INSIGHT: Sustainability Planning for a Different (but Not Entirely New) Post-Pandemic World

Over the past decade or so, startups, emerging growth companies, and multinational corporations alike pursued a relatively direct path toward increased sustainability. Then came the novel coronavirus.

The economic impact of the global Covid-19 pandemic has been, in a word, massive. As entire sectors of the worldwide economy have ground to a halt, should—can—business executives maintain their focus on sustainability initiatives when so many other issues are claiming their attention? The answer is yes.

While the pandemic itself will pass, its effects will be felt for many years. With this in mind, businesses should build on past successes and take a hard look at large-scale business and economic trends in order to make effective sustainability decisions at each step in the real estate process, from site selection and land acquisition to financing, purchasing, designing, building, leasing, and disposing of buildings and facilities.

A (Once) Clear Path—Businesses’ Steps Toward Sustainability

Many businesses have benefited from the efforts of state and local governments to develop and implement sustainability initiatives. For example, with more than 10,000 wind turbines generating electricity and 80,000 turbines in operation for pumping water, Texas has the highest wind power generation of all 50 states—and has significant as-yet untapped potential. The Texas Renewable Portfolio Standard (RPS) was signed into law by then-Gov. George Bush in 1999 and has consistently achieved its renewable-energy output mandates years ahead of schedule.

In addition to Texas, RPSs have been adopted by 29 other states, Washington, D.C., and three territories, requiring a specific percentage of electricity sold by utility companies to come from renewable resources, while seven more states and one territory have set renewable energy goals.

Cities across the country have enacted caps on greenhouse gas emissions for commercial properties, or are expected to. Lenders are also playing a role in promoting sustainability, including—in some cases—tying interest rates to the number of Leadership in Energy and Environmental Design (LEED)-rated buildings owned and operated by a borrower. Green leases have become more popular, often including terms covering common area lighting, solar energy use, the transference of energy usage data, and other issues.

In recent years, a growing number of large companies included sustainability in their broader corporate strategies. Walmart signed a long-term agreement with Alabama Power to purchase power from a new 72-megawatt solar facility in Chambers County that went online at the end of 2017. Amazon developed dozens of renewable energy projects around the world that will generate millions of megawatts of renewable energy to power its data and fulfillment centers.

Businesses may also benefit from recent and future federal efforts to further develop and implement sustainability initiatives. The House recently passed the Growing Renewable Energy and Efficiency Now Act of 2020, more commonly known as the GREEN Act, a part of H.R. 2, the Moving Forward Act. The GREEN Act, in part, increases investment tax credits for solar, wind, and geothermal renewable energy projects. Although the final form and passage of the GREEN Act remains uncertain, businesses should monitor the progression of this act for future sustainability incentives.

Companies are currently developing groundbreaking, high-volume wind turbines and simultaneously developing a range of offshore wind-based power generation facilities across the Gulf Coast. This area, in particular, offers significant environmental, geological, infrastructure, and workforce synergies with the existing oil and gas industry that make it a prime area for the development of wind power.

From a solar-energy perspective, construction, connection, and maintenance costs are lower than ever; the technology is scalable; and the percentage of land in rural and urban centers that lends itself to solar energy production is significantly greater than that which can support wind energy production. The federal government may have dropped the ball for reducing the solar investment tax credit in the 2020 budget deal, but states and local municipalities have stepped up by passing renewable energy legislation. New York state passed the Accelerated Renewable Energy Growth and Community Benefit Act to help jump-start its goal of having 70% of the electricity consumed in New York coming in the form of a renewable source by 2030.

Some Issues Haven’t Changed …

As developers and businesses consider renewable energy initiatives, they must take into account a number of issues: local and state laws governing mineral and surface rights; zoning and land use restrictions; federal and state energy, safety, and health regulations; permitting and inspection processes; and public perceptions and community buy-in, among others.

From a contracts and agreements perspective, renewable energy systems may involve complex energy land agreements, special lease provisions, co-location agreements, shared-facilities agreements, and potential government subsidies. The ability to finance and build the additional infrastructure to store and transport energy, the useful life of the technology for the purposes of financing, and potential tax credits and other incentives must also be taken into consideration.

… But Post-Pandemic Trends Will Play a Major Role

Although we are only six months into the Covid-19 pandemic, it is already having a clear impact in many areas. Many of the trends will outlast the pandemic and, taken together, will have major consequences. There is already an increased need for distribution and warehouse facilities, data centers, and communications infrastructure, and less demand for new restaurant, retail, entertainment, and office space.

The current presidential administration will also have an impact on future renewable energy trends. Although the Covid-19 pandemic is the direct cause of the loss of a substantial amount of jobs and revenue in both the renewable and non-renewable energy sectors, the Trump administration continues to favor the implementation of policies benefiting the non-renewable energy sector.

With this in mind, businesses must look beyond the immediate pandemic and make sustainable-energy choices that will support new ways of—and new locations for—doing business for the foreseeable future. Sustainability is a goal that all businesses can strive for; and similarly to how cities have been praised for pragmatism over politics by gathering into networks to share best practices and innovation, businesses could model this approach to prioritize sustainability over the balance sheet.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Jeffry W. Gray is a partner in Jones Walker LLP’s corporate practice group. For more than 30 years, he has concentrated on corporate and commercial transactions, with an emphasis on commercial real estate development.