it can be recovered over the lifetime of the equipment or the payback period, or seven years, whatever is shorter.

So the problem is an LED is gonna last for 20 years. You're never gonna get made whole if you're recovering it over a payback period. But if you're gonna over the lifetime of the equipment, But if you can cover it over the payback period, you'll get your money back in three years. And then the landlords are motivated because they wanna show that their building has lower operating expenses, cuz that's more attractive to tenants.

So green leases are how you solve that split incentive issue.

[00:58:45] James Dice: Cool. And what is the, what is the status cuz people may have heard of green leases, but I don't think a lot of people have a grasp for How standard is that

[00:58:54] Sara Neff: Mm-hmm. ? Yeah.

[00:58:55] James Dice: your big cities?

[00:58:56] Sara Neff: Absolutely. So, um, so look no further than the [00:59:00] Institute for Market Transformation, um, which is a fantastic nonprofit based in Washington, dc Um, they created, uh, Green Lease leaders. So, um, just Google Green Lease Leaders and it'll come right up. Um, and they basically created the standard for what Green leasing is.

You can download for free, all of the reference materials, you can see what goes in there. Um, and it's an approachable program. It wasn't designed to be, you know, punitive. It was, and it really catalyzed the market. I mean, my gosh, we were part of the inaugural class of Green Lease Leaders back in 2014, and it was like, I mean, the Motley Fool covered it like it was, it was crazy.

People just thought this could not possibly be done. And then within a couple years there's a standard practice basically to have to solve the split incentive to um, say that, uh, tenants had to give you their data, right? So that's the other reason you need a green lease is cuz we have all these disclosure requirements.

And if you're a triple net building, you know, the tenants can be like, No, I don't have to give you the data. Well, then you're really messed up as a landlord trying to, you know, satisfy a GV partner or whatever, or this, that and the other. [01:00:00] So solving that is really important. They have defined what it is, um, of the program has evolved somewhat in the sense that they have different levels of recognition and they've added a social component.

Um, but there's things like, are you willing to disclose whole building energy use whole building water use? Are you getting the utility data? Have you solved the split incentive? Is there contact information? So if a tenant cares about sustainability, do they know even who to talk to? Are there best practices on energy efficiency of the building and multifamily when the units turn, you know, is that, is energy efficiency looked at?

Are you inspecting to make sure that there's not air leaks and mold over here and and whatnot? Are you just flapping on a coat of paint and hoping everything's fine? You know, so those the kind of things that we're looking at for a lease that would make that a green lease and solve a lot of that tenant issue that we're talking about.

We also just wanna make it easy for tenants to do the right thing. So for example, I'm exploring how to help my tenants know that they have the possibility of switching to a hundred percent renewable energy. You know, for example, [01:01:00] um, it's, it's one of those things where it's like a slightly, it's not even that hard of a form to navigate, but you do have to click a few things and actually have your bill in front of you so you know what your account number is.

I mean, like these life hassles that we have all the time, you know, I'm trying to figure out how to streamline that and make it easy. And how about our leasing managers sort of train our tenants to do it, You know, maybe kinda a big workshop on Earth Day or something to help them.

[01:01:22] James Dice: Totally. So one of the things that strikes me about this is, number one, you're on both Lendlease on both sides of this, uh, you know, tenant landlord chasm essentially. And one of the other things that strikes me about this is when both sides are on board, this seems like a pretty straightforward thing.

You just adopt best practices that others have done, essentially, like you're saying with imt. What do you advice do you give when you're on one side? Say you're the tenant and you're trying to engage the landlord and try to get them on board, or you could be the landlord and your tenant isn't [01:02:00] engaged.

So how do you bridge that gap when you're on either?

[01:02:04] Sara Neff: Yeah. Um, it is really hard if one side isn't responsive, so the, my major advice is have a lease template so that the language that you need in there is there every time. And you're not trying to reinvent the wheel every time you're doing this because that is a recipe for the things that you need, not ending up with a final lease.

I would also highly recommend getting your brokers trained because you know brokers, you know, they have, they have to get their deals closed. You don't wanna cause deal friction. And so unless they really understand, I mean, it took me years to try to get all of our brokers on board with, do not cut out the utility disclosure language.

It would always come back struck. And I was like, Nope. You've put that right back in and I'm willing to take it in different forms if Okay, if 10 days is too short, you can have two weeks, you can have 30 days if you really need to, if I just need to know who that is. Um, so trained brokers is really, really important, but get it into your least templates and have the people actually in the room know what's [01:03:00] happening, I think is, is really, really important, I think.

But asking the question is really key because, you know, the first thing most landlords say when they don't care about sustainability is, well, the tenants never ask for it. And the tenants say, Well, the landlord never mentions it, so I guess they don't know what they're doing. Right? So asking the question, you know, maybe it, you're gonna get a blank stare, but that is, you'd be surprised how you know much changes internally, especially honestly if you're an office tenant in this environment where, Is it work from home?

Are we about to have a recession or whatnot? You know, office landlords really need to hold onto their tenants. They wanna make you happy. You can start asking for this stuff and you will be listened to. Or at least we can start the conversation and maybe there's a shared cost or maybe something else.

But ultimately, if, if I'm a tenant, especially an office tenant, um, why am I letting the landlord waste my money? Right? Tenants ultimately always pay their energy bill. They either pay it up front to the utility or they're paying for it in the common area. Maintenance charge, the cam charge.

[01:03:54] James Dice: Yep.

[01:03:55] Sara Neff: So if, if my landlord isn't caring about sustainability, I'm just being overcharged to my utilities, [01:04:00] which should be unacceptable to anybody, especially when we're about to go into recession, right?

So, , you know, asking these questions and advocating and saying, This is important to me, you know, is, is what needs to happen. Now I will say, you know, I had the deeply pleasurable experience of, um, one of my best friends in sustainability, um, is the, is the sustainability person for our landlord in Chicago and New York.

And so when I came in and said, and I said, Goodness, we don't seem to have a green leasing program. Um, uh, these were sort of older leases and whatnot and I called him up and I said, Can I want, can we have these lease amendments? And he said, This sounds great. And now I can show my people that there's a tenant that cares about sustainability.

And we, you know, very quickly got all the language that we needed in there and got recognition. That was great and it was a huge win. And now we're starting an air quality program cuz now everybody knows each other. And, um, it's been, you know, it's been wonderful cuz really the conversations do continue.

Um, so once we started with the leasing, then that sort of opened up all the dialogue about, um, other things that we think is.

[01:04:55] James Dice: Brilliant. Yeah, and I've heard this from a lot of other, I've heard this from a lot of [01:05:00] landlords recently, where it seems like they're having tenants come to them and say, you know, what are you guys doing for sharing data? What are guys doing for indoor air quality tracking? What are you guys doing for metering?

Like, it seems like there's like a, What are you doing for X conversation happening industry right now?


[01:05:17] Sara Neff: so long overdue. I mean, I had a whole, um, TEDx talk about this where it was just like, if, if you could, if everybody could just ask for the Energy Star score of their building and how many parts per billion of CO2 there is, um, we would change the world very quickly, right? Like, we just need to make these demands of our buildings.

You should know what the air in your house is that you're breathing. You should know what it's like in your office and, and you should ask for it to be optimal for your health and productivity. And you shouldn't just allow your building to waste a bunch of your money. Ultimately, one way or the other, you're paying.

Um, you know, in its utilities and asking the question is how we get this done. So it's been a long time coming, but I am seeing sort of the, the bright spots.

[01:05:59] James Dice: [01:06:00] Totally. Well, that's a good place to, to end off, Sarah, let's, let's go with my last question here, is what, what podcasts or books have had a major impact on you lately? And be personally or professionally, or documentaries or movies. think I said Dune one time had a, had a, had a big impact on me. So it doesn't have to be a book or a podcast.

[01:06:21] Sara Neff: Oh, sure. Uh, let me think one of the books that's been, um, affecting me, uh, lately, um, is a book called California Burning by Catherine Blunt, who is a, um, Wall Street Journal, a reporter, and it's about the bankruptcy of pg e and, um, and I've, you know, been a long time, um, Californian and, uh, for the last, you know, since 2010, um, I've worked for a company that has owned property.

[01:06:45] James Dice: mm-hmm.

[01:06:46] Sara Neff: PG and e Territory, Pacific Acid electric. And, um, because pg e was the sort of the largest bankruptcy as a result of climate change that we've had so far. Um, and that was, and the issue was fires caused by, um, by [01:07:00] maintenance. And the reason that that book had a lot of effect me is because, um, I think it's really, really important to understand the motivations and processes that cause businesses to make decisions.

So pg e um, was trying to demonstrate profitability. It had to, and as a result, um, investing in maintenance, you know, wasn't going to drive that result. And so lines weren't inspected like they could have been. And, um, and then that's what happened where there was a cable that fell off. A hook was, that was over a hundred years old, that PG didn't even build, hadn't been infected, and then inspected broke, and then caused, um, you know, fires that, that, you know, obviously horrible loss of life and property and, um, ultimately bankrupt the company.

And so I think. The reason that that is important is because I think it's critical that people understand the motivations behind why a company might or might not care about sustainability. It's why I got a business degree, and the best thing I learned in business school is accounting, which is odd. I wouldn't even [01:08:00] voluntarily take in accounting was a required class.

And actually it's fascinating because you actually learn like here is how a company, you know, here is what defines a company doing well or not is in the accounting. And if it is, if there is not an account for a thing like contribution to climate change or how likely we we are to get sued or whatever, then it just doesn't matter.

It doesn't exist. And so, and this is how companies get motivated to act in one way or another. And so pg e was motivated to act in a way that didn't. That that wasn't maintenance focused. And I will say that the current CEO of, of pg e, um, I think required everybody. I don't know if everybody at the entire company, but everybody in management to read the book, um, took it really seriously.

And you're, you're talking about creating this change. And so the other reason this book had a lot of meetings because we have the ability to change companies and sort of seeing what has had, what has happened, both to them and to, um, you know, other companies, other people have reading it, are reading it and, you know, how are we gonna get our [01:09:00] utilities to be safer?

I mean, not to end on a downer note, but in California, all the energy efficiency work I've ever done has basically been erased by the fires we have here. Right. And all those emissions that are going up, you know, to our forestry discussion earlier. And it is heartening to me. we are seeing that change, um, and we're seeing changes in the way companies run.

And I think of, hmm, how, how is our accounting changing how companies think? It's where I'm really excited about the SCC disclosures because I think it's gonna force companies to make this part of their accounting. I think we're gonna see a lot of change. Um, so yes, California Burning recommended it

[01:09:36] James Dice: I, I'm actually in chapter two of the book right

[01:09:39] Sara Neff: Oh, really? Excellent.

[01:09:40] James Dice: Yeah, I, I heard about it from Ben Meyers who we're probably mutually connected with. He was, he was finishing, uh, finishing the book a few weeks ago when I was having coffee with him. And shout out to Ben. He's


[01:09:53] Sara Neff: Shout out to Ben. Hey Ben.

[01:09:54] James Dice: Thanks, Ben. Uh, but yeah, that book seems to be making, making its so [01:10:00] I look forward to continuing to read it. Well, cool. Sarah, this has been awesome. It's great to connect with you. Thanks for your continued leadership on all of these topics.

[01:10:10] Sara Neff: Thank you so much and thank you so much for.