• Institute for Sustainable Investing

Don’t Waste Your Energy

The business of energy efficiency has the potential to present new opportunities.

“The built environment is a major source of the greenhouse gas (GHG) emissions fuelling climate change - responsible for nearly 33 percent of global emissions.” 
– Morgan Stanley Institute for Sustainable Investing.

Residential, commercial and public buildings account for more than an estimated 30% of the world’s energy consumption, according to figures from the International Energy Agency (IEA) that were cited in a 2017 report from Morgan Stanley Research.

Alarmingly, the report also notes that growth in the amount of occupied space, combined with increasing service demands, could lead to a doubling of energy consumption by 2050 if nothing is donei.

There is light on the horizon however, with research by the World Business Council for Sustainable Development (WBCSD) suggesting that a 60% reduction in energy use and CO2 emissions is, in fact, achievable by 2050ii.

Demand for energy efficient building materials and equipment will increase to reduce costs and help tackle climate change.

- Morgan Stanley Institute for Sustainable Investing.

Away from the residential sector, our places of business are key offenders, with the IEA estimating that approximately 30% of the energy consumed in commercial buildings is used inefficiently or unnecessarily.

The financial cost, aside from any environmental recklessness, would amount to an eye-watering figure. Similarly, consider the potential financial benefits of such an amount if it were transformed into savings, simply through the introduction of more energy efficient practices, technologies or smarter architecture.

In our view, investors can potentially reap financial benefits across key areas including revenue, financing costs, operating expenses, capital expenses and property appreciation.

- Morgan Stanley Institute for Sustainable Investing.

In response to the demand for efficient solutions, a global trend is emerging toward building efficiency and performance optimisation. It’s a trend that’s being viewed as a value driver for real estate investors.

Analysis from Morgan Stanley has posited that millions of dollars annually, in reduced utility costs alone, could be saved by using existing green retrofit technology in offices. Additionally, the savings would lead to a sizable increase in asset value. The research also indicates a link between building efficiency technologies and positive impacts on energy expenses, water expenses and financing costs.

As cities around the world continue to expand, the role of sustainability may emerge as a new frontier in the real estate sector, representing new opportunities for investors, particularly if new technology converges with symbiotic changes to relevant regulation.

 

For information on sustainability related investment opportunities, please contact your Morgan Stanley Financial Adviser.

 

i‘Building Energy Efficiency’. Faty Dembele, Jessica Alsford CFA, Victoria Chapelow, Ben Uglow, Lucie A Carrier, Alejandra Pereda, Eva T Zlotnicka, Nigel Coe, Yoshinao Ibara. Morgan Stanley Research. May 2, 2017.

ii‘Embedding Sustainability into Valuation.’ Morgan Stanley Research, January 2015.