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THE

BUSINESS

CASE FOR

GREEN

BUILDING

www.worldgbc.org

A Review of the Costs and

Benets for Developers,

Investors and Occupants

World Green Building Council grants you

the right to download one copy of this

report for your personal review. No right

of further reproduction or distribution is

granted. For further reproduction rights,

please contact oﬃce@worldgbc.org.

Project Partner

Principal Sponsors

Sponsors

Foreword 2

Executive Summary 6

Introduction 12

THE BUSINESS BENEFITS

DESIGN AND CONSTRUCTION COST 18

Santiago Rising 25

Life Cycle Cost Assessment by Lisa Matthiesen, Integral Group 29

ASSET VALUE 32

Green Partnership: A Good News Story 43

Reﬂecting the Past & Embracing the Future by Ursula Hartenberger, RICS and Sarah Sayce, Kingston University 45

OPERATING COSTS 48

Bright Lights, Big City 53

Exemplary by Any Measure 54

Making Green Leases Work by Shengkai Chiu, Jones Lang LaSalle 57

WORKPLACE PRODUCTIVITY AND HEALTH 64

Creating Healthy Buildings For Healthy People by George Salah, Google 70

Refurbishment Reaps Rewards 75

Talent Attraction and Retention in Green Buildings by Nicola Milne 76

RISK MITIGATION 80

Energy Eﬃciency Shines 85

Sustainability at the Portfolio Level by Nils Kok, Maastricht University 89

SCALING UP FROM GREEN BUILDINGS TO GREEN CITIES

The Carrot and the Stick by Jonathan Laski, C40 Cities Climate Leadership Group 96

Green Places are Great Places 101

Codes, Compliance and Collaboration 103

Greening a City the PlaNYC Way by Hilary Beber and Stacy Lee, NYC Mayor’s Oﬃce of Long-Term Planning & Sustainability 105

Abu Dhabi’s First Sustainable Mandate 106

GLOSSARY AND REFERENCES

Glossary 108

References 110

ACKNOWLEDGEMENTS

The Steering Committee 114

Acknowledgements 116

About the Project Partners (WorldGBC and PRP) 118

About the Premium Sponsors (Skanska, Grosvenor, Abu Dhabi) 120

TABLE OF CONTENTS

INTRODUCTION

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THEBUSINESSCASEFORGREENBUILDINGwww.worldgbc.orgAReviewoftheCostsandBenefitsforDevelopers,InvestorsandOccupants©2013WorldGreenBuildingCouncil.WorldGreenBuildingCouncilgrantsyoutherighttodownloadonecopyofthisreportforyourpersonalreview.Norightoffurtherreproductionordistributionisgranted.Forfurtherreproductionrights,pleasecontactoffice@worldgbc.org.ProjectPartnerPrincipalSponsorsSponsorsForeword2ExecutiveSummary6Introduction12THEBUSINESSBENEFITSDESIGNANDCONSTRUCTIONCOST18SantiagoRising25LifeCycleCostAssessmentbyLisaMatthiesen,IntegralGroup29ASSETVALUE32GreenPartnership:AGoodNewsStory43ReflectingthePast&EmbracingtheFuturebyUrsulaHartenberger,RICSandSarahSayce,KingstonUniversity45OPERATINGCOSTS48BrightLights,BigCity53ExemplarybyAnyMeasure54MakingGreenLeasesWorkbyShengkaiChiu,JonesLangLaSalle57WORKPLACEPRODUCTIVITYANDHEALTH64CreatingHealthyBuildingsForHealthyPeoplebyGeorgeSalah,Google70RefurbishmentReapsRewards75TalentAttractionandRetentioninGreenBuildingsbyNicolaMilne76RISKMITIGATION80EnergyEfficiencyShines85SustainabilityatthePortfolioLevelbyNilsKok,MaastrichtUniversity89SCALINGUPFROMGREENBUILDINGSTOGREENCITIESTheCarrotandtheStickbyJonathanLaski,C40CitiesClimateLeadershipGroup96GreenPlacesareGreatPlaces101Codes,ComplianceandCollaboration103GreeningaCitythePlaNYCWaybyHilaryBeberandStacyLee,NYCMayor’sOfficeofLong-TermPlanning&Sustainability105AbuDhabi’sFirstSustainableMandate106GLOSSARYANDREFERENCESGlossary108References110ACKNOWLEDGEMENTSTheSteeringCommittee114Acknowledgements116AbouttheProjectPartners(WorldGBCandPRP)118AboutthePremiumSponsors(Skanska,Grosvenor,AbuDhabi)120TABLEOFCONTENTSINTRODUCTIONTheWorldGreenBuildingCouncilanditscoalitionofgreenbuildingcouncilsfrom94countriessharethesamegoal:tocreateabuiltenvironmentthatwillgivepeoplebetter,brighter,healthierspacestolive,workandplay.Butthoseofuswhoworkintheindustryarekeenlyawarethatgoodintentionslikethesearenotenough.Greenbuildingsmustperform,andtheymustdosoacrossahostofmetrics,including,andespecially,financialones.Thislatestreport,“TheBusinessCaseforGreenBuilding:AReviewoftheCostsandBenefitsforDevelopers,InvestorsandOccupants,”confirmsyetagainthatwhenenvironmentalstrategies—alongwithprogrammanagement—areintegratedintothedevelopmentprocessfromthebeginningofabuilding’slifecycle,greenbuildingssaveenergy,savewater,savepreciousresourcesandmostimportantly,savemoney.Andthecosttobuildmoresustainablycontinuestofall.Overthepast20years,thebuildingindustryhassystematicallyreduceddesignandconstructioncostsasbuildingcodesaroundtheglobebecomestricter,supplychainsforgreenmaterialsandtechnologiesreachmaturationandthedesignprofessionbecomesmoredexterousatdeliveringcost-effectivegreenbuildingdesign.Greenbuildinghasinspiredcountlessmaterial,productandprocessinnovationsthathavespeededuptheadoptionofgreendesign,construction,andoperationsacrosstheglobe.Today,greenbuildingisahalf-trilliondollarindustryintheUnitedStates,andmorethanatrilliondollarindustryworldwide.TheWorldGBCisapartofaglobalmovementofpeoplefromwidelydifferentbackgrounds,circumstances,cultures,countriesandindustries.Weallcontinuetounitearoundasingularcommitment–notjusttobuildinggreen,clean,sustainablebuildings,butalsotobuildingsustainablecitiesandcommunitiesandasustainableworld.Asthisreportandotherscontinuetounderscore,greenbuildingplaysafundamentalandcost-efficientroleintacklingsomeoftheimmediatechallengesofourtimes.TheWorldGBCisproudtocontinuetoplayaleadershiproleintheexplosivegrowthofglobalgreenbuilding.FOREWORD2THEBUSINESSCASEFORGREENBUILDINGRickFedrizziChairmanWorldGBCFOREWORDSomeregardenvironmentalconcernsascostlyandnon-profitablerestraints.Someevenneglecttheneedforsustainableuseofnaturalresources.Unfortunately,takingthisstandmeanslosingopportunitiestomakeadifference.Everyday,wegainnewinformationaboutthestateoftheplanet.Butonlyrarelydowegetanyadviceonhowtoactprofitablygoingforward.Thatiswhythislong-awaitedreportisneededsomuch.WeareveryproudtobeassociatedwiththeWGBCandthisauthoritativework.Itpresentsstrongevidencethatgoinggreenisgoodbusiness–sometimesevenforunexpectedreasons.Forexample,greenbuildingswithmoredaylightandbetterair-qualityenhancethewell-beingoftheusersandofferthemthebestpossibleconditionstooutperform.Thisworkpresentsthefactsandfigures–nowitisamatterofmind-set.Everyonewhoisengagedinthedevelopmentofoursocietiesneedtorealizethatittakesanewapproachtoreallysucceed.Greenisnotabolt-ongadget–keytosuccessistomakegreenanintegratedandnaturalpartoftheprocessfromthefirstdayofplanningandthroughtheentirelifeofabuilding.Asamajorinternationalconstructionanddevelopmentcompanyandearlyadopterofthegreenagendaweareactivelyseekingthebestsolutionsinthelongrun.Whatwe–owners,authorities,developers,builders,tenantsandevenusers–decidetodotodaywillhavealastingimpact.Afteradecadeoflessonslearnedwenowknowgreenbuildingsarehigh-performingineveryaspect–environmentallyandsociallyaswellaseconomically.Ihopethisreportwillinspireusalltomaketherightchoicesandtakethenextstep.Intheenditisaboutcreatingandfuture-proofingvalue.Sharingtheresponsibilitywillgrantusallashareofthegain.JohanKarlströmPresidentandCEOSkanska3Thepopulationofourglobalcitiesisprojectedtodoubleby2050.Withthischallengebeforeus,thepropertyindustrymustbebraveandinnovativeifwearetocreateandmanagebuildings,communitiesandcitieswhicharenotonlyefficientinenvironmentalterms,butalsopromoteahighqualityoflifeforallwhopassthroughthem.ThepublicationofTheBusinessCaseforGreenBuildingdemonstratesbeyonddoubtthatgreenbuildingisnowaglobalmovement,andthatsustainabilitydeliversbenefitswellbeyondtheenvironmental.Grosvenorispassionateaboutcities,urbandesignanddevelopment.Wetrytotakealong-termview,seeingourselvesasstewardswithaneyetothefuture,andweaimtocontinuallyimproveourunderstandingofcitiesforthebenefitofoccupiers,investorsandallourotherstakeholders.Assuch,weareproudtosponsorTheBusinessCaseforGreenBuilding.Increasingly,Grosvenor’sbusinessstrategies,andinvestmentanddevelopmentpractices,reflectourlong-termambitiontohelpcreateandmanagevibrant,sustainablecitieswhichoperatewithintheworld’sannuallyrenewableresources–and,asaresult,ourvisionofthefutureisbeginningtoaffectourday-to-daydecision-makingtoo.Weknowthatourvisionisambitious,andthatGrosvenorisonlyoneplayerinthemarket.However,wealsoknowthatthepropertyindustryhasakeyroletoplayincreatingmoresustainableplacesinwhichfuturegenerationswillwanttolive,workandplay.Weseethisreportasthenextstepinunderstandingandcommunicatingwhygreenbuildingaddssocialandeconomic,aswellasenvironmental,value,andwehopethatthereportinspiresothersintheglobalpropertyindustrytoconsidertheirvisionforsustainability.4THEBUSINESSCASEFORGREENBUILDINGKateBrownGroupDirector–SustainabilityGrosvenorGroupWiththestrainonourenvironmentbecomingmoreevidentasbuildingsandcitiescontinuetogrowinparallelwithglobalpopulations,eachcountryshouldhavetheirownagendaonsustainabledevelopment.Onaglobalscale,everyoneneedstobeinvolvedandconsciouslycontributingtothecause.Economicsisasmuchanimportantdriverforsustainabilityalongwiththeenvironment,societyandculture.Providingcasestudiesofhowselectedcountriesandbuildingstudiesrespondtothechallengeenableseveryonetogaugetheeffectoftheireverydayinteractionwithenergy,waterandwastewithinabuildingupthroughthescales.InAbuDhabi’scase,weareshapingoursustainablefuturethroughthemandatedEstidamaprogramme.Ouruniquesituationisbeingaddressedthroughcompulsorydesignandconstructionofbuildings,soontobeexpandedtoincludeoperationallifetimes.Globalsustainabledevelopmentisabouttellingotherswhateachofusaredoingtoimprove,workingtogethertoshareexperienceandpractices.5FOREWORDFalahMohamedAlAhbabiGeneralManagerAbuDhabiUrbanPlanningCouncilThisreportinvestigatesthebusinesscostsandbenefitsofgreenbuildinginfivevitalcategoriesandfinisheswithanexplorationintotheboththeimpactsthatagreenerbuiltenvironmentcanhaveatamacroscaleandhowthiscanbeachieved.Inrecentyears,awiderangeofstudiesandreportshaveoutlinedelementsofthe‘businesscase’forgreenbuildings,butthisreportisthefirstattempttosynthesizeallcredibleevidencefromaroundtheworldintoonedefinitiveresource,completewithglobalexamplesandthoughtpiecesfromleadingexperts.EXECUTIVESUMMARYResearchclearlyshowsthattherearealargenumberofcompellingbenefitsfrombuildinggreen,whicharereceivedbydifferentstakeholdersthroughoutthebuildinglifecycle.Yet,oneissuethathasremainedcontroversialiswhetheritispossibletoattachafinancialvaluetothebenefitsofgreenbuildings–crucialinformationforrealestatelendersandtheinvestmentcommunity.Dogreenbuildingsattractafinancialpremiumintermsofrentalandsalesvalue?Aretheymoreattractivetotenantsandoccupiers?Areemployeesoccupyinggreenerbuildingsmoreproductive?6THEBUSINESSCASEFORGREENBUILDING7EXECUTIVESUMMARYKeyFindingsUsingpeer-reviewedevidenceasthestandardfortheanalysisandguidedbyasteeringcommitteeofexpertsfromaroundtheworld,thefindingspresentedinthisstudyrepresentacriticalsummationofthemostrecentandrelevantresearch.Thebodyofthereportprovidesinsightintohowthesefindingswerereached,includingthecontextofthestudies–essentialreadingforunderstandingtherelevanceofthefindingstowhatisfoundinlocalmarkets.DesignandConstructionCostsResearchshowsthatbuildinggreendoesnotnecessarilyneedtocostmore,particularlywhencoststrategies,programmanagementandenvironmentalstrategiesareintegratedintothedevelopmentprocessrightfromthestart.Whiletherecanbeanadditionalcostsassociatedwithbuildinggreenascomparedtoaconventionalbuilding,thecostpremiumistypicallynotashighasisperceivedbythedevelopmentindustry.AssetValueAsinvestorsandoccupantsbecomemoreknowledgeableaboutandconcernedwiththeenvironmentalandsocialimpactsofthebuiltenvironment,buildingswithbettersustainabilitycredentialsenjoyincreasedmarketability.Studiesaroundtheworldshowapatternofgreenbuildingsbeingabletomoreeasilyattracttenantsandtocommandhigherrentsandsaleprices.Inmarketswheregreenhasbecomemoremainstream,thereareindicationsofemerging‘browndiscounts’,wherebuildingsthatarenotgreenmayrentorsellforless.8THEBUSINESSCASEFORGREENBUILDINGOperatingCostsGreenbuildingshavebeenshowntosavemoneythroughreducedenergyandwateruseandlowerlong-termoperationsandmaintenancecosts.Energysavingsingreenbuildingstypicallyexceedanydesignandconstructioncostpremiumswithinareasonablepaybackperiod.Inordertoachievetheirpredictedperformance,high-performinggreenbuildingsneedtobebackedupbyrobustcommissioning,effectivemanagement,andcollaborationbetweenownersandoccupiers.WorkplaceProductivityandHealthResearchshowsthatthegreendesignattributesofbuildingsandindoorenvironmentscanimproveworkerproductivityandoccupanthealthandwell-being,resultinginbottomlinebenefitsforbusinesses.Despiteevidenceofitsimpact,improvedindoorenvironmentalqualityhasnotbeenapriorityinbuildingdesignandconstruction,andresistanceremainstoincorporatingitintofinancialdecision-making.Whilemoreresearchisneeded,investinginbetterindoorenvironmentscanleadtobetterreturnsononeofeverycompany’sgreatestassets-itsemployees.RiskMitigationSustainabilityriskfactorscansignificantlyaffecttherentalincomeandthefuturevalueofrealestateassets,inturnaffectingtheirreturnoninvestment.Regulatoryriskshavebecomeincreasinglyapparentincountriesandcitiesaroundtheworld,includingmandatorydisclosure,buildingcodesandlawsbanninginefficientbuildings.Extremeweathereventsandsystematicchangesinweatherpatternsaffecttheinsurabilityofrealestateandleadtoquestionsabouttheresilienceofassets.Changingtenantpreferencesandinvestorriskscreeningmaytranslateintoriskofobsolescenceforinefficientbuildings.ScalingUpfromGreenBuildingsBygreeningourbuiltenvironmentattheneighborhoodandcityscale,wecandeliveronlarge-scaleeconomicprioritiessuchasclimatechangemitigation,energysecurity,resourceconservationandjobcreation,long-termresilienceandqualityoflife.9EXECUTIVESUMMARYThereportpointstoanincreasinglycompellingbusinesscaseforgreenbuildings.Theevidencepresentedhighlightsthatsustainablebuildingsmakeclearbusinesssense–it’snotjustaboutsavingtheplanet.Thesebenefitsrangefromriskmitigationacrossabuildingportfolioandcity-wideeconomicbenefits,totheimprovedhealthandwell-beingofindividualbuildingoccupants.Moreover,greenbuildingscannowbedeliveredatapricescomparabletothoseforconventionalbuildingsandthesecostscanberecoupedthroughoperationalcostssavingsand,withtherightdesignfeatures,throughmoreamoreproductiveworkplace.Designdecisionsmadeatthestartofaprojectwillimpactthelong-termvalueofthebuildinganditsreturnoninvestment,meaningawhole-lifecost/valueapproachisneeded,fromdesignthroughbuildingoperation.Whilethereisagrowingevidencebaseforallofthesefindings,theinformationbeinggatheredisconcentratedincertainregionsandclimates.Inordertoeffectivelytransformtheglobalmarketplace,thereisaneedformoredataandformorecasestudiesfromaroundtheworld.Thispresentsanexcellentopportunityforbusinessestopartnerwitheachother,andwithacademiaandgovernment,tobetterunderstandthefinancialimplicationsofamoresustainablebuiltenvironment.Weneedtherightdatatospurbetterfinancialdecision-making.Akeyillustrationofthispointiswhereduetoalackoffinancialmetrics,manybusinesseshaveignoredthepotentialtoimproveindoorenvironmentsandarenowmissingamajoropportunitytousebuildingstoleveragebroaderorganizationalsuccess.Studiescantelluswhathashappenedingivenmarketsoveraspecificperiodoftime.Practitionershavetolookatlocalmarketconditionsandatwhatdefinesanddrivesgreenbuildinginagivenlocation,notjustasnapshotofdata,togetthecompletepictureandeffectivelydecidewhetherinvestmentswillultimatelytranslateintoenhancedfinancialreturns.Whatisclearisthatthereismountingevidencethatinmanymarketsacrosstheworld,partofbeingabetterqualitybuildingmeansbeingagreenbuilding.Inpremiummarketsinparticular,greenisincreasinglyexpectedbytenantsandowners–itisjustpartofwhatgood‘quality’means.Withsomanydriversforgreenbuildingsatplay,andmanypartsoftheworldstillatthenascentphaseofgreenbuilding,therecanbenodoubtthatthebusinesscaseforgreenbuildingwillcontinuetoevolveasmarketsmature.Greenbuildingissomethingthattenants,investorsandpolicymakerswillcometodemandandexpectovertime–indeedwehavealreadyseenthismomentumgrowgloballywhereinmoreandmoreplaces,greenisnowbecomingthestatusquo.WhatTheseFindingsMeanforBusinessThisreportlaysoutthebestbusinesscaseevidencewehaveavailabletodayandprovidesinsightsintowhatthesefindingsmeanforindustryaswellasnextstepswecantakefromhere.Italsoshowshowgovernmentscanleveragegreenbuildingpoliciestosupportlocaleconomiesandmeettheirlong-termgoals.Withthisfoundation,wecallontheprivateandpublicsectorstousetheircollectiveknowledgeandstrengthtomovethegreenbuildingagendaforward,knowingthatitbenefitspeopleandtheenvironment-andtheirbottomlines.10THEBUSINESSCASEFORGREENBUILDINGSTAKEHOLDERSANDVALUEDEVELOPERWhywouldIwanttobuildthisgreenbuilding?TENANTWhywouldIwanttoleasethisgreenbuilding?OWNERWhywouldIwanttoownthisgreenbuilding?slowerdepreciationrapidreturnoninvestmentcorporateimageandprestigevalueloweroperatingcostslowerrefurbishmentcostslowermaintenancecostsincreasedproductivityhealthandwell-beingreduceddowntimelowertransactionfeescompliancewithlegislationandCSRrequirementsabilitytosecureﬁnancelowerdesignandconstructioncostshighersalespriceincreasedmarketvalueincreasedoccupancyratesreducedvacanciesquickersaleslowerexityield11EXECUTIVESUMMARYIsThereaBusinessCaseForGreenBuildings?Arangeofreportsfrombothindustryandacademiahavedocumentedindividualelementsofthegreenbuildingbusinesscase,butthisreportisthefirstattempttosynthesizeallcredibleevidenceintoonedefinitivereferenceguide.Whiletheenvironmentalbenefitsofgreenbuildingshavebeenfirmlyestablished,greenbuildingsalsodeliverarangeofcompellingfinancialandsocialbenefits,whichcanbefoundinthisreportinthechronologicalorderinwhichtheyareextracted.Startingwiththebenefitsthatmaybeobtainedduringthedesignandconstructionphase,thediscussionthenshiftstotheassetvalueandreturnsreceivedbyinvestorsanddevelopers.Thisisfollowedbytheoperationalbenefitssuchascostsavings,workplacehealthandproductivity,andfinallytheissueofriskmitigation,whichplaysaroleineverystageofabuilding’seconomiclife.Muchoftheevidencepresentedinthisreportcomesfromrelativelynewbuildings,asthishasbeenthefocusofresearchtodate.However,thereportfeaturesa‘lifecyclewheel’throughouttoillustrateeachstage,withthestakeholdericonsfurtherindicatingwhichpartofthepropertyandconstructionsectorisplayingaleadingroleatagivenpoint.Theintentionistomakeitreadilyapparentwhichsectionsaremostrelevanttoyourparticularroleintheindustry.INTRODUCTIONAtthesametime,thisreportsetsouttodowhatmostothergreenbuildingresourcesdonot-ittargetsbuildingdevelopers,ownersandinvestorswhoaretheultimatedecision-makerswhenitcomestofinancinggreenbuildingprojects,aswellasthetenantswhodrivemarketdemand.TheBusinessCaseforGreenBuildingspeaksto,notabout,theseplayers.Toprovidearobustandreliablereport,wemadeitapointtouseonlypeer-reviewedresearchasthebasisofourfindings.Inthefewcaseswherewerefertoothertypesofdocuments,thisisclearlynotedineitherthetextitselforinthefootnotes.12THEBUSINESSCASEFORGREENBUILDINGACQUISITIONACQUISITIONDESIGNAPPROVALCONSTRUCTIONREFURBISHMENTSALE/TENANCYOPERATIONAcquisitionCostDesignCostRefurbishmentCostsOccupancyRateRentalRateAssetValueOperationalCostsMaintenanceCostsTenantLongevityProductivityProjectProgramBuildCostProjectTimescalesHealthRiskMitigationRiskMitigationRiskMitigationRiskMitigationRiskMitigationRiskMitigationRiskMitigationFinancialDecisionsFinancialDecisionsFinancialDecisionsPropertyAppraisalPropertyAppraisalPropertyAppraisalConstructionIndustryConstructionIndustryDesignProfessionalsDesignProfessionalsFinancialDecisionsFinancialDecisionsFinancialDecisionsFinancialDecisionsPropertyAppraisalPropertyAppraisalConstructionIndustryDesignProfessionalsDesignProfessionalsPropertyManagementPropertyManagementTenantsandOwner-OccupiersTenantsandOwner-OccupiersTenantsandOwner-OccupiersINTRODUCTION1314THEBUSINESSCASEFORGREENBUILDINGTheBigPictureWhilewehavedividedthisreportintosectionsbasedonthedistinctbenefitsofbuildinggreen,itisclearthat,astheindividualpiecesfittogethertorevealalarger,morecompletepicture,sotoothemicrobenefitsofgreenbuildingscanbescaleduptogeneratemacrobenefitsacrosstheentireeconomy.These‘bigpicture’benefits-suchasclimatechangemitigation,energysecurityandresourceconservation,jobcreation,improvedoccupanthealth,productivityandeconomicactivity,long-termresilienceandqualityoflife-arethepriorityissuesforgovernmentsaroundtheworld,andareincreasinglydriversforbothpublicandprivategreenbuildingprograms.Thestrategiesforleveraginggreenbuildingasawaytomeettheseprioritiesareexploredinthelastsectionofthisreport.Theglobalbuildingindustryismulti-facetedandcomplex,withmanydisconnectedsilosacrossthesupplychainrequiredtodelivertheendproduct–abuilding.GreenBuildingCouncilshavebeenestablishedinmorethan90nationsaroundtheworldtoworkwitheachsectionoftheindustry-fromplannersandpolicymakers,designersanddevelopers,tobuildingowners,managersandtenants-todrivemarkettransformationandbringpeopletogetherJustastheconductorbringstheorchestratogether,GreenBuildingCouncilsareunitingtheirnationalpropertyandconstructionindustriestoestablishcommondefinitionsofgreenbuilding,developratingsystemswhichmeasuresustainability,educatetheentiresupplychain,andraisetheThefirstwaveofhigh-performing,greenbuildingaroseasaresponsetodemandforenergyandresourceefficiency.Timeshavechanged,andstrengthenedbytheadventofgreenbuildingratingtools,theindustrynowrecognizesthatgreenbuildingsdelivermuchmorethanenergyefficiencyalone.Italsounderstandsthatgreenbuildingsmustbeviewedholistically-thatenergyefficiencycannotcomewithapriceofreducedfreshairandpoorindoorenvironmentalquality,orhighwaterconsumption.Buildingsmustbeexaminedinthecontextoftheirimpactonthelocal,naturalandbuiltenvironments-andtheirneighbors.Whilegreenbuildingshavewell-documentedenvironmentalbenefits,wehavemadeaconsciousdecisiontofocusthisreportontheeconomicandsocialbenefitsofgreenbuilding.Thegreenbuildingmovementhasmaturedovertime,andadeeperunderstandingofthe‘triplebottomline’valueofgreenbuildingshasemerged,shiftingtheemphasisfrom‘planet’to‘people’and‘profit’.Consequently,theconversationisnowgearedaroundhowgreenbuildingsdeliveroneconomicprioritiessuchasreturnoninvestmentandriskmitigationandonsocialprioritiessuchasemployeeproductivityandhealth.profileofgreenbuildingaslocalandnationalpriorities.Havingacompellingbusinesscaseforgreenbuildingsisanessentialelementoftheirsuccess.Weknowthatbuildingsareresponsibleforone-thirdoftheworld’sgreenhousegasemissionsandrepresentthelargestandmostcost-effectivewaytomitigatethoseemissions.Atthesametime,werecognizethatmakingthefinancialcaseforgreenbuildingstotherightdecision-makerswillonlyservetohelpusfulfillthepotentialofthebuildingsector.Withsomanydriversforgreenbuildingsatplay,andmanypartsoftheworldstillatthenascentphaseofgreenbuilding,therecanbenodoubtthatthebusinesscasewillcontinuetoevolve.Workisstillrequiredinsomeareas,withmoredataandcasestudiesneeded.Ourownanalysisofwhattheevidencedoes-ordoesnot-tellusaimstoprovidesomeguidanceonnextsteps,whetherthatismoreresearchoractionrequiredtoremedysomeoftheclearroadblocks.Itistruethateachregionhasdifferentdriversandpriorities.However,theglobalindustryismovingawayfromabuilding-by-buildingapproachtosustainabilityandtowardsgreeningentireneighborhoods,citiesandcountries.Tosucceed,partnershipbetweenindustryandgovernmentisessential.Itisonlythroughpartnershipthatwewillrealizethefullpotentialofthebuiltenvironmenttodeliveraneconomically,environmentallyandsociallysustainablefuture.WhatWeMeanBy‘GreenBuilding’15INTRODUCTIONTHEBUSINESSBENEFITSTHEBUSINESSCASEFORGREENBUILDING16DESIGNANDCONSTRUCTIONASSETVALUEOPERATINGCOSTSWORKPLACEPRODUCTIVITYANDHEALTHRISKMITIGATION17THEBUSINESSCASEFORGREENBUILDING18DESIGNANDCONSTRUCTIONCOST1819•Researchshowsthatbuildinggreendoesnotnecessarilyneedtocostmore,particularlywhencoststrategies,programmanagementandenvironmentalstrategiesareintegratedintothedevelopmentprocessrightfromthestart.•Whiletherecanbeanadditionalcostassociatedwithbuildinggreenascomparedtoconventionalbuilding,thecostpremiumistypicallynotashighasisperceivedbythedevelopmentindustry.•Higherupfrontcapitalcostsforgreenbuildingshavebeenfoundtobeproportionaltotheincreasedlevelofenvironmentalcertification.However,increasingly,projectsareabletoachievehigherlevelsofcertificationatlowercostcomparedtolessambitiousprojects.•Therehasbeenanoveralltrendtowardsthereductionindesignandconstructioncostsassociatedwithgreenbuildingasbuildingcodesaroundtheworldbecomestricter,supplychainsforgreenmaterialsandtechnologiesmatureandtheindustrybecomesmoreskilledatdeliveringgreenbuildings.•Upfrontcostincreasesingreenbuildingsareoftenoffsetbyadecreaseinlong-termlifecyclecosts,particularlyinthecaseofgreenbuildingsthatfeaturehigh-performancefaçadesandenergy-efficientbuildingsystems.19ACQUISITIONDESIGNAPPROVALCONSTRUCTIONREFURBISHMENTSALE/LEASEOPERATIONFinancialDecisionsPropertyAppraisalDesignProfessionalsConstructionIndustryThischapterfocusesonthecoststhatoccurattheverybeginningofabuilding’slifecycle,relatedtodesignandconstructionactivities.Mostofthecostsdiscussedinthischapterrefertoeitherdesigncosts,comprisingmainlyarchitectural,designandconsultant’sfees,orconstructioncosts,whichrefertothebuildingstructureitselfandnotsiteacquisition.DESIGNANDCONSTRUCTIONCOST‘Softcosts’relatetoitemsorservicesthatdonotformpartofthefinishedbuilding,butthatarenecessarycomponentsofthedevelopmentprocess.Theseincludecostsassociatedwitharchitecturalanddesignfees,inspectionfeesandpermits,legalandvaluationfees,environmentalcertificationfees,loan-generatedinterest,accountingfees,insurance,taxes,marketingandprojectmanagementcosts.‘Hardcosts’relatetotangibleitemsthatneedtobeprocuredtocompletethebuilding,includingthecostofacquiringthesite,thebuildingstructure,finishes,materialsandlandscaping.THEBUSINESSCASEFORGREENBUILDING20DESIGNANDCONSTRUCTIONCOST21BREEAMOutstandingSupermarkets,UKBREEAMOutstandingOfﬁces,UKGreenMarkPlatinumbuildings,SingaporeGreenStar5-6Ofﬁces,AustraliaLEEDPlatinumbuildings,USAZeroCarbonHome,UKStandard5281Residences,Israel0%1%2%3%4%5%6%7%8%9%10%11%12%13%2000200220042006200820102012Percentageincreaseindesignandconstructioncostsforgreenbuildingscomparedtoconventionalcode-compliantbuildings(%)YearofStudyLEGENDBREEAMLEED/EnergyStarGreenMarkGreenStarStandard5281BanksOfﬁcesEducationPublicBuildingsHealthcareResidentialIndustrialRetailMixed-useUnspeciﬁedRatingSystemBuildingTypeBUILDCOSTPREMIUMSFigure1Actualcostpremiums,varioussources,1showingthattheactualreportedcostpremiumsforgreenbuildingsfallwithinthe0%-12.5%range(wherethesourceshavereportedrangesofvalues,themeanvaluehasbeenused).Actualcostpremiumshavebeentakenfromawidevarietyofbuildingtypes,includingoffices,homes,schools,warehouses,banks,supermarkets,healthcentres,communityfacilities,academicbuildings,andpublicbuildings.TheCostofGreenBuildingBasedonresearchfindingsfromvarioussources,actualdesignandconstructioncostshavebeendocumentedtobeintherangeof-0.42to12.5%,3withthelattervaluecorrespondingtoazerocarbonbuildingproject.Theresultsfromthesestudies,publishedbetween2000and2012,arebasedonawidevarietyofbuildingtypesandpresentdatafromtheUnitedStates,UnitedKingdom,Australia,SingaporeandIsrael.MostoftheearlierdataisbasedonstudiesofdatasetscomprisingLEED-certifiedbuildingsintheUnitedStates4whilemostoftherecentstudiesarefromcasestudyexamplesofBREEAM-certifiedbuildingsintheUK.5Thesefiguresusecode-compliantbuildingsasabaselineandthisbaselineishighlydependentontheprogressivenessofthenationalorlocalbuildingregulationsforthatparticularlocation.ThecountrieswithreportedcasestudyexamplesallhaveenvironmentalcertificationsystemsinplaceandstrongGreenBuildingCouncilsthatdrivethenationalgreenbuildingagendas,whichmayhaveaninfluenceonimprovedbaselinesforcode-compliantbuildings,consequentlynarrowingthegapbetweenthecostofacode-compliantbuildingandagreenbuilding.Countrieswithlessemphasisonthegreenagendaembeddedintotheirbuildingregulationsmightfindthatthecostpremiumsarehigherthanthosepresentedhere.Nevertheless,therangesandtrendsarereasonablyconsistentacrossthesefiveverydifferentlocations.Severalofthestudiescarriedouthaveshownthatgreenbuildingsdonotnecessarilyhavetocostmore,andthatthechallengeofdeliveringgreenbuildingswithinthebudgetofaconventionalcode-compliantbuildingiscertainlyachievable.6Infact,somestudiespresentcasestudiesthatcostlessthancertifiedbuildings.7Anumberofauthorshavesuggestedwaystoeffectivelyreducetheconstructioncostofgreenbuildings,including:•Adoptinggreenstrategiesandincludingtheminthebudgetfromanearlystage,toavoidmoreexpensivebolt-onstrategies;8•Hiringexperienceddesignandconstructionteams;9and•UsinganIntegratedDesignProcess(IDP),frompre-designphasethroughtopost-occupancy,whereclientstakeonamoreactiveroleandallconsultantsareengagedfromtheverybeginning.10TheuseofIDPindevelopmentprojectsisacrucialelement,notjustintermsofdeliveringtangiblesustainabilitybenefitsonadevelopmentproject,butalsointhecost-effectivedeliveryoftheseprojects.Buildingsdesignedanddeliveredthroughthisprocesswouldalsoprovidelong-termbenefitsviatheconsiderationofissueslikefuture-proofing,resilience,andlifecyclethinkingrightfromthestart.AstudybyDavisLangdon,publishedin2007,11findsthat“…thereisnosignificantdifferenceinaveragecostforgreenbuildingsascomparedtonon-greenbuildings”,anddemonstratesthatbuildinggreendoesnotnecessarilyequatetoadditionalcosts.AnincreasingnumberofprojectteamswereshowntohavedeliveredLEED-certifiedbuildingswithinabudgetcomparabletothatofnon-LEED-certifiedbuildings.Oneofthebiggestchallengestothecost-effectivedeliveryofgreenbuildingsisthedevelopmentofanunderstandingthatgreendesignisnotabolt-ontoconventionalbuildings,butisinsteadanintegrateddisciplinefordesignthatrequiresadifferentwayofthinking.Figure1alsoshowsthatincreasesinupfrontcosthavebeenfoundtobeproportionaltotheincreasedlevelofenvironmentalcertification,withmoreaspirationalprojects,suchasthosethataimfor‘zerocarbon’performance,showinga12.5%increaseindesignandconstructioncostcomparedtoaconventionalbuilding.Butforthemajorityofcertifiedgreenbuildings,thecosttypicallyrangesfromlessthan0%to4%,basedonstudiespublishedwithinthelasttenyears.Higherlevelsofcertification(suchasBREEAMVeryGood,LEEDSilver/Gold,andGreenMarkGold/GoldPlus)havebeenshowntorangefrom0%to10%,whilethehighestlevels(suchasBREEAMExcellent,LEEDPlatinum,GreenMarkPlatinumand‘zerocarbon’intherangeof2%to12.5%highercosts.THEBUSINESSCASEFORGREENBUILDING22Itiscriticaltobearinmindthattheseupfrontcostsareoftenoffsetbyadecreaseinlong-termlifecyclecosts,particularlyinthecaseofgreenbuildingsthatfeaturehigh-performancefaçadesandenergy-efficientbuildingsystems.Thedeliveryofcost-effectivebuildings,moresoforgreenbuilding,isabouttakingthelong-termviewandtranslatingthatintoshort-termactions.Theimplicationsofthelong-termbenefitsofgreenbuildingarediscussedinthe‘OperationalCosts’chapterofthisreport.Thereisalsothelong-termvaluetotheprojectintermsofimprovedhealthandqualityoflife,andincreasedworkerproductivityincommercialandofficeenvironments.Thesebenefitsarediscussedindetailinthe‘WorkplaceProductivityandHealth’chapterofthisreport.DESIGNANDCONSTRUCTIONCOST23GreenRetrofitsIna2012studyonretrofitsoncommercialbuildingsintheUK,thecostofaretrofitwith“enhancedenergyefficiencyimprovements”wascomparedtoa“marketstandard”refurbishment.12Inthiscase,thedefinitionofthemarketstandardwasthestandardtowhichabuildingcouldberefurbishedinordertomeetregulatoryrequirements.Thecasestudiesincludedfouroffices,oneretailbuildingandoneindustrialbuilding.Thestudyreportedthatthecostpremiumforrefurbishmentswasintherangeof0.3%to40.0%morethanthemarketstandardcounterpart,withthehighestpremiumassociatedwithanEnergyPerformanceCertificate(EPC)ratingimprovementfromanEtoaB,wherethemarketrefurbishmentbaselinedidnotshowanimprovementintheEPCrating.The‘quickwins’comprisedofacombinationofimprovedcontrols,efficientboilers,airtightnessimprovements,variablespeedpumpsandexternalshading–combinationsofthesemeasuresledtorefurbishmentcostpremiumswithintherangeof0.3%to12.8%.ThehigherpremiumswereassociatedwithhigherEPCratingsthatrequiredtheretrofitofLEDlighting,heatrecoverysystems,airsourceheatpumps,photovoltaicsandpassivechilledbeams.Itshouldbenotedthatthisstudylookedatonlyfourbuildings;itisnotpossibletodrawanyreliableconclusionsfromsuchasmallsample.However,itwouldappearthatthesefiguresmirrorthefindingsfornew-buildintermsofhigherlevelsofcertificationrequiringhigherlevelsofinvestment.THEBUSINESSCASEFORGREENBUILDING24ThebuildingwascompletedonscheduleinMarch2012,andhassincebecomeoneoftheleadingexamplesofgreenbuildingpracticesinChile.ItssuccesswassuchthatInmobiliariaAlmahuedecidedtoimmediatelybeginthedesignandconstructionofthedevelopment’ssecondbuilding:CostaneraLyonII,originallyscheduledtobedesignedandbuiltin2013.ThesecondprojectwillpursueLEEDcertificationandincorporatesmanyofthegreendesignfeaturesandlessonslearnedintheconstructionofLyonI.Thisisnowthenewmodel,whichisinhighdemand–evenbeforereachinggroundlevelconstruction,theownerhasalreadysold50%oftheofficespaces.SantiagoRisingWhenownerandmasterdeveloper,InmobiliariaAlmahue,decidedtobuildthe16-storyCostaneraLyonIofficebuildinginSantiago,Chile,inlate2008,thecompanywasseekingpossiblesilverliningtotheglobalfinancialcrisis.Thebuildingwasdesignedduring2009asthecrisiswasunfolding.Despitethereluctanceofmanydeveloperstolaunchprojectsinthistimeoflimitedcashflowandriskaversion,InmobiliariaAlmahuebelievedthathavingoneofthefewlargebuildingsconstructedoverthistimecouldbeanadvantage.Thedevelopmentteamdecidedtoproceedinspiteofthestateofthemarket,whichwasfurthercomplicatedbyarecent8.8magnitudeearthquakeintheregion.TheownersoughttopursueLEEDcertificationandtoshowcasethebenefitsofsustainablebuildingpracticesasakeyfactortoaddvaluetothebusinessproposal.Asaresult,InmobiliariaAlmahuenotonlymanagedtodesignandbuildaLEEDSilverbuildingatzeroadditionalcost(ascomparedtoaverysimilarofficetowerbuiltrecentlyinthesamearea),butalsotosellallofits54officeunitsbeforethebuildingwascompleted.WhilemostoftheprospectivebuyerswerenotinitiallyawareoftheLEEDcertificationprocess,theexpectedbenefitsofhavinglowoperatingcostsandthelowenvironmentalimpactoftheprojectbecametheowner’smostimportantsalespitch.CostaneraLyonIwasdesignedbyarchitectsEugenioSimonettiandRenatoStewartaspartofatwo-buildingdevelopment.The225,100squarefootbuildingwasconceivedthroughanIntegratedDesignProcess(IDP),ledbythesustainabilityconsultantsEABuildings,whichbroughttogetherallprojectteammembersfromtheoutsettodefineandroadmapsustainabilitygoalsfortheproject,setperformancetargets,anddefinekeydesignandconstructionfeatures.Thisprocessenabledthebuildingtotakeadvantageofitslocationandweatherconditions,maximizingoccupantindoorcomfortconditionswhilereducingoverallenergyconsumptionandenvironmentalimpact.TheIDPapproachalsohelpedtodeliverthebuildingatareducedcost,astheentireteamwasworkingtogetherfromthebeginning.Thebuildingfeaturesasophisticatedenvelopeconsistingofahigh-qualitycurtainwallincombinationwithhighthermalmassconcretewalls.Thereisoptimaldaylightlevelinallofficespaces,andaheating,ventilationandairconditioning(HVAC)systembasedonahigh-efficiencyvariablerefrigerantflow(VRF)withheatrecoveryandnaturalventilationtoallofficesandundergroundlevels.Theprojectalsofeaturesconsiderablereductionofpotablewaterconsumptionthroughtheuseoflow-flowwaterfixturesandagreywaterreutilizationsystemforirrigation.CASESTUDYChileanprojectdelivershighperformanceatabusiness-as-usualpriceDESIGNANDCONSTRUCTIONCOST25-0.4%to12.5%Costpremiumforgreenbuildings(actualcostsbasedonvariousstudies)0.9%to29%Estimatedcostpremiumforgreenbuildings(basedondesignstageestimatesandsurveys)THEPERCEPTIONGAP20002001200220032004200520062007200820092010201120120510152025302000200120022003200420052006200720082009201020112012051015202530ThePerceptionGapSustainabilityisnotthemajorcostdriveronmostprojects;thechallengefordesignteamsisoftentodelivergreenbuildingswithinconventionalbudgets.However,meetingthischallengeismademoredifficultbecausetherearemanyindustryprofessionalswhooperateunderthegeneralassumptionthatbuildinggreenincreasesdesignandconstructioncostbyapproximately10-20%(withestimatesashighas29%)comparedtothecostofconventionalcode-compliantbuildings.14Figure2showsthedistributionofactualdesignandconstructioncostsinvariouscountries(showninthesmallgraphontheleftsideofthediagram,underdifferentcertificationschemes,comparedwiththeestimatedcostsofgreenbuildingfromvarioussurveysfrom2000to2012(showninthegraphontherightsideofthediagram).Thereisclearlyaperceptiongapherethatneedstobeaddressed.Oneinterestingstudy15comparestheperceptionofcostincreasesbyprofessionalswithexperienceinconstructinggreenbuildingswiththeperceptionofprofessionalswithlittleornoexperienceingreenbuildings.Thosewithexperiencebelievethecostuplifttobeupto13%,whereasthosewithoutexperiencebelievethecostuplifttobeupto18%.Thisindicatesthat,whilethelackofexperiencedoesincreasetheperceivedcostofgreenbuildings,evenprofessionalswithactualexperiencetendtoestimatethecostsasrathersignificant.Wheredothemisconceptionsongreenbuildingcostscomefrom?Wehaveshownherethatanumberofstudieshavereportedthatthecostpremiumforgreenbuildingsisnowherenearashighasthesefigures,andthatagreenbuildingcouldevencostthesame,orlessthan,aconventionalcode-compliantbuilding.Thismaybeduetoaninabilitytoforgethistoricaldata,oralackofawarenessthatcostsarecomingdown.However,anotherfactorcouldbethatshowpieceordemonstrationbuildingsforsustainabilitymayhaveadditionalcostly‘finish’upgradeswhicharenotdirectlyrelatedtogreencost,andthesearethebuildingsthatareoftenfeaturedinindustrypublications.Theyoftenalsofeaturehighlyvisiblegreentechnologies,suchasphotovoltaicsandlargebuilding-integratedwindturbines,thatareusedtoreinforceagreenimagebutthatmaynotbefinanciallyviable,especiallyifthesearenotcoupledwitharobustoverallenvironmentalstrategy.Figure2ThePerceptionGap-estimatedvs.actualcostpremiumsforgreenbuildings,varioussources,13showingthattheactualcostpremiumsforbuildinggreenarelowerthantheindustryestimates.Actualcostpremiumshavebeentakenfromawidevarietyofbuildingtypes,includingoffices,homes,schools,warehouses,banks,supermarkets,healthcentres,communityfacilities,academicbuildings,andpublicbuildings.THEBUSINESSCASEFORGREENBUILDING26DECREASINGPREMIUMS200020012002200320042005200620072008200920102011Yearofpublication012345678910COSTPREMIUM,LEED-certiﬁedbuidings(%)LEEDPlatinumLEEDGoldLEEDSilverLEEDCertiﬁedIngeneral,itisoftentheinclusionofthesenon-integratedbolt-onsustainablefeaturesandenhancementsthatcauseprojectstoexceedoriginalbudgets.16Amoreintegrateddesignapproachthatcombinessmart,passivedesign,thermally-efficientbuildingskinsandeffectivespaceplanningtoreduceenergydemandasafirststep,combinedwithhighly-efficientsystems,providesacost-effectivealternativetobolt-onsystemsinstalledonanotherwiseunder-performingbuilding.DecreasingCostsforGreenBuildingOverTimeFigure3showsthepercentageincreasesinactualbuildcostsforLEED-certifiedprojects,whichillustratesgradualtrendtowardsreductionincostpremiumsovertime.Thisisnotsurprising-thebuildingindustryhasbeensteadilydevelopingitscapabilityfordeliveringgreenbuildings,andsupplychainsworldwidearelikewiseheadingtowardsmorematurestages,bringingdowncostsandfacilitatingtheefficientdeliveryofgreenbuildings.Thereisalsoincreasingawareness,acceptanceandeducationaroundgreenbuildingcertificationandassessmenttools,whichmeansthatmoreprofessionalsarebecomingwell-equippedtodesignandcertifygreenbuildings.Clients(i.e.,investors,ownersanddevelopers)areincreasinglyawareofsustainabilityandenergyissuesanddemandmoreexpertisefromtheindustryandthecollaborativeteamsthatarebroughttogethertodelivertheirprojects.Thisincreaseinskills,toolsandsupplychainmaturityhavemeantthatthecostsassociatedwithachievingcertificationhavedecreasedandwillcontinuetodecreaseasgreenbuildingbecomesmoremainstream.18Minimumstandardsforbuildingcodesareprogressivelybecomingstricteraswell,whichmeansthatthebaselinerequirementsandassociatedcoststhatrepresent‘businessasusual’areprogressivelygettinghigher,narrowingthegapbetweenthecostofcode-compliantbuildingsandthecostofgreenbuildings.Figure3ReportedcostpremiumsassociatedwithLEEDcertificationintheUnitedStatesshowingthegradualreductionofpremiumsovertime,averagedvaluesfromvarioussources17DESIGNANDCONSTRUCTIONCOST27WhatDoesThisMeanfortheFuture?Numerousstudieshaveshownthatgreenbuildingconstructioncostsaregraduallycomingdown,butmisunderstandingsregardingtheinevitabilityofthehighcostforgreenbuildingscontinuetopresentachallengetothedevelopmentindustry.Asgreenbuildingcertificationschemes,ratingsystemsandgreenbuildingsingeneralbecomemoremainstreamaroundtheworld,thechallengeisnolongeraboutnothavingtheexpertisetodelivergreenbuildings,butratherhavingthedataandknowledgetobeabletodeliverthemcost-effectively.Integrateddesignprocesswillincreasinglyplayakeyroleinkeepingcostsdownwithoutcompromisingthequalityofgreenbuildingsbeingconstructed.Transparencyandcollaborationbetweenclientanddevelopmentteamsarecrucialinordertoensurethattheinvestmentindesignandconstructionactivitiesachievetheexpectedbenefitsafterthebuildingiscomplete.THEBUSINESSCASEFORGREENBUILDING28LifeCycleCostAssessmentTHOUGHTPIECEHumansarenotrationalLCCAisfundamentallybasedonafallacy:thatthecostofmoneyislinear,andthatwearerationalhumanbeings.Itisn’t,andwearen’t.Interestisareasonablesubstituteforourtimevalueofmoney,butmany‘reallife’experimentsshowwedonotreallytreattimevaluelogicallyorconsistently.Ifwedid,wewouldallexerciseregularly,weightherightamount,neverbingedrink,etc.Wedesiregratificationnow.Evenfinancialprofessionalswhoaremeanttobeveryrationalintheirdecision-makingstillhavetopaytoday’sbills.So,whilewemaybuildaperfectlygoodLCCAmodel,weareofteninclinednottoabidebyitsresults.SohowcanwemakeLCCAamoreusefulandusedtool?Currently,welackasingleacceptedstandardforLCCAmodeling.Fortunately,progresshasbeenmadetothisend;theEuropeanUnionandtheAmericanNationalStandardsInstitute(ANSI)havebothcomeupwithapproachesinanefforttocoordinatewithintheirmarkets.Fromtheindustryside,weneedtounderstandthatlikeenergymodeling,anLCCAmodelisonlyasgoodastheleastaccurateinput(aswesayintheUS,“garbagein,garbageout”).WealsoneedtoacceptthatwhileLCCAisnotthesimpleandpersuasiveanswerthatwemightlikeittobe,thatjustlikeenergymodeling,itcanhelpustomaketherightdecisions.Despitethesechallenges,theuseofLCCAinthecurrentBREEAMandDGNBtoolsandthenextversionofLEEDdemonstratesitsrelevanceandacceptanceacrosstheindustryandisproofthatrationalitycansometimesevenovercomehumannature.byLisaMatthiessenIntegralGroup(withthankstoPeterMorris)ProponentsofsustainabledesignhavelongheldgreathopesforLifeCycleCostAssessment(LCCA),wherecostsandsavingsassociatedwithconstruction,andlong-termoperationsandmaintenance,aremodeled.Resultscanbeintheformofsimplepaybacksormoresophisticatedmodelswithescalation,predictedutilitycosts,andtimevalueofmoney,withresultspresentedasNetPresentValueorInternalRateofReturn.ThehopehasbeenthatLCCAwouldallowprojectteamstoseethatexpensiveinitialdesignmeasurescanbeworthitinthelongrun.ButLCCAdoesnotseemtohavemademuchheadwayinourexpandingarsenalofsustainabilitytools.Thismaybeduetoseveralfactors:InherentlackofcertaintyinLCCA,inanindustrythatdesirescertaintyAcknowledgingtheinherentriskoftryingtopredictthefuture,thebestLCCAmodelsincludesensitivityanalyses,allowingtheusertotestthegamutofpossibleoutcomesgivenreasonablevariables–mostofwhichbydefinitioncannotbeaccuratelypredicted.LCCAmodelsarethereforeprimarilyusedasadecision-makingtool,wherethegoalissimplytocompareproposeddesignapproachesortechnologiesandtomakeinformedchoicesbasedonpredictedoutcomes.Thisdoesnotrequirethatthepredictedcostsandsavingsbeabsolutelycorrect.Instead,weevaluaterelationships;weassesswhetheroneproposedsystemismoreorlesseffectivethananotherone.LackofunderstandingofthevalueandcapabilityofLCCALCCAisnotwellunderstoodbydesignprofessionals,asisafinancialmodelingtool.Thefinancialsectoriscomfortablewithuncertaintyandtheweaknessesoflong-termestimates;itjustneedsatransparentandhonestprocess.Thefinancialindustryishappywithpro-formasthatassessrentalincome,vacancyrates,marketcompetitionand,inthiscontext,LCCAisabreeze.However,mostdesignteamswantahardandfastanswer,andasaresult,manyteamshesitatetouseLCCA,ortrytomaketheresultsseemmoreconcretethantheyreallyare.DESIGNANDCONSTRUCTIONCOST29•Greenshouldbecomestandard:Thereisalreadyalargebodyofknowledgerelatingtothecostsassociatedwithbuildinggreen–itisnowtimetotaketheselessonslearnttobuildgreenbuildingsaspartofstandardpractice,anddeliverhigh-qualitybuildingsthataresustainablewithoutbeingshowy,withinconservativebudgetsanddemandingtimescales.•Collectmoredata:Continuegatheringreliableandrobustcostinformationonthehardandsoftcostsassociatedwithdesigningandconstructinggreenbuildings.•Increaseindustryawareness:Improveeducationongreendesignissuesandintegrateddesignprocesses,andreinforcetheimportanceofanholisticapproachtodesignandenvironmentalstrategies.•Conductmoreresearch:Moreresearchintotheimpactofexternalfactorsonthecostofgreenbuildingsisneeded,particularlytheimpactofenvironmental,technologicalandeconomicchange.NEXTSTEPSFORINDUSTRYTHEBUSINESSCASEFORGREENBUILDING301BRE,2007;BRETrust,2005;TargetZero,2010,2011and2012;Kats,2003,2006and2009;BCASingapore,2008;DavisLangdon,2007;Syphersetal,2003;AmericanChemistryCouncil,2005;BuildingDesignandConstruction,2003;Matthiessenetal,2004and2007;GSA,2004;CBRE,2009;Lucuik,20052USGeneralServicesAdministration,20043CBRE,20094Kats,2003and2006;USGBC,2000;AmericanChemistryCouncil,2005;BuildingDesignandConstruction,2003;Syphersetal,2003;Matthiessenetal,2004;GSA,2004;Lucuik,20055BRETrust,2005;BRE,2007;TargetZero,2010,2011and2012.6USGeneralServicesAdministration,2004;DavisLangdon,2009;Matthiesenetal,2004and2007;StevenWintersAssociates,20047StevenWintersAssociates,20048Matthiessen,etal.,20079Katsetal.,2003;DavisLangdon,200910Lucuik,2005,Kats,2003;Matthiessen,200711Matthiesenetal,200712Quartermaineetal,2012REFERENCES13BRE,2007;BRETrust,2005;TargetZero,2010,2011and2012;Kats,2003,2006and2009;BCASingapore,2008;DavisLangdon,2007;Syphersetal,2003;AmericanChemistryCouncil,2005;BuildingDesignandConstruction,2003;Matthiessenetal,2004and2007;GSA,2004;CBRE,2009;Lucuik,2005;Jackson,2009;BuidingDesignandConstruction,2007;Galuppoetal,2010;TurnerConstructionCompany,2005;WorldBusinessCouncilforSustainableDevelopment,2007;Gomez,2008;Berman,2001;TheDavidandLucillePackardFoundation,2002.14Gomez,200815TurnerConstructionCompany,200516Matthiessen,etal.,2004,200717Syphersetal,2003;AmericanChemistryCouncil,2003,BuildingDesignandConstruction,2003;Kats,2003,2006and2009;Reed,2003;Matthiessenetal,2004and2007;GSA,2004;CBRE,2009;DavisLangdon,2009;Lucuik,200518Mapp,2011;DavisLangdon,2009;Matthiessen,2007;CBRE,2009;Lucuik,2005;Kats,2003DESIGNANDCONSTRUCTIONCOST31THEBUSINESSCASEFORGREENBUILDING32ASSETVALUE3233•Asinvestorsandoccupiersbecomemoreknowledgeableaboutandconcernedwiththeenvironmentalandsocialimpactsofthebuiltenvironment,buildingswithbettersustainabilitycredentialswillenjoyincreasedmarketability.•Studiesaroundtheworldshowapatternofgreenbuildingsbeingabletomoreeasilyattracttenantsandtocommandhigherrentsandsaleprices.•Wheregreenbuildingshavegeneratedhighersalesprices,thisincreaseinvalueislargelydrivenbyhigherrentalrates,loweroperatingcosts,higheroccupancyratesandloweryields.•Inmarketswheregreenismoremainstream,thereareindicationsofemerging‘browndiscounts’,wherebuildingsthatarenotgreenmayrentorsellforless.•Anunderstandingofwhatdefinesgreenbuildingsanddrivesdemandineachcontextisessentialaslocalmarketconditionshaveasignificantimpactonthevaluationofthesebuildings.33ACQUISITIONDESIGNAPPROVALCONSTRUCTIONREFURBISHMENTSALE/LEASEOPERATIONFinancialDecisionsPropertyAppraisalTenantsandOwner-OccupiersTheconceptofabuilding’s‘assetvalue’hasadifferentmeaningforthevariousstakeholdersinthepropertysector.Themostcommondefinitionofvalueismarketvalue,whichistheestimatedpriceatwhichabuildingwilltransactinthemarketplacebetweenawillingbuyerandawillingseller.Inturn,forinvestment-gradebuildingsthisislinkedtotherental/capitalfigurethatbuildingoccupiers(tenantsorowner-occupiers)arewillingtopayforowningorleasingabuilding.Forexample,forcommercialbuildings,thevalueofbuildingislinkedtoabuilding’slocation,prestige,leaseterms,operatingexpensesandresultingworkingenvironment.1Otherimportantfactorsincludetheavailabilityofothergreenbuildingsinthearea2andtheviabilityoffuturerefurbishment.ASSETVALUEDevelopersandownersdefinevalueasthepotentialmarketvalueoftheirproperty,whichisinturninfluencedbytheattractivenessofthepropertytopotentialoccupiers.Aproperty’smarketvalueisthusdirectlylinkedtotherentalrateandoccupancyrate.Figure4summarizesthedeterminantsofvalueastheyrelatetothedifferentstakeholders.Thischaptersetsoutfindingsfromrecentinternationalstudiesthatusetransactionalevidencetounderstandtheinfluenceofgreenbuildingonsaleprices,rentalratesandoccupancyrates,andtherelationshipbetweensalepricepremiumsandconstructioncostpremiums.THEBUSINESSCASEFORGREENBUILDING34STAKEHOLDERSANDVALUEDEVELOPERWhywouldIwanttobuildthisgreenbuilding?TENANTWhywouldIwanttoleasethisgreenbuilding?OWNERWhywouldIwanttoownthisgreenbuilding?slowerdepreciationrapidreturnoninvestmentcorporateimageandprestigevalueloweroperatingcostslowerrefurbishmentcostslowermaintenancecostsincreasedproductivityhealthandwell-beingreduceddowntimelowertransactionfeescompliancewithlegislationandCSRrequirementsabilitytosecureﬁnancelowerdesignandconstructioncostshighersalespriceincreasedmarketvalueincreasedoccupancyratesreducedvacanciesquickersaleslowerexityieldFigure4StakeholderperceptionsthataffectthevalueofgreenbuildingsASSETVALUE35HowDoGreenBuildingsInfluenceValue?Evidencefromstudiescarriedoutoverthepastdecade,primarilybasedondatagatheredfromLEED-certifiedofficebuildingsintheUnitedStates,hasshownthatgreenbuildingstendtohavehigherassetvaluesthantheirconventionalcode-compliantcounterparts.3Thisdifferentialinassetvalueisevidencedbyhighersaleprices,whichareinturnrelatedtothefollowingbenefits:•Higherrental/leaserates:Studiesundertakenoncertifiedgreenbuildingshavedeterminedthatarentalratepremiumexistsinmanycases.Thisisattributedtotheattractivenessofgreenbuildingstoprospectivetenantsintermsoftheirsuperiorindoorenvironment,loweroperatingcostsandenhancedmarketability.Insomemarketswheregreenbuildingsaremoremainstream,aslightlydifferentconceptisemerging:wherebuildingsthatarenotgreenresultinlowerrentalandleaserates,or‘browndiscounts’.•Loweroperatingexpenses:Certifiedgreenbuildingstendtouselessenergyandwaterandarethereforeoftencheapertoownandoperate,makingthemmoreattractivetoprospectivetenantsandowner-occupierswhereenergyandwatercostsareamajorconsiderationrelativetooverallcosts,includingrents.4•Higheroccupancyrates:Certifiedgreenbuildingsmaybeabletoachievehigheroccupancyrates,exhibitinganimprovedperformanceintherentalmarketcomparedtonon-certifiedbuildings,5providingownersanddeveloperswiththeassuranceofalowervolatilityintherateofreturn.•Loweryields:Somestudieshaveprovidedevidenceofaloweryieldatthetimeofsale.Thisloweryield(i.e.,capitalization/discountrate)translatestoahighertransactionprice.6THEBUSINESSCASEFORGREENBUILDING36ASSETVALUE37200820092010201120122013-10%-5%0%5%10%15%20%25%30%35%-20%-15%LEGENDPercentageincreaseinsalepricesforgreenbuildingscomparedtoconventionalcode-compliantbuildings(%)YearofStudyBREEAMLEED/EnergyStarGreenMarkGreenStar/NABERSTokyoGreenBuildingProgrammeEnergyPerformanceCertiﬁcate(Netherlands)OfﬁceResidentialRatingSystemBuildingTypeSALEPRICEPREMIUMSFigure5Reportedassetvaluepremiumsofcertifiedgreenbuildingscomparedtoconventionalcode-compliantbuildings,varioussources.7,8EffectsonSalePricesInanumberofstudiesthatcomparedcertifiedgreenbuildingstonon-certifiedbuildingsinthesamesub-market,pricepremiumswerefoundtobeintherangeof0–30%,includingevidenceshowingthathigherlevelsofcertificationalsoachievehighersalespremiums,includinganumberofexamplesforpropertiesratedundertheLEED9andGreenStar10systems.Thestudiesalsodemonstrateatrendtowardshigherlevelsofcertificationleadingtotheabilitytocommandhighersalepricesandrents.TherangeofreportedvaluescanbefoundinFigure5.ThedatacomprisesofbothresidentialandofficepropertiesratedunderanumberofenvironmentalcertificationsystemsfromtheUK,theNetherlands,Australia,theUnitedStates,SingaporeandJapan,althoughamajorityofthestudiesfoundrelatetoLEED-certifiedofficebuildingsintheUnitedStates.Thesefindingsparallelthosefromthe‘DesignandConstructionCosts’chapter;higherlevelsofcertificationarelinkedtobothhigherbuildcostsandgenerallyhigherassetvalues.Infact,thebuildcostsintherangeof-0.4%–12.5%,suggestabusinesscase”forgreenbuildings–thepremiumsinmarketvaluegenerallyhavebeenfoundtobehigherthanpremiumsinbuildcosts.Itisworthnotingthatwhilethesestudiesshowarelationshipbetweenbuildinggreenandtheabilitytocommandhighersalepricesandrents,thegreencredentialsofapropertyarenottheonlydrivingfactorinthedeterminationofvalue.Localconditions,thelevelofsubsidyforenergyandwater,typicalrentsandpropertyprices,thelocationofthebuildingandprestigevalueofthepropertywillallplayaroleinthis,andasthesefactorsaresocloselylinkeditisnotpossibletodefinitivelyisolatetheimpactofbuildinggreenonassetvalue.Basedontheuniqueconditionsofeachmarketthemagnitudeofthefinancialbenefitsmayvarydependingonotherinfluencingfactors.InthestudyofNABERS-ratedbuildingsinAustralia,itisimportanttonotethatwhilethehigherlevelsofperformance(NABERS5)tendedtoachieveasalespremiumofupto21%,thelowerlevelsofperformance(NABERS2-2.5)werealsoreportingdiscountsofaslowas13%.SimilarfindingsinarecentstudyonLEEDcreditsandgreenvalueshowthatjustbeing‘LEEDcertified’doesnotaddvalue-itstartsatLEEDSilver.11Couldthispossiblyindicateashifttowardsapreferenceofhighercertificationlevels,andagrowingperceptionthatthelowestcertificationlevelsaresimplynotgoodenough?InthecaseoftheGreenMarkcertificationschemeinSingapore,whilethehighestlevelofcertification,GreenMarkPlatinum,presentsanoticeableincreaseinsalepricepremiumswhencomparedtoGreenMarkcertifiedlevel(27.7%and13%respectively),onestudyfindsthatGreenMarkGold/GoldpluspropertiesdonotfollowthetrendandactuallyshowsmallersalepricepremiumsthanthatofGreenMarkcertifiedbuildingsat9.6%.TheauthorscitealackofunderstandingintheSingaporeanmarketregardingthedifferencebetweenthevariouslevelsofcertification.Thisimpliesthat,forSingaporeandevelopmentprojects,thechoiceisbetweeneitherthelowestorthehighestlevelofcertification,astheintermediatelevelmayleadtoincreasedbuildcostswithoutaproportionalreturnoninvestment-atleastuntilmarketawarenessincreases.THEBUSINESSCASEFORGREENBUILDING38AnotherexampleofadecreaseinsteadofanincreaseinassetvaluecanbefoundinastudyconductedbyYoshidaandSugiuraonthevaluationofgreencondominiumsinTokyo,wheretheauthorsfoundthatbuildinggreenactuallydecreasedthevalueofthebuildingsby5–10%.12Theprevalenceofhighly-efficientappliancesandequipmentinJapanwascitedasoneofthepotentialreasonswhyenergyefficiencyinbuildingdesignwasnotseenasadriverforvalue.Ontheotherhand,long-lifedesignwasperceivedasincreasingvalueduetoslowerdepreciation.Thisisaninterestingexampleofacontrastingmarketperception,wherelongevityanddurabilityemergeasahigherprioritythanenergyefficiencyforgreenbuildings.ASSETVALUE39EffectsonRentalandOccupancyRatesEvidencefromtheUnitedStatesandAustraliarevealsthatEnergyStar,LEEDandGreenStar-ratedbuildingstypicallycommandrentalpremiumsintherangeof0%13–17.3%14,withonestudyshowinganinstanceofarentaldiscountof9%.15ThisrentaldiscountisfoundinastudyfromAustralia,wherelowerNABERSratings(anenergy-onlyrating)havebeenlinkedwithrentaldiscountsasopposedtopremiums.Figure6illustratestherangeofrentalpremiumsforofficesintheUnitedStatesandAustraliaasreportedinvariousstudiesoverthepastfiveyears.Similarlytosaleprices,LEED-certifiedbuildingshavealsoshownatrendtowardsincreasedrentalpremiumsassociatedwithhigherlevelsofcertification.16Theresultsfromthestudyindicatedanaverage3%increaseinrentforeachincreaseincertificationlevel.THEBUSINESSCASEFORGREENBUILDING40200820092010201120122013-10%-5%0%5%10%15%20%25%Percentageincreaseinrentalpremiumsforgreenbuildingscomparedtoconventionalcode-compliantbuildings(%)YearofStudyRENTALPREMIUMSforOFFICEBUILDINGS+24.9%,BREEAM+16.3%,LEED+11.8%,ENERGYSTAR/LEED+8.1%,ENERGYSTAR+19.7%,BREEAM+5.0%,GREENSTAR+4.5%,ENERGYSTAR/LEED+2.2%,LEED+3.0%,NABERS5+6.0%,ENERGYSTAR/LEED+9.0%,ENERGYSTAR/LEED+8.9%,ENERGYSTAR+6.1%,ENERGYSTAR-7.5%,NABERS3-4.5+2.7%,ENERGYSTAR/LEEDFigure6aReportedrentalrateincreasesofcertifiedgreenbuildingsascomparedtoconventionalcode-compliantunratedofficebuildings,varioussourcesTherearealimitednumberofstudiesthatreportoccupancyrates,althoughthisiscitedbymanyauthorsasbeingasignificantdeterminantofvalueforgreenbuildings.Figure7showsthereportedoccupancyrateincreasesfromtheavailablestudies,18whichrangefrom0–23.1%,andarebasedonfiguresforLEEDandEnergyStar-ratedofficesintheUnitedStatescomparedtotheircode-compliantcounterparts.Nofigureshavebeenreportedindicatingthatoccupancyisnegativelyaffectedbygreenbuilding.ASSETVALUE41200820102011-10%-5%0%5%10%15%20%25%Percentageincreaseinoccupancyrateforgreenbuildingscomparedtoconventionalcode-compliantbuildings(%)YearofStudyOCCUPANCYRATEPREMIUMSinOFFICEBUILDINGS23.1%EnergyStar+17.1%LEED+9.4%LEED/EnergyStar+3.4%LEED+10.5%EnergyStar+3.1%EnergyStar+2.8%LEED0%LEED+2.0%EnergyStarFigure7Reportedoccupancyrateincreasesofgreencertifiedofficebuildingsascomparedtoconventionalcode-compliantofficebuildings,varioussourcesTHEBUSINESSCASEFORGREENBUILDING42ASSETVALUE43GreenPartnership:AGoodNewsStoryCASESTUDYPRUPIMhasbenefitedsignificantlyfromtheproject.Notonlyhastheupgradeextendedthebuilding’susefullifespan,butwithHollywoodHouseachievingbothBREEAMVeryGoodandLEEDPlatinumratings,itsleasingpotentialhasincreased.PRUPIMnowhasadesirablepropertywithrecognisablegreencredentialsthatappealtoprospectivetenants.ThecommitmenttothisgreenretrofithasallowedPRUPIMtosecureaten-yearleasewithitscurrenttenant,immediatelyaddingvaluetotheasset.“IntegratingsustainabilityintotherefurbishmentofHollywoodHouseenabledustosecureapre-leaseof1,574squaremeters-ornearly17,000squarefeet-toSkanska,anoccupierwithastrongcovenantandastrongcommitmenttosustainability,”confirmsNinaReid,PRUPIM’sDirectorofResponsiblePropertyInvestment.Havingworkedtogetherontheretrofitproject,thetwogroupswillcontinuetomaximizethegreenadvantagesofthenewspace.SkanskawasamongthefirsttenantstosignPRUPIM’sstandardagreementincorporatinggreenleaseclauses.Thegreenlease,anagreementthataimstoencouragegreenpracticesbybothlandlordandtenant,hasseentheimplementationofanenvironmentalmanagementplansettingperformancetargetsforthebuilding.BothownerandoccupieraimtoworktogethertomeetthesegoalswiththesupportofaGreenBuildingManagementGroupestablishedforthepurpose–agreenrelationshipthatwillreapbenefitsforbothsidesformanyyearstocome.WhenrealestatefundmanagerPRUPIMsoughtnewtenantsforemptyspaceinHollywoodHouse,amulti-occupiedofficebuildinglocatedinWokingjustoutsideofLondon,securingastrongtenantwasgoingtobeachallengeinahighlycompetitivemarket.Thisfive-storybuildingdatedfromthe1980sand,aswithmostbuildingsofthatperiod,itwasinefficientintermsofenergyuseandhadhighoperatingcostscomparedwithcurrentmarketstandards.ConstructionandprojectdevelopmentcompanySkanska,anexistingtenantinthebuilding,waslookingtorationalizeitsofficespaceintheUnitedKingdom.HollywoodHousemetallSkanska’sneedsinthisregardbutone–thebuildingdidnotliveuptothecompany’sgreenaspirations.SkanskaapproachedPRUPIMwiththerequirementforanenergyefficientbuildingthatworkedforitsemployeesandmetitsgreencommitment.PRUPIMrecognisedanopportunitytoprotectthevalueofitsassetbyretainingamajortenantonanextendedleaseandattractingfurthernewtenantstoasignificantlyupgraded,greenerbuilding.Anextensiverefurbishmentwithasignificantcommitmenttoachievinghighgreenstandardsbegan.PRUPIM’smanagementteamsworkedcloselyinpartnershipwithSkanskabothastheproposedtenantandasthecontractor.Anumberofgreeninterventionswereimplementedincluding:•Connectiontodistrictheatingandpower;•Energyefficientlighting;•Improvedventilationandenergymanagementsystems;•Asolarphotovoltaicarraytogeneraterenewableenergyonsite;•Waterefficientplumbingfixturesandfittings;•Rainwaterharvesting;•Energymonitoringandcontrolsystems,and;•Cyclestorage,showeringfacilitiesandelectriccarcharging.Thisextensiveretrofitresultedinadesirableplacetoworkthatisalsoabuildingwithoptimizedenergyperformanceandreducedoperationalcosts.HollywoodHouseispredictedtouse56%lessenergythanbeforetherefurbishment,and55%lesswaterthanstandard.Thecostofthegreeninterventionsisexpectedtoberecoveredin13yearsthroughenergysavingsalone.Aswellasthesesignificantcostreductions,thetenantcannowdemonstrateagreencommitmentaswellasofferahealthyandcomfortableworkplaceforitsemployees.UKretrofitinvestmentpromisesabrightfutureforownerwithlong-termviewAGrowingUnderstandingAlthoughmanystudieshavedocumentedarental,occupancyorpricedifferencebetween‘green’andnon-greenbuildingsanddwellings,theunderlyingreasonsforthesedifferentialsarenotyetclear.However,asmoregreenbuildingsarebuiltandmoredataiscollected,ourunderstandingoftheissuesshouldbecomemoretransparent.OnerecentstudyrelatestheexactenergybillofEnergyStarbuildingstothepremiumspaidforthebuildingsanddocumentsthataone-dollarsavinginenergycostspersquarefoot(abouta50%reductionincosts),leadstoanincreaseofUS$0.95incashflows,andanincreaseof$13inassetvalues.19Thesearequiteprecisecapitalizationsofenergysavings.ThismustbeplacedinthecontextofthetypeofleasingarrangementsfoundintheU.S.andtheland/buildingvalueratioasthesedonotnecessarilytranslatetoothercountries.Thereisalsoariskthatalackofunderstandingofthemechanicsforthesepricedifferentialsmayleadtopredictedcostsavingsandoccupierbenefitsnotbeingrealized.Thisisparticularlythecaseifbuildingsdonotperformasexpected.Sayceetal(2010)pointouttwocasestudieswhereeitheranticipatedcostbenefitsarenotalwaysdelivered,20orwhereworkercomfortwasnotenhancedbybeinginanenergy-efficient‘green’building.21Itisimportantthatfailuresaswellassuccessesareaddressed,inordertobetterunderstandtherisksandmechanicsofvaluation.Itisalsoessentialtounderstandthathigherpricesdon’tnecessarilyproducehigherreturnsforinvestors,onlyfordevelopers,solongasthepricepremiumisnotextinguishedbyhigherconstructioncosts.Forinvestorstoenjoyextrareturns,thepropertieswouldneedtoappreciatefasterordepreciateslowerthanotherproperties,andapartfromtheYoshidaandSuguirastudy,22evidenceforthisiscurrentlyverylimited.Nonetheless,PivoandFisher(2010)haveshownthatgreenfeaturesdonotdilutereturnsorharminvestmentportfolios.23Anotherinterestingdevelopmentisthat,asgreenbuildingscontinuetogainmomentuminthemarketandthesupplyofavailablegreenpropertiesincreases,andvaluearisingfromanelementof‘scarcity’decreases,furtherincreasinglydemandinglevelsofmandatorycompliancewillnarrowthespecificationgapbetweenagreenbuildingandanyotherprimebuildings.InarecentstudybyChegutetal(2013),theauthorsestimatethatforeachadditionalgreenbuildinginaparticulararea,therentalandsalepremiumforacertifiedbuildinginthesameareaisdecreasingby1%and4%,respectively.So,intime,primeandgreenmaywellsimplyconverge.Nevertheless,itisclearfromtheevidencethat,despitedifferencesininternationalcertificationschemes,thereisagrowingtrendwherethevariedbenefitsofgreenbuildingarereflectedinmarketexpectationsofthepricesthatindividualsandcompaniesarewillingtopayforthem.Potentialbuyersandtenantsinmostmarketsareincreasinglydrawntoinvestingingreenbuildings,andatleastinsomecountries,currentlyseemtobewillingtodifferentiatethroughpriceofthesespacesintermsofbothsalesandrentalvalues.THEBUSINESSCASEFORGREENBUILDING44ReflectingthePastandEmbracingtheFutureTHOUGHTPIECEbyUrsulaHartenbergerRICSandSarahSayceKingstonUniversityAbuilding’smarketvalueiscriticaltotheconstructionandinvestmentdecision-makingprocessandassuch,accuratevaluationsunderpintheoperationoftherealestatemarketsandformthebasisforperformanceanalysis,financingdecisions,transactions,developmentadvice,disputeresolutionandtaxation.Therefore,ensuringthatvaluationprofessionals’expertiseextendstoadeepappreciationandunderstandingofsustainabilitymatters,manyofwhicharestilluncertain,isaprerequisiteformoresustainablerealestatemarkets.Yetweliveandworkinanincreasinglyparadoxical,uncertainandambiguousworldinwhichthetraditionaltrustintheadviceofprofessionalsseemstoberapidlydisappearing,replacedbyaclimateoflitigationinwhichtheprofessional’sopinionisscrutinizedandchallenged,drivingtheprofessionaltoadviseonlyinrelationtothatwhichcanbesubstantiatedbyharddata;advicemerelybasedonopinionandexperienceisnolongersufficient.Therefore,thereisatemptationforvaluerstobaseadviceonanalysisofrecentpasttransactionsandanotionofthefuturecontinuingtobe‘businessasusual’.Afterall,anythingelseinvolvessomelevelofspeculativeinterpretationoftrends.Yet,thisismisplaced;valuationsareaboutadviceinrelationtothefuture–andthatimpliesuncertainty.Sowhatis,orrathershouldbe,thevaluer’sreposetothesustainabilityagenda?Thefactthatsustainabilityisonvaluationprofessionals’agendasandthatoftheirclientsisamajorstepforwardfromonlytenyearsago.Professionalbodiesarewritingconsiderationofitintostandardsandguidance,andrightlyso.Butinpractice,howdowedotherightthingandbalancefactandopinion,scienceandperception?Whilstcurrentvaluationtechniqueshavethecapacitytoreflectsustainabilityissues,itisonethingtohavestandardsastoprocess;itisanothertohaveevidencetochangeadviceandthuspotentiallyinfluenceclients.Multipleregressionanalysisofpastrentaltransactionscanpointtocertifiedbuildingsachievingdifferentiallevelsfromthosewithout.Butisthissufficientevidenceofthebusinesscaseforeitherconstructingorinvestingin‘green’buildingsandconsequentlyforvaluationprofessionalstoadviseclientsaccordingly?Thisissurelytoosimplistic.Inmanyways,recentlyconstructedandcertifiedbuildingsaresimplysynonymouswithprimestock,butmanyprimebuildingsdonotremainsoforlong.Whatmakesintrinsicvalueovertimerelatestolocationandtheabilityofabuildingtocreateahumanresponsetowardit,eitherasoccupierorintermsofitsfittoplace.Sowhatmayfulfillthe‘greenagenda’oncompletionmaynot,inthelong-term,besustainableifitdoesnotmeetsocialneeds.Understandingandconsideringtheinteractionsandinterdependenciesbetweenthesemorecomplexandoftenlesstangiblevalue-influencingsustainabilityfactors,andincorporatingthisknowledgeintodailyvaluationtheoryandpractice,ranksamongtheprofession’sbiggestchallenges.Ourunderstandingofvalueshouldseektorecognizetherealcontributionthatbuildingsmaketotheirownersandwidersocietyandplanetarywell-being.Needlesstosaythiswouldmeanwidening,orindeedchallenging,thetraditionalconceptsofvaluebygoingbeyondtheperceptionthatbuildingsconstitutejustanotherfinancialassetclass.Forthismuchdeeperandwiderunderstandingisneeded-includinghowsomeoftheso-calledsustainabilityfeatureswillperformovertime.Thehearteningnewsisthattherearenowearlysignsthatvaluationprofessionalsarebeginningtosystematicallycollectdatarelatingtoseveralsustainabilityconsiderations-butthereisalongwaytogobeforethisiscomprehensivelyanalyzedandreflectedinvaluations.However,oncevaluationprofessionalshavethedata,theyclearlyaremorevulnerabletolitigation-iftheydonotuseit.Andafailuretoacknowledgethiswilldefinitelynotresultin‘businessasusual’.TheroleofvaluationprofessionalsandvaluationinfacilitatingchangeASSETVALUE45•Increasetransparencyandconsistency:Appraisers,orvaluationexperts,needtobeengagedwiththeprocessofaccountingforsustainabilitymeasuresinthedevelopmentprojectsonwhichtheyadvise–thereisaneedforgreatertransparencyandconsistencyofapproachinordertominimizeanyperceivedrisksofdevaluationoradecreaseinexpectedbenefitsfromtheinclusionofsustainabilityfeaturesonbuildingprojects.•Collectmoredata:Moredataisneededwithregardstotheimpactofcertificationorgreenmeasuresonbuildingvaluefordifferentmarketsandatdifferentlevelsofcertification.Inparticular,dataisneededontheimpactnotjustofcertification,butofindividualmeasuresorstrategies,andhowtheyareperceivedbyvaluers.Existingstudiesforrentalandoccupancyratesinparticulararebasedonsmallsamplesetsandneedtobebuiltuptoincreasetheirreliabilityandrobustness.NEXTSTEPSFORINDUSTRY•Understandtheimplications:Theindustryalsoneedstogainabetterunderstandingoftheimplicationsofchangesintheratioofcertifiedversusnon-certifiedbuildings,thetrendinlegalrequirementstoupgradebuildings,fiscalincentivestooffsetcapitalcostsandotherexternalfactorsrelatedtopolitical,economicandenvironmentalissues,allofwhichwillimpacttheassetvalueofbothgreenandnon-greenbuildings.THEBUSINESSCASEFORGREENBUILDING461Sayceetal,2010;Fuerstetal,2008;Kats,2003;Robinson,2005;RICS,20052Chegutetal,20133Brounenetal,2012;Addae-Dapaahetal,2011;Dengetal,2012;Newelletal,2011;Eichholtzetal,2010and2013;Fuerstetal,2008and2011;Milleretal,2008;Pivoetal,2010;Demisietal,2011.4Wiley,20105Wiley,2010;Eichholtzetal,2010and2013;Fuerstetal2008and20116Eichholtzetal,2013;Milleretal,2008;Pivoetal,20107Wherearangeofvalueshavebeenreportedforaparticularcertificationratingbyasingleauthor,theverticalbarsrepresenttheminimumandmaximumreportedresults,withthemarkerappearingasanaverageofthetwovalues.8Wherearangeofvalueshasbeenreportedinthestudy,theminimumandmaximumvaluesareshownasbluebarswiththemarkershowingthemeanvalue.9Eichholtzetal,201310Newelletal,201111Eichholtzetal,201312Yoshidaetal,2011.REFERENCES13Eichholtzetal,200914Wileyetal,201015Newelletal,201116Eichholtzetal,201317Milleretal,2008;Fuerstetal,2008and2011;Wileyetal,2010;Eichholtzetal,2010and2013.18Milleretal,2008;Fuerstetal,2008and2011;Wileyetal,2010;Eichholtzetal,2010and2013.19Eichholtz,etal,201320Turneretal,200821Pauletal,200822Yoshidaetal,201123Pivoetal,2010ASSETVALUE47OPERATINGCOSTS48THEBUSINESSCASEFORGREENBUILDING48•Greenbuildingshavebeenshowntosavemoneythroughreducedenergyandwateruseandlowerlong-termoperationsandmaintenancecosts.•Energysavingsingreenbuildingstypicallyexceedanycostpremiumsassociatedwiththeirdesignandconstructionwithinareasonablepaybackperiod.•Inadditiontoreducedoperatingcosts,greenbuildingscanofferindirectbenefitsrelatedtocostsforrefurbishmentandreconfigurationofspace.•High-performinggreenbuildingsneedtobebackedupbyrobustcommissioning,effectivemanagement,leadershipandcommunicationinordertoachievetheirpredictedperformance.4949ACQUISITIONDESIGNAPPROVALCONSTRUCTIONREFURBISHMENTSALE/LEASEOPERATIONFinancialDecisionsTenantsandOwner-OccupiersPropertyManagementPropertyAppraisalThetruetestofgreenbuildingsliesinhowwellthedesignperformsduringthebuilding’soccupancyphase.OPERATINGCOSTSThejustificationforanyaddedcapitalcostsforgreenbuildings,aswellasanyincreasesinmarketvalueorrentalpremium,liesintherealizationofoccupancy-relatedbenefitsintwomainareas:reducedoperationandmaintenancecosts;andproductivityandhealthbenefits.Thischapterfocusesonthesavingsthatcanbeachievedbygreenbuildingsintermsofoperationalcosts.Occupantproductivityandhealthareexploredinthefollowingchapter.Themainbenefitsthatdirectlyrelatetothedesignofgreenbuildingsincludereducedenergycostsfromheating,cooling,lightingandventilation,andreducedwaterconsumption.Otherbenefits,suchasreducedoperationalcostsandmaintenancerequirements,requireeffectivegreenbuildingmanagementprocedurestobeputinplacepriortothebuilding’soccupationinordertoreapthemaximumbenefitsofthebuilding’ssustainablefeatures.Greenbuildingsalsopotentiallyofferindirectbenefitsrelatedtoreductionsinpropertytaxes,insuranceratesandthecostsforrefurbishment.150THEBUSINESSCASEFORGREENBUILDINGENERGYSAVINGSFORLEED-CERTIFIEDBUILDINGS-40-35-30-25-20-15-10-50LEEDGoldLEEDSilverLEEDCertiﬁedReductioninenergyusecomparedtoconventionalcode-compliantbuildings(%)Itshouldbenotedthatsincethisgraphisbasedon2003data,thereductionsbasedontoday’sbaselinebuildingmaynotbeaspronouncedastheywereatthetimethisstudywasconducted,howeverthetrendofgreaterenergyreductionscorrespondingtohighercertiﬁcationlevelsshouldstillbevalid.EnergySavingsReducedenergyconsumption,andtheconsequentreducedenergycosts,isoneofthedefiningfeaturesofanygreenbuilding.Energyefficiencyalsohasasignificantimpactontheoverallrunningcostsofaproperty;asenergypricesrise,operationalenergyefficiencywilllikelybecomeoneofthemoreimportantdriversforoccupierdemand.2Estimatesforthereductioninagreenbuilding’senergyusecomparedtoaconventionalcode-compliantbuildingrangefrom25%-30%3(basedonLEED-certifiedbuildingsintheUnitedStates)toupto35%-50%4(basedonasimilarstudyofgreenbuildingsinNewZealand).TheLEEDstudybyKats(2003)alsoprovidesfiguresthatindicatethathigherlevelsofcertificationoftencorrespondtohigherpercentagesofenergysavings,asshowninFigure8.AmorerecentstudybyKats(2010)estimatesthewaterconsumptionsavingsresultingfromstrategiessuchaswaterreuseandwater-efficientplumbingfixturesasbeing39%overthatofacomparableconventionalbuilding.551OPERATINGCOSTSFigure8EnergySavingsforLEEDcertifiedbuildings6,7EnergySavingsfromGreenBuildingRetrofitsMaintenanceTheretrofitmarketforenergyefficiencyisgainingmomentum.Mostcountriesareincreasinglyawareoftheenergyinefficiencyoftheirexistingbuildingstockinthefaceofglobalenergyreductiontargets.Asaresult,energyefficiencyretrofitsarerapidlygrowinginimportance.Retrofitmeasuresmayincludethermalenvelopeimprovements,heatingandventilationsystemupgrades,lightingupgrades,submetering,improvedcontrols,watersavingfittingsandfixtures,renewableenergyinstallationsandmechanicalsystemupgradessuchasheatrecoverysystemsandvariablefrequencydrivesforfanmotors.Thecurrentevidencefindsthatenergysavingsforgreenbuildingretrofitsarenotashighasthosefornewbuilds,butareneverthelesssubstantial.Forexample,astudyofbuildingsinSingaporerevealsthattheresultingenergysavingsofasampleofbuildingsis17%post-retrofit.8Transwestern,aprivaterealestatefirmfromtheUnitedStates,reportstypicalsavingsof3%to15%ontheutilitybillsonitsmanagedpropertiesthathaveundergoneenergyperformanceupgrades.9Asenergypricescontinuetorise,therelativebenefitsofenergyefficiencywillbecomeincreasinglyimportant,andthebusinesscaseforenergy-efficientbuildings,aswellasenergyefficiencyretrofits,willstrengthen.Asidefromresourceefficiency,anothertypicalfeatureofgreenbuildingsisthefocusonthedurabilityandlongevityofsystemsandfinishes.Amaterialisusuallyconsideredintermsofitsentirelifecycle,aswellasitsattributesatthetimeofinstallation,utilizingacradle-to-cradleapproachthattakesintoconsiderationtheembodiedenergy,toxicityandemissions,replacementcyclesanddisposaltoensurethatamaterialis‘green’inallaspects.Aproperlyspecifiedpaletteofsustainablematerialsandbuildingsystemswouldprovidefinancialbenefitinthelongtermthroughlessfrequentreplacementcyclesanddecreasedcleaningandmaintenancerequirements,aswellasbenefitslinkedtohealthierindoorenvironmentsduetolowertoxicityandemissions.Takingitastepfurther,materialsthataretrulycradle-to-cradlehaveanadditionalcycleofrecyclingandrecoveryattheendoftheirlife,creatingthepotentialforanadditionalincomestream,althoughthisprocessispresentlyinitsinfancy.RefurbishmentAnotherfeaturethatcontributestothefinancialviabilityofabuildingthatbenefitsbothownerandoccupieristheaspectofdesignflexibility,adaptabilityandfuture-proofing.Greenbuildingsoftenincorporatesystemsthataredesignedforadaptability,includingraisedfloorsandmovablepartitions,whichallowforoccupantmovementandspatialreconfigurationwithoutexcessivedisruption,downtime,orcost.InofficebuildingsinCanada,forexample,theestimatedcostreductionsassociatedwiththeinclusionofraisedfloorsystemsequatedtoUS$4.31squaremetersperyear,basedon2003data.10Forowners,adaptabilitymeanstheeaseoftransitionintoanewuseorreconfigurationofspaceinordertomeetchangingmarketrequirements.Forbothownerandoccupier,afuture-proofedbuildingintermsofadaptableenergysources,datainfrastructure,climatechangeandnewwaysofworkingensuresthatthebuildingwillcontinuetobeavaluableassetwellintothefuture.52THEBUSINESSCASEFORGREENBUILDINGBrightLights,BigCityCASESTUDYThebrightlightsofNewYorkCityaren’tfamedfortheirenergyefficiency,butErnst&YoungislightingthewaywithitsnewlyLED-illuminatedheadquartersinTimesSquare.TheprofessionalservicescompanyhasconductedoneofNewYorkCity’slargestLEDlightingretrofits,replacingoldlightsinits32floorofficespaceentirelywithLEDtechnology.Theprojectcoverednewandmoreefficientcustomfixtures,occupancysensorsandcontrolstomanagelightinguse,andinstallationthroughoutthebuilding’soffices,conferenceroomsandcommonspaces.Thesimpleretrofitwillsavethecompanyalmost$1millioneachyear,cuttingpreviouslightingenergyandmaintenancecostsinhalf.Yetevenbeforethesesavingswererealised,thecompanysawa13%reductioninitsupfrontcostsduetoutilityrebatesidentifiedbytheretrofitteam.AndErnst&Youngaren’ttheonlyonessaving-theinitiativewillalsocutenergyuseby54%,orabout2.9millionkWhperyear,keepingapproximatelytwomillionpoundsofCO2emissionsoutoftheatmosphereannually.“GreenBuildingscontributesignificantlytoachievingsavingsonenergybillsandreductionsinecologicalfootprints,”explainsHarryVerhaarofPhilipsLighting,thecompanyprovidingthetechnology.“Inthesetimesofeconomicchallengesitisevenmoreimportanttonotethatsuchsolutionshaveimportantadditionalbenefits,includinglearningeffectivenessinschools,increasingwell-beingandproductivityinourworkplaces,andprovidingattractiveambience.”Withthisinmind,theprojectdidnotfocussolelyonenergybutalsoconsideredthespace,withlightingdesignedtomatchtheaestheticsofthebuilding.Carewastakentoensuretheappropriatelightingwasusedforthesizeandpurposeofeacharea.Theresultwasanimprovementinqualityoflightforthebuilding’smorethan5,500workers.Surelyreplacingallofthelightingin650,000squarefeetofofficespacewouldbechallengingandtimeconsuming,requiringsignificantdowntime?Notinthiscase–byworkingcloselywiththelocallabourunion,thenewlightingineachareawasinstalledsmoothlyandswiftly,injustasinglenightshift.byHarryVerhaarPhilipsLightingStraightforwardlightingretrofitinNewYorkCitymakeabigdifference-literallyovernight53OPERATINGCOSTSMajorenergysavinginitiativeswereaddedovertimeandincludedinstallationofadditionalpowerfactorcorrectionequipment,energyefficientlightingandalightingcontrolsystem,energyefficientescalatorsandlifts,anduseofseawatercoolinginsteadoftraditionalcoolingtowers.Theprojectalsointroducedwaterconservingandwastemanagementinitiatives,withannualsavingsofUS$62,000andUS$100,000,respectively.Theproject’sapproachpaidoffinotherways,too:incorporatingchangesintonormalend-of-lifereplacementofequipment,suchasswappingoldchillerswithenergyefficientversionsattheendoftheirusefullives,helpedtoabsorbretrofitcosts.Theproject’stwinaimsofincreasingtheoperation’ssustainabilityandreducingexpenseswerecarefullymonitored,withreportingonsavingsbothinternallyandexternally.Asaresult,thedevelopmentcannowdemonstratea17%dropinenergycostsandsavingsofapproximatelyUS$640,000peryear.Sincetheretrofit,themanagementofV&AWaterfronthastakenalong-termview,withon-goingmeasuresinplacetomaximizebenefits.Staffmembersatthefacilityareeducatedaboutsustainabilityfeatures,andutilitymanagementisaddressedaspartofon-goingstaffreviewprocesses.Sofar,capitalcostsfortheretrofithavenotrecoupedthroughtenants.Ultimately,thecenterwillstructureleasessothatenergycostsandsavingsaresharedwithtenants.Meanwhile,thefocushasbeenontenanteducationandupdatingtenantcriteriadocumentsforrefurbishmentsandnewtenancies.Theprojecthasalsobeenwellreceivedexternally,withpositiveandregularpublicity.Thedevelopmenthasfeaturedinanumberofarticlesthatpraiseitsenergysavingsandgreeninginitiatives,andV&AWaterfrontispickingupnumerousawardsandwinningcompetitionsforitsenergysavingefforts.ThisrecognitionisanotherwaythatV&AWaterfrontisexperiencingthebenefitsofitssustainableretrofit,inadditiontothecostsavingstheprojecthasgeneratedthatwillenabletheworktopayforitselfinalittleoverfouryears.CapeTown’sV&AWaterfront,a400,000squaremetermixed-usedevelopmentthatsees23millionvisitorsperyear,isdemonstratingmeasurableresultsfromitsUS$2.48millionretrofitthatbeganin2008.AccordingtoColinDevenish,V&AWaterfront’sExecutiveManagerofOperations,theproject’skeydriverwasthebusinesscasefor‘goinggreen’.“Mostofwhatwehavedoneisbasedonsoundbusinesspractices,”explainsDevenish.“Weconsideredpaybackperiods,returnoninvestment,customerperception,andimprovingourrelationshipwithvariousotherstakeholders.Morerecently,therehasbeenpressurefromstaffandourtenantstomovetowardssustainability.”Thisbusinessandstakeholder-focusedapproachledV&AWaterfronttoembarkontheextensive,deepenergyretrofit,whichtookplacegraduallyoverthreeyears.Armedwithaclearplanbuiltoncarefulanalysisandreview,theprojectbeganwithmeasurementsofenergyandwaterusagetoestablishbenchmarks.Costsavingsandthetasksthatwouldachievethemwereprioritized.Simplemeasuresthatcostlittleandpaidforthemselvesquicklywereintroducedfirst;adjustmentstoairconditioningcontrols,forexample,recoupedcostsinjustonemonthofoperation.ExemplarybyAnyMeasureCASESTUDYPremierCapeTownpropertyshowsthatdeepenergyretrofitsdon’tneeddeeppockets54THEBUSINESSCASEFORGREENBUILDINGINITIATIVECOST(US$)MONTHLYSAVING(US$)ANNUALSAVINGS(US$)Installationofpowerfactorcorrectionequipmenttoreducemaximumdemand20,700(2008)9,200(2009)1,15013,800ReviewandrestructureofelectricaltariffsNocost17,200207,000Installationofenergyefficientlightingandlightingcontrolsystem(Phase1)368,0008,700105,000Installationofmoreenergyefficientlightingandupgradeoflightinglevels(Phase2)279,0003,70044,500Re-useofexcessfittingsinotherbuildingsNocostNotapplicable23,000Improvementofairconditioningcontrols–customizeandchangeoperatingtimesinaccordancewiththeseasonsandoutsideweatherconditionsNoCostinmanagementactions,butacostof5,700toupgradetheBuildingManagementSystem±5,70082,700Replacefourscrewchillerswithtwocentrifugalchillersthatare25%moreenergyefficient(partofnormalendoflifereplacement).Movefromaconstantvolumetoavariablevolumesystem–variablespeeddrivesonairhandlingunits,variablevolumediffusers1,700,0008,00096,000MovingfromtraditionalcoolingtowersystemtoseawatercoolingNotavailable7,80093,600Convertedpartofirrigationsystemfromspraytodripirrigationforlesswaterusage,reducedweedgrowthandpestproblems(25liters/10m2forsprayirrigationvs.10liters/10m2fordripirrigation)Notavailable2,30027,600Reducedwateringtimes,especiallyduringtherainyCapeTownwinterandwateringtimesadjustedaccordingtoweatherandlocation(e.g.shadevs.sun)NocostNotavailable36,700(2008)38,000(2009)34,000(2010)Wasterecyclingprogramimplementedin2009.GuaranteedpaybackofUS$6,300permonthonrecycledmaterial.Approximately50%oftheprecinct’swasteisnowrecycled(180tonspermonth)Notavailable8,725104,70055OPERATINGCOSTSOverallOperationalCostSavingsKats(2003)foundthataminimalupfrontinvestmentof2%ontopoftheconstructioncostsofaprojectyieldssavingsofovertentimestheinitialinvestment,basedonalifecycleof20yearsfor33LEED-ratedprojectsintheUnitedStates.12Whilethisfigureincludesthesavingsestimatedfromincreasesinproductivityandhealth,lookingatoperationalcostsavingalonefindsthatthesesavingsalsoexceedanycostpremiumsassociatedwithgreenbuildingdesignandconstruction(Figure9).Thedegreeofsavingswillvarydependingontheenergypricesinagivenlocation.InasmallerstudycarriedoutinNewZealandin2006,operationalcostsavingsoffsetthemarginalcostincreaseofgreenbuildingsbyfiveorsixtimesforowneroccupiersandthatthehigherrentalpremiumfortenantswouldbeoffsetbyafactorofthree.13So,evenwithoutproductivityinthemix,thesavingsonoperationandmaintenancecostsalonepresentacompellingbusinesscaseforgreenbuildings,particularlyasenergycostscontinuetoriseandthecapitalcostupliftforgreenbuildingsdecreases.Figure9NetpresentvalueanalysisoftheoperationalcostbenefitsofLEEDcertifiedbuildings1156THEBUSINESSCASEFORGREENBUILDINGOPERATIONALCOSTBENEFITS01020COSTSAVINGS(USDpersquarefoot)WaterEmissionsEnergyMaintenanceandOperationsConstruction$5.79$8.47$3.00to$5.00$0.51$1.18Total20-yearNPV=$11-13$Itshouldbenotedthatsincethisgraphisbasedon2003data,thesevaluesmaynolongerbeaccurateduetoeconomicchangessincethen,howevertherelativedifferencebetweenmaintenance,operations,energy,emissions,waterandconstructioniswhatisofinteresthere.MakingGreenLeasesWorkTHOUGHTPIECESingaporeiswellrecognizedasaleaderintheAsiaPacificregiononsustainabilityinthebuiltenvironment,withworld-classpoliciesandbuildingratingtools.RecentdiscussionsbetweenpropertyindustryandSingaporeanGovernmentrepresentativeshasshowngreenleasingasperhapsthelastmissingpieceofthesustainablebuildingpuzzle,providingsomekeyfactorscanbemet:•Greenleasingmustworkhand-in-handwithexistinggreenbuildingratingsystems;•Leaseclauseswitheasilyquantifiablebenefits,suchasenergyperformancetargets,areeasiertomanagethanless-quantifiable(thoughstillworthwhile)initiatives(e.g.,workplaceproductivity);and•Externalauthoritiestoenforceleaseclausesmayfurtherencouragelandlordandtenantcollaboration.Greenleasesareagovernanceframeworkbetweenlandlordsandtenantswhichfacilitatecollaborationtowardsbetterbuildingperformance.Leasescanrangefrom‘light’green,withpartiesfocusingon,thoughnotnecessarilycommittingto,specificactions,to‘dark’green,wheremorerigoroustargets,monitoringandpenaltymechanismsmayapply.Workingalongsidegreenbuildingratingtools,whichprovidethespecificperformanceindicatorstomonitor,thegreenleasehelpstobridgethegapbetweenbuildingdesignandsiteoperation,viatargetsetting,specifyingrolesandresponsibilities,andmediatingnon-compliance.Theideasoundssimpleenough.Buthowwillthisworkinpractice?TheconceptisrelativelynewinSingapore,withlessthanahandfulofknownexamples.Oneexampleinvolvedasitewheredistrictchilledwaterwaspurchasedfromautilityprovider,withthelandlordtobepenalizedifthereturnwatertemperatureistoolow.Thegreenleaseallowsthelandlordtopartiallypassthroughthesecoststotenants,iftheyarereturningthechilledwaterbelowthepre-agreedlimit.Duringreal-lifeoperation,thelandlordwaspenalizedasizablesumformissingthetargetand,ratherthansimplypassingontherelevantcostsandwalkingaway,isnowactivelysupportingthetenantstoresolvethisissue.Althoughcostisacleardriver,thelandlordandtenantsarebothfocusedoncollaborationtoachievebetterenergyperformance,whichisleadingtooverallimprovementsinbuildingoperations.NodoubttechnologylikeintelligentBuildingAutomationSystems(BAS)orprocesseslikeBuildingInformationModeling(BIM)willcontinuetoimprovebuildingperformance;greenleasingcanaddanewdimensiontothegreenbuildingmovementanddriverealcollaborationbetweenlandlordsandtenants.57byShengkaiChiuJonesLangLaSalle(withthankstoMatthewClifford)57OPERATINGCOSTSBridgingthePerformanceGapTheevidencepresentedabovedemonstratesthatoperationandmaintenancecostbenefitsdoexistandthattheyaresubstantial.However,eventhemostwell-designedbuildingswithhighservicingrequirementsmaynotperformaspredictedifnotsupportedbyrobustmodeling,designandconstructionmanagement,effectivestakeholdercommunications,propercommissioningandeffectivemanagementduringtheoccupancyphase.Figure10showshowthediscrepancybetweenpredictedversusactualenergyperformanceisnotjustgeneratedbyasingleeventbutofaseriesoffactorsthatoccurthroughoutthebuildingdesignandprocurementprocess(thepercentagespresentedinthegrapharebasedontheoreticalmodelingandextensiveindustryexperienceratherthanstatisticalmodeling).14TheroleofIntegratedDesignProcess(IDP)issignificanthere,asitisprobablythemostusefultoolinensuringthattheexpectedbenefitsfromgreendesignarerealizedduringthebuilding’soccupancyphase.Theperformancegaphasbeendocumentedinseveralstudies,andhasledtotheperceptionthatthecostbenefitsforgreenbuildingsareoftennotrealized15andthatpredictedworkersatisfactionandcomfortisoftennotdelivered.16So,howcanweensurethatpredictedbuildingperformancematchestheperformanceofthebuildinginoperation?Theanswerliesinthefollowingkeystrategies:Thepositiveimpactsofbuildingcommissioninghavebeenoutlinedinnumerousstudies,illustratingtheinfluenceitcanhaveinidentifyingmalfunctionsandotherissuesrelatedtoefficiencythatincreasetheopportunitiesforenergysavingsandbuildingsystemsoptimization.Propercommissioningofbothnewandexistinggreenbuildingsresultsinreducedoperating,maintenanceandrepaircosts.Thisalsoensuresthatspecificationssetoutduringthedesignphasearefollowedthroughtoinstallation.58THEBUSINESSCASEFORGREENBUILDINGTHEPERFORMANCEGAPSource:adaptedfrom“WhatisthePerformanceGap?”byArup,2013betweenPredictedandActualEnergyPerformanceElectricityUseGasConsumptionDESIGNCONSTRUCTIONCOMMISSIONINGOPERATIONEnergymodellinginaccuracyCalculatedenergyuseIneffectivecommissioningConstructionstagechangestodesignManagementandoperationsUnregulatedenergyuseLEGEND+10-20%+10-20%+10-30%+10-30%+10-20%+15-30%+30-100%+10-20%+80-120%+30-120%GasConsumption=+125%ElectricityUse=+275%Cost=+235%£050100150200250300IncreaseinActualEnergyConsumption(%)TheenergyusecalculatedforcompliancewithBuildingRegulationsandtheactualenergyconsumedintheoperationofbuildingscanbevastlydifferent.Thisdiscrepancybetweenpredictedvs.actualenergyperformancehasmultiplecausesthatoccurthroughoutthebuildingprocurementprocess.AllpercentagesrelatetocalculationscarriedoutfortheUK’sPartLoftheBuildingRegulations.BuildingRegulationsonlyrequirethecalculationofenergyuseforspaceheating,hotwater,fansandpumps,coolingandlighting.Energyusefromsmallpower,computerserverroomsandcateringarenotincluded.Inaddition,theaccuracyoftheenergymodellingcarriedoutduringdesignphaseislimited,andassumptionshavetobemadebuildinguse,operatinghoursandlevelofdetail.Contractor-designedelementsandchangesimplementedincost-cuttingexercisesmaynotmeettheoriginaldesignintent.Alevelofqualityinworkmanshipisalsorequiredtoachievegoodperformance,andthismaynotnecessarilyberealisedinpractice.Ifcommissioningactivitesarenotcompletedadequately,buildingsystemswillnotbeoptimisedandwillnotworkefﬁciently.Buildingoperatorsandoccupiersmayﬁndthebuildinganditscontrolsdifﬁculttounderstandandthereforemaynotbemanagingorusingitasefﬁcientlyaspossible.Insufﬁcientmaintenancemayalsoresultinalossofperformance.PredictedEnergyUseActualEnergyUseFigure10TheperformancegapbetweenpredictedandactualenergyperformanceintheUK59OPERATINGCOSTS60THEBUSINESSCASEFORGREENBUILDINGCommissioningshouldbeanon-goingprocessthatiscarriedoutforaminimumofthefirst12monthsafterhandoverinordertobemeaningful,asthisensuresthattheprocesscoverstheseasonalvariationsinweatherandoccupancythroughouttheyear.Thereisevidencethatresultingsavingsmorethanpayforthecostofcommissioningforbothgreenandnon-greenbuildings.Costsforcommissioninghavebeenfoundtorangefrom0.3%17to4%18ofconstructioncosts,whilethesubsequentreductionofoperationsandmaintenancecostswasestimatedbyKats(2003)tobeintherangeof0%to25%.19AmorerecentpaperbyMillsetal(2009)basedonastudyof643buildingsintheUnitedStates,showsthatcommissioningcostsamountedto0.4%oftheoverallconstructioncost,whilethewholebuildingenergysavingsequatedto16%and13%forexistingbuildingsandnewconstruction,respectively.20Leadershipintheformofgreenbuildingmanagementandeffectiveandtransparentcommunicationiscrucial.Thisrequireseffectivecollaborationbetweenowners,agentsandfacilitiesmanagers,andeffectivecommunicationbetweentheownerandtheoccupier.Greenbuildingmanagement21requiresthatproperobjectivesaresetandmonitoredwithregardstoreducingcostsandemissions,aswellastheeffectivemanagementofanysavingsandreinvestment.Thiscouldalsoincludethefacilitationofdataacquisitionandsharingbetweentheownerandtheoccupier,servicecharges,leasetermsandmanagementarrangements(includinggreenleases),andregularmeetingsbetweenstakeholderstoencourageengagementbetweenallpartiesinvolved.Splitincentivesarecitedbymanyasasignificantbarriertocommercialrealestateinvestmentintorentedproperties.Intheseproperties,thebuildingownerspayforupgradesbutdonotreapthebenefits–tenantsdo.Greenleases22areasolutiontothisproblem,whereownersandtenantsagreetoleasetermsthatsharethebenefitsandcostsoftheenergyefficiencyretrofit,therebyprovidingownerswithafinancialincentivetoundertaketheretrofits.Effectiveandtransparentcommunicationofsuccessesandlessonslearnedcanalsobeusedtodrivebetteruserbehaviorandimprovethelongevityofowner-tenantrelationships.Ithasbeenfoundthatprovidingperformancefeedbacktooccupantscanleadtoadditionalsavings.Intermsofdirectfeedback,whichincludesreal-timemetersandmonitors,savingsrangedfrom5-15%,whileindirectfeedback,suchasbillsorothernon-immediatesourcesofinformation,canprovideadditionalsavingsupto10%.23Tenantawarenessprogramsserveasagoodcomplementtocommissioning,andaremademoreeffectivebycarryingoutpost-occupancyevaluations,whichcanprovidemeaningfulfeedbackbetweentheownerandoccupier,aswellasassistinensuringthatbuildingsareusedproperlyandthattheyaredeliveringanoptimumworkingorlivingenvironment.Studieshaveshownthatoccupantbehaviorplaysacentralroleininfluencingabuilding’soperationalenergyuse.24Compellingevidenceexistsregardingthepotentialforsubstantialcostbenefitsarisingfromreducedoperationalandmaintenancecostsforgreenbuildings.However,aperformancegapdoesexistinmanycasesanddevelopmentteamsneedtoensurethatdesignintentionsarefollowedthroughtopost-occupancyandthatleadershipandmanagementareneededtoensurethatthesebenefitsarerealized.61OPERATINGCOSTS•Undertakenewresearch:MoredataisneededabouttheimpactofcertificationandgreenbuildingsonoperationalcostsforotherglobalregionsoutsideoftheUnitedStates.TheseminalstudybyKats(2003)isstilltheprimaryreferencetenyearson,andwhilesomesmallerstudieshavebeencarriedoutusingthesamemethodology,statisticallyrobustinformationonbiggersamplesarefewandfarbetween.•Understandtheperformancegap:Industryneedstounderstandthenatureoftheperformancegapateachstageofthedevelopmentprocessandensurethattheseissuesareaddressedbyallstakeholders.•Raiseawareness:Promotegreaterawarenessandunderstandingoftheroleofcommissioninganditsinclusioninbuildingregulationsandstandards.•Adoptgreenmanagementtechniques:Increasedadoptionofmanagementtechniquessuchastheintegrateddesignprocessandgreenleasesshouldbeaprimaryfocus.NEXTSTEPSFORINDUSTRY62THEBUSINESSCASEFORGREENBUILDING1Lucuik,20052Ellisonetal,20073Kats,20034Fulbrooketal20065Kats,20106Kats,2003.7Itshouldbenotedthatsincethisdataisfrom2003,thereductionsbasedontoday’sbaselinebuildingmaynotbeaspronouncedastheywereatthetimethisstudywasconducted,howeverthetrendofgreaterenergyreductionscorrespondingtohighercertificationlevelsshouldstillbevalid.8Yuetal,20119Bernsteinetal10Kats,200311Kats,2003REFERENCES12Kats,200313Fullbrooketal,200614Arup,201315Turneretal,200816Pauletal,200817Syphersetal,200318Dorganetal,200219Kats,200320Mills,200921Smallwood,etal,201022BetterBuildingsPartnership,201023Janda,201124Janda,201163OPERATINGCOSTSWORKPLACEPRODUCTIVITYANDHEALTHTHEBUSINESSCASEFORGREENBUILDING6464•Researchshowsthatthegreendesignattributesofbuildingsandindoorenvironmentscanimproveworkerproductivityandoccupanthealthandwellbeing,resultinginbottomlinebenefitsforbusinesses.•Despiteevidenceofitsimpact,improvedindoorenvironmentalqualityhasnotbeenapriorityinbuildingdesignandconstruction,andresistanceremainstoincorporatingitintofinancialdecision-making.•Thislackofuptakeislikelybecause‘productivity’inthemodernworkplacecanbechallengingtomeasure,itscauseswovenwithanumberoffactors,andithasnotbeensystematicallytranslatedintofinancialmetrics.•Whilemoreresearchisneeded,investinginbetterindoorenvironmentscanleadtobetterreturnsononeofeverycompany’sgreatestassets-itsemployees.6565ACQUISITIONDESIGNAPPROVALCONSTRUCTIONREFURBISHMENTSALE/LEASEOPERATIONFinancialDecisionsTenantsandOwner-OccupiersPropertyManagementWORKPLACEPRODUCTIVITY&HEALTHFromabusinessperspective,thereareclearincentivesforimprovingemployeehealthandproductivity.Anybusinessownercantellyouthatstaffsalariesandexpendituresmakeupthebulkofoperationalexpensesassociatedwithoccupyinganofficebuilding.Indeed,over85%oftotalworkplacecostsarespentonsalariesandbenefits,comparedtolessthan10%onrentandlessthan1%onenergy.1Researchsuggeststhatbymakingevensmallimprovementstofactorssuchasproductivity,healthandwell-being,businessescanexperiencegreaterfinancialbenefitthantheywouldfrommoreefficientresourceuseinbuildingoperations.Itisnotsurprisingthatthebusinesscommunityisincreasinglyinterestedinhowgreenbuildingdesigncanpositivelyimpactitspeople.Someleadingbusinessesarenowshiftingtheirthinkingfrom‘howmuchwillgreenbuildingcostmybusiness’to‘howmuchwillnotinvestingingreenbuildingcostmybusiness?’THEBUSINESSCASEFORGREENBUILDING66Studentsachieve5-14%HIGHERTESTSCORESandlearn20-26%FASTER15-40%INCREASEinRetailSales3%fromindividualtemperaturecontrol11%frombetterventilation23%frombetterlightingCallProcessing6-12%FASTERMentalFunction&Memory10-25%BETTERWorkersare18%MOREPRODUCTIVEProductivityIncreasesbyDAYLIGHTHospitalStays8.5%SHORTEROUTSIDEVIEWSSYSTEMSIgnoringtheImpactsofIndoorEnvironmentsWhilebusinessesareincreasinglyrecognizingthatbuildingsthatbettersupporttheiremployeesalsoresultinbetterorganizationaloutcomes,theyarelesscertainofhowtheyshouldbeleveragingbuildingstopositivelyimpactpeople.Inaddition,manybusinessesbelievethatpeoplecanadjusttoanyenvironment2andsooftenmakechangestotheenvironmentonlywhenitdirectlyinterfereswithworkperformance,ratherthanbeingproactiveandexploringhowtheenvironmentcanpositivelyinfluenceproductivityandwell-being.Figure11NetpresentvalueanalysisoftheoperationalcostandproductivityandhealthbenefitsofLEEDcertifiedbuildingsWORKPLACEPRODUCTIVITYANDHEALTH67DefiningProductivityTHELINKBETWEENGREENBUILDINGSANDWORKPLACEPRODUCTIVITYTherearemanywaystolookattheterm‘productivity’,whichinthecontextofoffice-basedworkisalsoreferredtoas‘taskperformance’.Productivitygenerallymeasuresquantity-howmuchworkisperformedanddeliveredintogoodsandservices(inputsandoutputs)andhowefficiently.Qualityofworkisalsoimportantandinsomecasescanincludeeasily-trackedoutcomessuchaserrors,numberofdo-overs,andworkcompletedontime.Yetformanytypesofknowledge-basedwork,thesetypesofmeasurementsaremoredifficultbecausetheimpactsofknowledgeworkareoftennotrealizedimmediatelyandnotalwaysreadilyquantifiable.Otherwaysofassessingproductivityhaveincludedmeasuresofstandardizedcognitivetasks(memory,attention,mathtasks,andvigilance).However,thisisnotproductivityinarealworksense,butratheraproxyforthekindsoftasksthatmanypeopledo.Indirectmeasuresofproductivitythatarefrequentlyusedincludeabsenteeism,‘presenteeism’andtardiness.Theideabehindthesemeasuresisthatpeoplecannotworkaseffectivelywhentheyareillorhavelowlevelsofmotivation.Whiletheseareusefulmeasures,itcanbedifficulttoidentifythemanypotentialwaystheseoutcomesareinfluenced.Forinstance,highlevelsofabsenteeismcanbedueoutsidetriggersand/orpoormanagementaswellasthephysicalworkenvironment.Thebestresearchtakesthesemitigatingfactorsintoaccount.Forthepurposesofthisdiscussion,productivitymeasurementsinclude:workproductoutcomes,aswellasindicatorsofhealth(suchasabsenteeism)andindicatorsofwell-being(includingstresslevelsandmood).THEBUSINESSCASEFORGREENBUILDING68TheImpactofDesignAttributesofgreenbuildingsmostcommonlyassociatedwithhealthyindoorenvironmentsincludehighlevelsofnaturaldaylighting,appropriatelevelsandtypesofartificiallight,useofmaterialswithminimaltoxins,appropriateoutdoorairventilation,thermalcomfortandopenandinvitingspacesthatincreaseinteractionandphysicalmovement.Oneofthechallengesofresearchinthisareaisthatthereareanumberofphysicalenvironmentfactorsthatmaybesimultaneouslyimpactingproductivity,healthandwell-being,andthesecontributingelementsmayalsobeactingsynergistically,creatingimpactsthatarenotwellunderstoodorevenknown.3However,manystudieshavebeenabletoisolatespecificattributesandtheirimpacts.Forexample,inawell-regardedstudyfrom2003performedbyHeschongMahone,performanceofcallcenterworkerswasassessedunderdifferingamountsofaccesstodaylightandtoviewsofnature.Workerswithoutdoorviewstovegetationthroughwindowsprocessedcalls6%to12%fasterandperformed10%to25%betteronmentalfunctionandmemoryteststhanworkerswithoutviews.4TheCenterforBuildingPerformanceandDiagnostics(CBPD)alongwithAdvancedBuildingSystemsIntegrationConsortium(ABSIC)atCarnegieMellonUniversityreviewedandassessedtheexistingresearchonbuildingdesignattributesandworkplaceproductivity(Loftnessetal,2003).Theyfound:•8casestudieslinkingthebenefitsofprovidingindividualtemperaturecontrolforeachworkertomeasuredproductivitygains,demonstratinguptoa3%increaseinoverallproductivity;•15studieslinkingimprovedventilationwithupto11%gainsinproductivity,asaresultofincreasedoutsideairrates,dedicateddeliveryoffreshairtotheworkstation,andreducedlevelsofpollutants;•12studieslinkingimprovedlightingdesignwithuptoa23%gaininproductivityrelatedtolightlevelsmatchedtotask,glareandbrightnesscontrol,andthepowerofviews;and•13studieslinkingtheaccesstothenaturalenvironmentthroughdaylightandoperablewindowstoindividual(uptoan18%increase)andorganizationalproductivity(suchasincreasedretailsales).5Occupantsofotherbuildingtypeshavebeenshowntobenefitfromthesesamedesignfeatures.Forinstance,intheEconomicsofBiophilia,6theauthorshighlightanumberofreportsshowingthebenefitsofviewstotheoutdoorsanddaylightingacrossseveralsectors:•TheseminalstudybyUlrich(1984)showinghospitalstaysreducedby8.5%aswellassupportingstudiesindicatingfasterrecoveryratesinroomswithwindowsviewsofnature;7•Patientswitha22%reducedneedforpainmedicationinroomswithbrightsunlight;8•SignificantlyincreasedsalespersquarefootinWalmart,9a15-20%increaseinsalesatTarget,10anda73-storeretailchaininCaliforniawitha40%increaseinsalesduetodaylighting;11and•Increasedattendancebythreedaysperyear,a5-14%improvementintestscores,12and20-26%fasterlearningratesinschoolswithoptimaldaylight.13Whilethesegreendesignfeatureshaveprovenbenefits,theymustbeincorporatedintoaholisticdesignofthewholebuilding,ortheymayhaveunwantedresults.Themostobviousexampleisdaylighting,whichmustbeincorporatedintothedesigncorrectlyinordertominimizeglareandeliminateunwantedheat,bothofwhichcanhaveanegativeimpactonproductivity.WORKPLACEPRODUCTIVITYANDHEALTH69CreatingHealthyBuildingsforHealthyPeopleTHOUGHTPIECECreatingthehealthiestpossibleworkenvironmentisparamounttoachievingoptimallevelsofemployeeproductivity,happiness,andperformance.Thebuildingindustrystanceregardinghealthandsustainabilityinworkenvironmentsmustevolve,andinthegreaterinterestofhumanhealth,itiscriticalthatorganizationswiththeabilitytocreatemeaningfulchangedoso.AtGoogle,wecreateworkenvironmentsthathelpGooglersperformattheirbesteveryday.Fromconcepttodesign,constructionandbuildingoperations,westrivetocreatethehealthiestworkplacesimaginablethatpositivelyimpactthehealthandwell-beingofouremployees,bothtodayand30yearsfromnow.That’swhyweconstructhealthyworkplacesbyapproachingbuildingsaslivingsystems,designingindaylightandcleanairwhiledesigningoutharmfultoxicsandchemicals.Researchhasshownthatqualityoflightdirectlyaffectsthequalityoflifeinaspace;peoplearehappierandcanworkmoreeffectivelywhentheyhaveaccesstodaylightandoutdoorviews.Wedesignourofficestocreateafeelingofopennessandtotakeadvantageofnaturallightasmuchaspossible.Webelievenaturalresourcesshouldbeutilizedintelligentlyandresponsibly.Ourapproachcomplementsthecommitmentwehavemadetodesignbuildingsthataresupportiveandregenerativeforlocalandglobalecosystems.Unfortunately,thematerialsindustryismarkedbyalackoftransparencyconcerningthecompositionofbuildingproductsusedininteriorfitouts.Inthesamewayyouwouldexpectanutritionlabeltoprovideclearinformationregardingtheingredientsofthefoodyoueat,sotooshouldyouexpecttoknowtheingredientsoftheproductswhereyousit,standandbreathe.Accordingly,wethoroughlyscreeneveryproductandmaterialthatisdesignedandconstructedintoourworkplacesaroundtheglobe.Werequestfulltransparencyfromourvendorsbyaskingthemtosharecomprehensiveproductandingredientinformation,andwhenthisrequestisnotmet,wedonotusetheproduct.Throughthisprocesswefeelthatwecanparticipateinapositivetransformationinthebuildingmaterialsindustry.Weapplaudtheleadershipofmanufacturerswhoaretransparentaboutthematerialcontentsoftheirproductsandareworkinghardtodevelophealthieralternatives.Theharmfuleffectsofmanycommonchemicalsandtoxicsareproven,andthisinformationshouldbereadilyavailabletoeveryone.Weencourageconsumerstorequestincreasedlevelsoftransparencyaboutthecompositionofthematerialsusedintheirfitoutsfromtheirpartnersandmanufacturers,asincreaseddemandwillspurmoreopennessinthemarketplace.SupportforplatformssuchastheHealthProductDeclaration(HPD)OpenStandard,theindustry’sfirstcommonreportingstandardfortransparencyregardingthehealthimpactsofbuildingmaterials,willonlyhelptohastenmarkettransformation.Continuedleadershipisnecessarytomaintainmomentuminthepushforproducttransparency.ForGoogle,bysettinghighstandards,askingdifficultquestionsandencouragingtransparencyfromourpartners,wehopetoshowotherorganizationshowtheycancreatetheirownhealthyandsustainableworkenvironments.byGeorgeSalahGoogleCasestudyprovidedby:THEBUSINESSCASEFORGREENBUILDING70WORKPLACEPRODUCTIVITYANDHEALTH71HealthierPlacestoWorkTHEIMPACTOFGREENBUILDINGONHEALTHANDWELLBEINGTheU.S.EnvironmentalProtectionAgencydefinesSickBuildingSyndrome(SBS)as“…situationsinwhichbuildingoccupantsexperiencehealthandcomforteffectsthatappeartobelinkedtotimespentinthebuildingandwhichlessenafterleavingthebuilding.”14SymptomstypicallycharacterizingSBSinclude,“…headache;eye,nose,orthroatirritation;drycough;dryoritchyskin;dizzinessandnausea;difficultyinconcentrating;fatigue;andsensitivitytoodors.”15TheadventofSickBuildingSyndromehaslongbeenlinkedtoreducedventilationinbuildingdrivenbyadesireforincreasedenergyefficiencyinthe1970sand1980s.StudiesshowthatSBSislikelytheresultofanumberofbuildingcharacteristics,withthemostcommonlycitedbeinglowlevelsoffreshairandhighlevelsofindoorpollutants.16,17ThescopeofSBShasbeensignificant,withtheWorldHealthOrganization(1990)reportingthat30%ofbuildingsgloballymayhaveindoorenvironmentsthatcontributetoSBS.18AlthoughreportsofSBShavedeclinedinrecentyears,theissuestillpersists.AsHeerwagennotesin2010,otherresearchshowsthatupto20%ofworkersmaybeaffected.19Solutionsforbuildingdesignandoperationsincludereducingpollutantsourcesandmoreandbetterventilatedair,20withsomearguingthatifbuildingventilationisincreasedtokeepindoorcarbondioxidelevelssimilartooutdoorlevels,SBSsymptomswouldbereducedby70-85%.21Thepotentialupsideforbusinessesofhealthierworkplacesistoobigtoignore.Fisk(2000)estimatesthatintheUnitedStates,“potentialannualsavingsandproductivitygainsareUS$6to$14billionfromreducedrespiratorydisease,$1to$4billionfromreducedallergiesandasthma,$10to$30billionfromreducedSickBuildingSyndromesymptoms,and$20to$60billionfromdirectimprovementsinworkerperformancethatareunrelatedtohealth.”Theessenceoftheproductivityargumentingreenofficebuildingsisthatcertaindesignattributesenhanceoccupanthealthandwell-being,thereforeresultinginhealthier,happier,moresatisfiedandultimatelymoreproductiveworkers.THEBUSINESSCASEFORGREENBUILDING72ReducingStressintheWorkplaceTheideathatviewstonaturecanimproveofficeworkerwell-beinghasbeenvalidatedbyanumberofstudies,includingastudycitedbyHeerwagen(1998)showingthatworkersexhibitreducedsignsofstress,includingreducedlevelsoffrustration,increasedpatienceandoverallsatisfaction,whentheyhaveviewstonaturethroughwindows.22Thisisbackedupbya2008studydemonstratingamorerapidrecoveryfromstressbyworkersinofficeswithawindowviewtonatureratherthanthesameviewonaplasmascreenorworkinginawindowlessroom.23Therearephysiologicalreasonsforthisreductioninstress:researchshowsthatinteractionandconnectionwithnaturecantriggeropioidreceptorsinthebrainaswellasreducecortisollevels,bloodpressureandheartrates.24Levelsofdaylightareknowntoimpactcircadianrhythmsaswellasserotoninandmelatoninlevels,influencingourmoodsandsleep.25,26Thisevidencesupportsthenotionofbiophilia,ortheideathat,“…humansholdabiologicalneedforconnectionwithnature…andthatthisconnectionaffectsourpersonalwell-being,productivityandsocietalrelationships.”27Practicalapplicationofthisknowledgeisnowbeinglookedinto.ResearchbytheNationalInstitutesofHealth(Thayeretal,2010)andsupportedbytheU.S.GeneralServicesAdministrationhasbeguntoidentifyhowdifferentfeaturesandattributesofphysicalspacecaninfluencestressresponsesamongfederalemployees.Researchersassessedbothphysiologicalandpsychologicalindicatorsofstressintwogroupsofemployees:oneinanewlyrenovatedworkspacewithabundantdaylight,visualaccesstotheoutdoors,andgoodairquality;thesecondintheun-renovatedspaceinthesameofficewithlowerdaylightavailability,blockedviewstotheoutdoors,andpoorerairquality.Theone-weekstudymeasuredthephysiologicalresponseoftheparticipantscontinuouslyatworkandathome.Theresearchfoundthat:•Employeesinanewlyrenovatedspacehadlowerlevelsofstressthanemployeeswhowereintheun-renovatedspace;and•Theincreasedlevelsofstressforthoseinhabitingtheoldworkspacewerehigheratbothworkandathome,showingthattheworkplaceinducedstresshadbroadeffects.28Heerwagen(1998)pointstoworkshowingthatthesesamedesignfeaturesimprovethegeneralwell-beingandmoodsofworkers29andthat“positivemoodsturnouttobecriticalforawiderangeofoutcomes…includingjobsatisfaction,workinvolvement,motivation,organizationalattachmentandloweredabsenteeism.”30WORKPLACEPRODUCTIVITYANDHEALTH73MAKINGTHEMOSTOFGREENBUILDINGDESIGNWhilethereisagrowingbodyofresearchandempiricalevidencelinkingbuildingdesignattributestoproductivity,health,andwell-being,theresultsofthisbodyofresearchhasnotbeenwellintegratedintobuildingdesignandtherehasnotbeenaconsistentmethodtolinktheoutcomestofinancialmetrics.Asresult,whiletheevidenceisthere,theindustryremainsskepticalandcontinuestounder-investintheoccupantexperience,missingoutonwhatispotentiallyitsgreatestreturnoninvestment.Theimplicationsreachbeyondindividualbusinesses.ArecentstudyfromanAustralianuniversityassertsthatworkplaceproductivityandhumanperformancearemajordeterminingfactorsinoverallnationalproductivityandoutputs,influencingnationalgrowthratesandqualityoflife.31Thereisasignificantopportunityforbusinessandacademiatoworkmorecloselytobuildtheevidenceforthelinksbetweengreenbuildingdesignandorganizationalsuccess,drawingonthewealthofinformationwealreadyhaveaboutitsimpactonindividuals.Weneedanintegratedapproachthatconnectstheexistingresearchdatatopracticalapplications,financialreturnsand,ultimately,policiesandstandards.Agreaterevidencebasewillbecrucialtomovingourinvestmentsinthebuiltenvironmentawayfromminimizingcosttomaximizingemployeehealthandproductivity.Indoingso,employersshouldviewtheirphysicalenvironmentsastoolstoleveragebroaderorganizationalsuccessandunlocksignificantvalue.Buildinginvestorsandownersshouldrecognizeandactontheinformationalreadyavailablewiththeunderstandingthatdesigndecisionsmadenowwillhaveanimpactonworkersoverthelifeofthebuildingandthereforethelong-termvalueoftheirinvestment.Theimportanceofbuildingdesigninachievingindividualhealthandwell-beingaswellasindividualproductivityisaprominentagendaitemforthebuildingindustry.THEBUSINESSCASEFORGREENBUILDING74RefurbishmentReapsRewardsCASESTUDYAussieresource-efficientdesignpaysoffinproductivity,comfortandemployeesatisfactionWhenAustralianpropertycompanyTheGPTGroup(GPT)madethedecisiontoupgradeitsheadofficespaceinSydney’scentralbusinessdistrict,theconversationquicklyturnedtohowagreenrefurbishmentcouldhelptransformtheGroup’soperatingmodelandreinvigoratetheGPTbrand.Asthecompanywouldsoondiscover,theupgrade,whichhasachievedthehighestavailableratingunderAustralia’sGreenStarratingsystem,wouldtransformtheworkingenvironmentandimproveconditionsforGPTGroupemployees.Thenewofficehasbecomeasymboloftheorganization’sapproachtobusinessandhasdeliveredasignificantboosttoGPT’sbrand.Sincetheachievementofitsgreenbuildingcertification,GPThasbeenrecognizedwithaccoladesfortheofficeandbusinessalike,includingthreestategovernmentGreenGlobeAwards.GPThasalsobeennamedtheworld’smostsustainablerealestatecompanyfor2012/13bytheDowJonesSustainabilityIndex.TheefficientuseofsustainablematerialswasacoretenetoftheGPTfitoutdesignbrief.Adheringtothephilosophyof‘everythingoldisnewagain’,theprojectteamrepurposedandreintegratedmanyitemsfromtheoldfitoutintothenewspaceandachievedanincredible96%wastediversionrate.TheGPTGroupalsoenteredintoproductstewardshipagreementswithallsuppliers,ensuringthatfitoutitemshavealowenvironmentalimpact–now,andattheendoftheirusefullife.Toboosttheairchangeandenergyefficiencyofthebasebuilding’sdualactivechilledbeamandvariableairvolumesystems,theprojectteamintroducedsupplementaryairconditioningformeetingroomsandinstalledlouverswithinthefaçadetoincreasethelevelsoffreshoutsideair.Optimizingairconditioningefficiencyhashelpedtoachievesignificantreductionsinenergyuseacrossthetenancyandairchangeefficiencyisnow50%higherthanAustralianstandardrequirements.Thesignificantboosttoindoorenvironmentqualitywasalsoachievedthroughthespecificationoffurniture,carpetsandsoftfurnishingsthatwerelowinvolatileorganiccompounds(VOCs)andtheintroductionofmorethan500plantstofurtherimproveairqualityforGPTworkers.Asaresultoftheseefforts,thelatestpost-occupancystudyindicatesamassivejumpinGPTemployees’comfortandsatisfactionintheirnewworkplace.Priortothemove,GPTworkersratedtheiroverallcomfortwithaspectsofthespaceincludingtemperature,ventilationandacousticsat54%,whileinthenewspacetheoverallcomfortratingshavejumpedupto97%.Further,thefirstemployeeself-assessmentpost-occupancystudyfortheoffice–conductedthreemonthsafterthemove–foundthatemployeesfelt15%moreproductiveinthenewspace.“IfindthecontrolIhaveovertheenvironmentasauserofthespaceisfabulous–beingabletomovearoundandchasethesunshinearoundthebuilding,oradjustthelightingandairasIneeditisgreat,”saidoneGPTworker.AnotherGPTemployeesumsupthesenseofpridethepeopleatGPTfeelfortheirnewworkplace.“I’mproudtosayIworkinagreenenvironment,”theemployeesaid.“Achievingthe6StarGreenStarratingwasawonderfulacknowledgementoftheimportanceweplaceonsustainability.I’veneverworkedinanenvironmentthatfeelsthisopen,freshandhealthy,whilealsoprovidingmewithallthefacilitiesIneedtobeproductiveandeffectiveinmyrole.”WORKPLACEPRODUCTIVITYANDHEALTH75TalentAttractionandRetentioninGreenBuildingsTHOUGHTPIECEGreenbuildings,particularlythosewithimprovedindoorenvironmentalquality,arebeingshowntopositivelyimpacthumanhealthandperformance.Butcangreenbuildingsalsoimproveacompany’sabilitytoattractandretainkeystaff?Theexperienceofthoseoccupyinggreenspaceseemstoaffirmthislink,andprogressivehumanresourceprofessionalsaretakingnote.TheImportanceofStaffAttractionandRetentionEmployeeturnoveriscostlytoanycompany2,butespeciallyinknowledgefieldswherethecompetitiveedgeishumanexpertise.Butturnoverisnotanadequatetermtodescribetherealcostsoflosinganemployee.Thesecostsincludethecostoftermination,jobpostings,interviews,negotiations,lostproductivityduetojobvacancy,andthelearningcurveproductivityloss.3Attraction-retentionmaybeamorepowerfulwaytocapturethesecomprehensivecostsratherthanthesomewhatbenignuseofthewordturnover.InhispaperIt’sCostlytoLoseGoodEmployees,Dr.JacFitz-Enz,anexpertinhumancapitalstrategicanalysis,indicatesthatwhendirectandindirectcostsarecombined,thetotalturnovercostofaprofessionalormanagerisaminimumofoneyear’spayandbenefitsandcanbeasmuchastwoyears’payandbenefits.4Forthisreasonandmore,Dr.Fitz-Enzbelievesthat“theprimaryhumanresourceschallenge…istherecruitmentandretentionofcompetentemployees.”5Indeedemployeeretentionisconsideredoneofthekeyindicatorsof“overallorganizationalsuccess.”6A2009CBREreportfoundthat“publicimage,recruitmentofandretentionofemployeesareenhancedingreenbuildings.”7Soitfollowsthatgreenbuildingscouldresultinsignificantsavingsinthecostlyarenaofemployeeturnover.TheEvidenceBaseTheColliersInternational2012OfficeTenantSurvey10assessed300decision-makersleasingcommercialproperty,representing5.5%ofAustralia’stotalofficespace.Inthetwoyearssincetheprevioussurvey,keyprioritiesoftenantshadshiftedfromafocusonbusinessexpansiontostaffattractionandretention.SimonHunt,ColliersInternationalManagingDirectorofOfficeLeasing,linkedattraction-retentionwiththegreennessoftheworkpace,sayingthatworkers“…wanttobeabletosaytheyworkina‘green’building.”Infact,95%oftenantssaidtheywantedtooccupya‘green’building,upfrom75%in2010.11A2008studybyDeloitteandCharlesLockwood12examinedthemotivesforcompanieschoosinggreenretrofitsoverconventionalretrofits.”’Corporateenvironmentalcommitment’toppedthelistofmotivesforthegreenretrofit,andmorethanhalftherespondentsalsoidentifiedgreaterindoorairandenvironmentalquality,publicrelationsandpublicity,improvedemployeeproductivity,andenhancedemployeeattractionandretentionasimportantdrivers,”thereportfound.Followingthegreenretrofits,93%oftherespondentsreportedgreaterabilitytoattracttalentand81%sawgreateremployeeretention.ResearchersatthePacificNorthwestNationalLaboratoryintheUnitedStates13wereabletotrackabsenteeismandturnoverfortheyearpriortotheirlabrenovationandtheyearafterward.TheredesigninvolvedtheHVACsystem,acoustics,spatiallayoutandaestheticupgrades.Theresearchersfoundsignificantdifferencespre-andpost-occupancyinbothabsenteeismandturnover.Turnoverdecreasedby60%intheyearfollowingtherenovation,andabsenteeismwasreducedfrom96hoursperpersonto45hoursperperson.13PNCFinancialServices,oneoftheU.S.’slargestdiversifiedfinancialservicesorganizations,reportsthatemployeeretentionandsatisfactionwas50%betterinitsgreenfacilitycomparedtothatofatraditionalone.14Aftertheirmovetoanewgreenbuilding,internationaldesignandengineeringfirmSmithCartercompletedapost-occupancysurveythatrevealeda,“75%increaseinemployeesatisfactionwiththenewbuilding,ultimatelysupportingstaffattractionandretention.”15THEBUSINESSCASEFORGREENBUILDING76Theseexamplesallshowthatbuildingdesignthatcontributespositivelytohumanwell-beingandperformanceisincreasinglyformingpartofacompany’sstrategytoattractandretainworkers.Inaddition,thebuildingitselfmayactasasymbolofthecorporation’senvironmentalandsocialperformanceandbeapowerfulattractionforpotentialemployees.ForthedesignoftheBankofAmericaTowerinNewYork,KenLewis,theformerCEOoftheBankofAmerica,statedthathewantedaniconicbuildingthatwouldhelpattractandretainthebestemployees.BeingthefirstLEEDPlatinumskyscraperwasakeypartofthatstrategy.16SustainabilityAppealstotheYoungArecentreportfromJohnsonControls,OXYGENZ16,surveyedpeopleaged18to35intheUnitedStates,UKGermany,India,andChinaandfoundthatyoungergenerationemployeeswantevidencethattheiremployersaregoingbeyondtheminimumlevelsofenvironmentalcompliance;96%ofthe18-25yearswanttoworkinagreenerofficeand98%ofthe26-35yearsoldrespondentsdoaswell.”17OneoftherespondentsintheDeloittesurveynoted,“Alotofourfolkshereareyoungerfolks,andsustainableinteriordesignandtheabilitytoworkina[sociallyresponsible]placeisveryimportanttothem…It’simportanttothemtobeabletosay,‘I’manenvironmentallyresponsibleperson.’”18TheWayForwardAgreatdealoftime,moneyandeffortisspentbycorporationstryingtoattractandretaingoodstaff.Couldoneofthesolutionsliewiththesimplestrategyofprovidingahealthy,sustainably-designedworkplacethatpromoteswell-beingandproductivity?Humanresourceprofessionalsareincreasinglyexploringthispotentialcompetitiveadvantage.Muchmoreresearchisneededtodemonstratethedirectlinkbetweenthesustainabilityofaworkplaceandtheabilityofacompanytoattractandretainkeyemployees–companiesmovingtogreenofficespaceorgreeningtheircurrentspaceneedtospecificallytrackstatisticsonemployeeattractionandretentionbeforeandafterthechange.HumanResourceprofessionalsneedtoagreeonthetypesofdatatobecollectedincludingtherelevantunitsofmeasurement,anddesignthedatabasesothegreenqualitiesoftheworkenvironmentcanbeanalyzedrelativetoorganizationalcommitment.Butthismuchisclearalready:withstaffturnovercostingemployersayearormoreineffectivesalary,anenhancedabilitytoattractandretainemployeesisabigadvantagetobusiness,especiallythosewithahighly-skilledorexpertworkforce.Asyoungergraduateslookincreasinglytothesustainabilityoftheiremployers,companiesignorethispowerfulbenefitofgreenbuildingattheirperil.byNicolaMilneREFERENCES1Persrametal,20072Phillips,19903Fitz-enz,20094Fitz-enz,19975Fitz-enz,19906Sink,19857Milleretal,20098UnitedStatesDepartmentofEnergy:OfficeofEnergyEfficiencyandRenewableEnergy–FederalEnergyManagementProgram,20039MMoserAssociates10TheColliersInternational2012OfficeTenantSurvey11Colliers(website),201212Deloitteetal,200813Montgomeryetal,199414PNCFinancialServices(website)15SmithCarter(website)16Cox,200017Oxygenz(website)18Carmody,2010WORKPLACEPRODUCTIVITYANDHEALTH77Industryneedstobeproactiveaboutworkingwithresearcherstoidentifytheappropriatemetricsandmethodologiestodeveloptheevidenceneededforbetterfinancialdecision-making.Areasforinvestigationinclude:•Whichgreenbuildingfeaturesorcombinationoffeatureshavethegreatestimpactonhumanhealthandproductivityandorganizationalsuccess?Howdothesevarybybuildingtype?•Cananexistingbuildingevaluationsystemorframeworkmeasureandthencalculatethecost-benefitofthesenewstrategies?•Canabuildingownerorbusinessleveragetheirhealthyandproductivebuilding/spacetoobtainimprovedfinancingorhealthinsurancerates?•Howcanwebestturntheresultsofproductivitymeasuresintomeaningfulfinancialmetrics?NEXTSTEPSFORINDUSTRYTHEBUSINESSCASEFORGREENBUILDING781TerrapinBrightGreenLLC,20122Montgomeryetal,19953Heerwagen,20104Heschong,20035Loftness,etal.20036TerrapinBrightGreenLLC,20127Ulrich,1984.8Walchetal,2005.9Rommetal,1994.10Edwardsetal,2002.11Heschong,200312Niklasetal,1996.13Heschong,1999.14Heerwagen,201015USEnvironmentalProtectionAgency,199116Milleretal,200917USEnvironmentalProtectionAgency,1991REFERENCES18Frazer,199819Hodgson,200220Heerwagen,201021Apteetal,200022Kaplan,199223Kahnetal,200824Parketal,201225TerrapinBrightGreenLLC,201226Figueiroetal,201027TerrapinBrightGreenLLC,201228Thayeretal,201029Ulrich,199330Heerwagen,199831Bodekeretal,2011WORKPLACEPRODUCTIVITYANDHEALTH79RISKMITIGATIONTHEBUSINESSCASEFORGREENBUILDING8080•Sustainabilityriskfactorscansignificantlyaffecttherentalincomeandthefuturevalueofrealestateassets,inturnaffectingtheirreturnoninvestment.•Regulatoryrisksrelatedtosustainabilityhavebecomeincreasinglyevidentincountriesandcitiesaroundtheworld,includingmandatorydisclosure,buildingcodesandlawsbanninginefficientbuildings.•Extremeweathereventsandsystematicchangesinweatherpatternsaffecttheinsurabilityofrealestateandleadtoquestionsabouttheresilienceofassets.•Changingtenantpreferencesandinvestorriskscreeningmaytranslateintoriskofobsolescenceforinefficientbuildings.•Sustainabilityrepresentsanassortmentofrisksandpossiblerewardsforrealestateinvestors.8181ACQUISITIONDESIGNAPPROVALCONSTRUCTIONREFURBISHMENTSALE/LEASEOPERATIONDesignProfessionalsPropertyManagementTenantsandOwner-OccupiersPropertyAppraisalFinancialDecisionsConstructionIndustryRISKMITIGATIONInvestorriskrelatestothepotentialreductioninvalueorincreaseincostsassociatedwithholdinganinvestment.Itmayalsorelatetothebrandstrengthofaninvestorandthereforetheabilitytoattractequityanddebtcompetitively.Therearedifferentrisksevaluatedatthevariousstagesofthebuildinglifecycle,butallcanbeconsideredwaysinwhichto‘future-proof’investments.Whiletherearefewevidence-basedstudiesquantifyingsustainability-relatedrisks,somerealestateinvestorsarenowperformingtheirownanalysesonmanyoftheserisksasapartoftheirdecision-makingprocesses.Realestateinvestorshaveresponsibilitiestotheirshareholdersandotherbeneficiariestoensurethatprofits,whichflowbecauseofincomeproducedinrentandincreasingcapitalvaluesofrealestateassets,areachievedovershort-andlong-termtimehorizons.Thebeneficiariesofinvestors’activitiesincludeshareholdersinprivatecompanies,insuranceandpensionpolicyholders,privateindividualsandpublicbodies.Manyofthosewhomweidentifyas‘realestateinvestors’aremerelyfiduciariesofotherpeoples’money,whichhasbeenentrustedtotheircareintheexpectationthattheywillenablethatmoneytogrowinvalue,whileminimizingtheriskoftheinvestment.Thereisnodoubtinthemindsofmostinvestors–certainlyinstitutionalinvestorsandlargecorporateinvestorslikeREITSandpropertycompanies–thatsustainabilityisanissue,orsetofissues,thatneedtobeaddressed.Arguably,whatneedstobeaddressedhasbeenconsideredbysuchorganizationsforarelativelyshortperiodoftimebuthowsustainabilityissuesareconsidereddoesnotrelyonnewconcepts:goodrealestateinvestmentrequiresexpertiseinmanagingrisksandnearlyallofinvestors’decision-makingiscarriedoutwithinariskmanagementframework(e.g.,what,whenandwheretobuyandsell,whotopartnerwith,fromwhomtoborrowcapital,etc.).Dealingwithsustainabilityissuesisthereforenodifferenttodealingwithotherrisks;investmentdecisionsaremadeonthebasisofdownsideandupsiderisks,includingthosepresentedbysustainability.Belowweidentifysomeofthemostpertinentsustainabilityissues,whytheyrepresentrisksandhowsomeinvestorsarecurrentlydealingwiththem.THEBUSINESSCASEFORGREENBUILDING8282RISKMITIGATION8383RegulatoryRiskAnymarketexistswithinapoliticalandregulatorycontextandinvestorsareobviouslyusedtooperatingwithinthoseboundaries.Asrealestateinvestmentmanagementisarelativelylong-termplay,investorsneedtoappreciatehowfuturelegislationcanimpactthevalueofabuildinganditscashflows.Regulationofsustainabilityissues,likecarbonemissions,hasbecomeincreasinglyimportanttorealestateinvestorsbecauseofthefactthatthebuiltenvironmentisregardedas‘responsible’forsignificantenvironmentalimpact,leadingtoclimatechange.Forexample,theUKgovernmentiscommittedbytheEnergyAct2011tointroducingMinimumEnergyPerformanceStandardsforexistingbuildings,makingthemostenergyinefficientbuildingsunabletobeleasedby2018.RegulatoryriskisbynomeansconfinedtoEurope.SomeUScities,suchasNewYorkandSanFrancisco,havefollowedtheleadofotherjurisdictionsaroundtheworldbymandatingthepublicdisclosureofenergyusedataforcertainbuildings,withtheintentionofencouragingoccupiersandinvestorstoincorporatethisinformationintotheirleasingandinvestmentdecision-making.Thesekindsofinitiativeswillpotentiallyhavesignificantimplicationsforinvestors,whomayriskdecreasingincomefromexistingassetsandtheircapitalvaluesconsequentlysufferinguntiltheenergyperformanceisimproved.Inmanycountries,buildingregulationsandcodestendtofocusonnewbuildingsandseektoensurethattheirsustainabilityperformanceisfarbetterthanmuchoftheexistingstock.Investors’portfolioswillrarelyconsistofalargeproportionofnewbuildings,meaningtheyneedtoensurethattheirexistingassetsareabletocompeteagainstnewbuildingsforoccupiersandpurchasers.Indoingthis,theywilltrytoensurethattheyfuture-prooftheirassetsagainstevolvingregulationswhichtendtorequireeverbettersustainabilityperformance.Regulatoryriskdoesnotonlyincludetheperformanceofabuildingitself,butofitslocationaswell.Althoughplanningregulationscoveringurbantransportandincreaseddensityrequirementsarenowprevalentinsomecountries,itispossiblethatinthefuturetheserequirementswillbewidespreadandchangetheimportanceofaccessibilityforbothtenantsandbuildingowners.1Investorshavetraditionallyplacedthehighestvalueonlocationfactorsandwillhavetoreassessthesustainabilityriskfactorspertainingtosomebuildinglocations.Thereisincreasedconsensusthatgovernmentswillimplementregulationsthattargetsustainabilityfactorsfarmoreaggressivelythanhaspreviouslybeenthecase,andinvestorswillneedtounderstandwhattheconsequenceswillbe.Theywillneedtoconsiderhowthebuildingperformsintermsofitsownsustainabilityprofile-whererisksmightarisebecauseofitsperceivedabilitytobeefficientintheconsumptionofresourcescomparedtootherbuildings’compliancewithregulatoryrequirements.Ifinvestors’buildingsfailtomeetthechangingrequirementsofregulations,orseemtoperformlessfavorablywhencomparedtootherbuildings,thentheywillsufferfromincreasedriskofobsolescence.THEBUSINESSCASEFORGREENBUILDING8484Thebuildingisnowcompletelyleased,makingitpossibletocomparepredictionswitheffectivedata.Inordertoassesstheaddedvaluefromtheenvironmentalretrofit,differentscenarioswereconsideredwiththefollowingresults:•BusinessasUsual(BAU):Norefurbishment,onlystandardmaintenance.Rentalpricesusedcorrespondtorentalpricesforsecondhandbuildings.Assetliquiditydeemedaspoor,leadingtohigherexityieldandhighervacancy.•ConventionalRefurbishment(RT):Refurbishmentmeetscurrentregulatoryrequirements.Theassetisvaluedasafirst-handbuildingbutdoesnotbenefitfromagreenpremium(averagerentalpriceinfirst-handmarket).Assetliquiditydeemedtodecreaseovertime.•GreenRefurbishment(HQE):Energyupgradeenablesownertobenefitfromagreenpremiuminrentalpricesandverygoodliquidity.Thevaluationwasperformedusingadiscountedcashflowmethod.Toaccountforthedifferenceinvaluesduetotheabsenceofenvironmentalfeatures,longervacancyperiodsinbetweenleaseswereusedinadditiontothedifferencesinrentalandexitvalues.Thediscountedcashflowcalculation(Figure12)showsthatthetworefurbishmentscenarios(RTandHQE)leadtolowercashflowsrespectivelyuntilyearssevenandnine.Yet,overthelongrun,theypresentthehighestnetpresentvalue(NPV).However,refurbishmentappearsfinanciallybeneficialfromthestartsinceitenablestheownertoincreaseitsrentalrevenueanddecreasefuturedepreciationrisks.Theinitialinvestmentcostsareoffsetbythefuturebenefits,inparticularbecauseofahigherexpectedreturnrate.Thegreenrefurbishment(HQE),withacostofapproximatelyone-thirdoftheinitialbuildingvalue,enabledtheinvestortonearlydoubletheinitialvalueofitsasset.Inaddition,itledtoa10%valuepremiumcomparedtotheconventionalrefurbishment(RT)scenario.Theseresultshighlightthattraditionalpaybackcalculationsaccountingonlyforenergysavingscanbemisleadingastheydonotaccountforthelong-termassetvalue.Asenergyretrofitsbecomearegulatoryrequirement,investorswillrequireenergyefficiencystrategiesataportfolioscaleinordertomitigaterisk.Decisionswillnotonlyconcernchoosingrefurbishmentscenarioswithinbuildingsaccordingtotechnicalcriteria,butwillalsorequireprioritizingbetweenassetstomaximizethevalueoftheportfolioovertimeaccordingtofinancialandenvironmentalcriteria.EnergyEfficiencyShinesAttheendof2009,CaissedesDépôtsetConsignations(CDC)initiatedtheGRECOprojectinanticipationoftheFrenchenvironmentallawGrenelle2,requiringa38%reductioninenergyconsumptionfromexistingcommercialpropertystockby2020.CDCwantedtopromptlyaddresstheissuetolimitthedepreciationriskforitsexistingportfolioandspreadtherefurbishmentcostovertime.First,energyauditswerecarriedoutonthewholeportfolio.Actualconsumptioninvoices(frombothtenantsandowner)wereusedtodetermineabreakdownofenergyconsumptionperuse(forHVAC,lightingandotheruses)andrecommendationsissued.Majorupgradesweretimedtocoincidewiththereplacementofcomponentsattheendoftheirlife,inordertobecoveredbytheplannedbudgetsformajorrepairsandmaintenance.Atabuildinglevel,refurbishmentcostsandpaybackperiodswerenottheonlycriteriausedfordecision-making.BycomparingtherefurbishmentcostandtheenergyconsumptionabatementtargetCDCwasabletodemonstratethecostefficiencyofvariousrefurbishmentscenariosandassesstheimpactofanumberofdifferentactionsrequiredtomeetthereductiontargets.Accountingonlyforenergyexpenses,theinvestmentpaybackperiodexceededeightyears.ThecomparisonbetweenrefurbishmentcostandassetvaluewasusedtoindirectlyassesstheriskslinkedtotheregulatoryobsolescencegeneratedbyGrenelle2.Whilethisratiodependsonthefunctionalqualityoftheassetanditslocation,evenwithlongpaybackperiods,itmaybemorebeneficialtorefurbishiftheassetmarketislikelytobeconcernedwithademandforgreenerbuildings.Theimpactofenvironmentalupgradesonvaluewasillustratedthroughadeeprefurbishmentundertakenin2010ofthe1930seraFranklinbuilding,a7,500squaremeteror80,000squarefeetpropertyintheParisCBD.CASESTUDYFrenchinvestmenthouseusessustainabilityriskassessmenttomaximizelong-termassetvalue-20-10010203040123456789101112131415Cashﬂows(millionEUR)yearsBAURTHQEFigure12EvolutionofthecumulateddiscountedcashflowsovertimeRISKMITIGATION85MarketRiskAswellasrespondingtoregulatorypressure,realestateinvestorssimultaneouslyneedtounderstandhowsustainabilityaffectsthemfromamarketperspective-intermsofsupply,demandandassociatedfactors.Investorswillconsiderfactorsrelatingtoasset-specificrisksandrisksaffectingtheperformanceoftheirportfolios,liketheirabilitytoraisecapital:OccupancyRiskThefinancialperformanceandvaluationofarealestateassetistoalargepartdeterminedbythesecurityofitscashflow.Thelikelihoodthattenantsmightleaveabuilding,ornotleaseitinthefirstplace,becauseofitsinadequatesustainabilityperformanceisrecognizedasakeyriskbyinvestors.Onestudycontendsthatasmoregreenbuildingsbecomeavailableandoccupiersbecomelesswillingtooccupynon-greenbuildings,itwillincreasethespeedofdepreciationfornon-greenbuildingsatanexponentialratherthanlinearrate.2Evidenceforpreferenceamongstoccupiersforgreenbuildingscanbefoundinanumberofsurveys3inwhichtheciteddriversrelatetofactorssuchas:proximitytopublictransportation;cheaperrunningcostsandutilitybillsbeingreflectedinlowerservicechargecosts;betterproductivity;humanresourcefactorslikerecruitingthebesttalent;andpublicassociationwithsustainability.Althoughthereisplentyofanecdotalevidence,thereisstillnosystematicevidenceontenantretentionandleaserenewalsingreenbuildings.Thisisanissuethatneedstobeinvestigatedmorethoroughly.AssetPurchasingandDisposalRiskAsthe‘AssetValue’chapterofthisreportlaysout,thereisevidencethatthesustainabilityprofileofassetsimpactsinvestmentreturnsovertheholdingperiodandatexit.Manyresearchersandmarketpractitionersbelievethatthereisastrongcorrelationbetweenthosebuildingsthatretaintheirvaluebecausetheyare‘prime’buildings(i.e.,physicallyhighqualityassets,withoccupiersofgoodcovenantingoodlocations)andthosedescribedas‘green’.Thequestionthatthereforebecomesmoreandmoreimportantis:willanassetwillsufferfroma‘browndiscount’,orincreasedobsolescencebecauseitisnotgreen?Inlightofthis,investorsneedtoidentifythepotentialimpactthatapurchaseordisposalmighthaveontheriskprofileoftheirportfolios.PortfolioPerformanceOverall,studieshavedemonstratedthatgreenerportfolioshavebetteroperatingperformanceandareexposedtolessmarketrisk.4However,mostpropertyinvestorsarenotconvincedoftheshareholdervaluepotentialassociatedwithenergyefficiencyorotherenvironmentalinvestments.5Thiscouldbebecauserealestateinvestorsdonotsufficientlyandclearlyreporttheirsustainabilityperformanceandtheriskreductionthisaffords.6Recently,astudyhasindicatedthatthefinancialperformance(stockprice)ofREITswithahigherpercentageofcertifiedbuildings(EnergyStarandLEED)showslowerriskexposure(lessvolatility)thanthosewithalowerpercentageofcertifiedbuildings.7Thismirrorstheeffectthathighcarbonemissionshaveonfirmvalueinotherindustries.8Inthecontextofrealestateinvestment,identifyingthevalueimpactofsustainabilityis,ofcourse,vitalandthismustbemeasuredovertimeratherthanasasnapshot.InastudyfromtheNetherlands,9buildingslabeledasmoreenergyefficient(A,B,orCrated)increasedrentalvalueoverafiveyearperiod,whencomparedwithbuildingsthatwerelabeledE,F,orG(wherethestudycontrolledforthemostimportantdeterminantsofrentalvalues,includinglocation,buildingageandsize).Otherstudiessuggestthatlowercapitalizationrateshavebeenobservedforgreenerbuildings,indicatinglowerriskperceptionsandhighervalues.10Inordertoexplorewhethermoreenvironmentallyefficientrealestateportfoliosmaybeabletooutperformtheirpeersintermsofriskandreturn,anumberof‘greenproperty’indiceshavebeendeveloped.IntheU.S.,forexample,theFTSEGroup,theU.S.GreenBuildingCouncilandtheNationalAssociationofRealEstateInvestmentTrustshavejointlydevelopedagreenpropertyindexforinstitutionalandretailinvestors.Similarly,intheUK,theInvestmentPropertyDatabank(IPD)hasdevelopedthe“Eco-PortfolioAnalysisService”(EcoPAS)whichseekstoenableinvestorstounderstandpotentialenvironmentalrisksintheirportfolios.THEBUSINESSCASEFORGREENBUILDING86REGULATORYRISKSMARKETRISKSTECHNOLOGYRISKSPHYSICALRISKSRISKRADARREFURBISHMENTOPERATIONSALE/LEASECONSTRUCTIONAPPROVALDESIGNACQUISITIONInabilitytoleaseduetonewregulationsDecreaseinvalueduetolowenergyratingInabilitytocompetewithnewer,greenerpropertiesPropertyvaluedecreaseduetochangesinplanning/transportpolicyExtremeweathereventsFloodingSubsidenceIncreasedtemperaturesChangingrainfallpatternsCostlymaintenanceregimesUnintendedconsequencesDecreasedfutureoccupantcomfortandsatisfactionMissedopportunitiesHigherriskexposureofnon-sustainableportfolio(morevolatility)BrowndiscountsIncreasedspeedofdepreciationLoweroccupancyratesShortertenanciesFailuretomeetsustainabilitybenchmarkingcriteriaofpotentialinvestmentpartnersInvestmentSourcingRiskInallbusinesssectors,therearepotentialriskstoacompany’sbrandandperformancearisingfromtheactivitiesandassociationsofitsinvestmentpartners.AstudybyBauerandHahn(2011)confirmsthatcompanieswithbetterenvironmentalperformanceexhibitcheaperdebtfinancingcosts,supportingthecontentionthatfirmswithmoresociallyresponsiblepracticeshavehighervaluationandlowerrisk.Theimpactofrealestateinvestors’assetandportfolio-levelsustainabilityperformance–andtheirmanagementoftheassociatedrisks–canbefeltintheirabilitytoattractequityanddebtatcompetitiverates.Itisforthisreasonthatanincreasingnumberofrealestatefundmanagersandtheirinvestorssubjecttheirportfoliostosustainabilitybenchmarking.Althoughthereislimitedevidenceofinvestorsdecidingnottoinvestinfundsbasedonsustainabilitycriteriaalone,someinvestorsareincludingsustainabilityperformancetoidentify‘bestinclass’opportunities.Figure13RiskradarRISKMITIGATION87PhysicalRiskClimatechangepredictionsrepresentarealriskforinvestors.Thescientificconsensusonfuturetemperatureincreasesindicatesthatchangestoweatherpatternswillbesignificantintermsofthebuiltenvironment’scapabilitytocopewiththem.Notwithstandinganysocietaladjustmentsthatclimatechangemaybring,realestateinvestmentdecision-makingwillhavetoevolvetoreflectchangesintheeconomicviabilityofdifferentlocationsandtheabilityofdifferentbuildingtypesanddesignstostanduptoachangingenvironment.Ausefulriskmanagementcontextwithinwhichtoconsiderthisisintermsofresilienceandtheextenttowhichinvestmentsarefuture-proofed.AsexperiencedrecentlyinNewYork,Australia,Europe,andinmanyotherplacesaroundtheworld,therearemanyphysicalrisksthatareassociatedwithclimatechange.Investorswillincreasinglyneedtofactortheabilityofbuildingstowithstandpredictedimpactsintotheirdecision-making.Perhapschiefamongsttheseimpactswillbeextremeweatherevents,flooding,subsidenceandtheabilityofbuildingskinandsystemstocopewithincreasedambienttemperaturesandchangingrainfallpatterns.Forinvestors,oneofthekeyriskstheyfaceinthisregardistheinsurabilityofbuildings–withoutthis,abuilding’svaluecouldbesubstantiallyreduced,eventonil.Someinsurershavetakentheviewthatincertainlocations,suchastheUKandAustralia,itisnolongereconomicallyviabletoprovidefloodprotectioncoveragainstriskstobuildingsandthebusinessesthatoperatefromthesebuildings.Giventhatinsurersandreinsurersarelikelytoextendtheirthinkinginthismannerasextremeweathereventsandsubsequentinsuranceclaimsbecomemorecommonplace,investorswillneedtostartconsideringtheriskstotheirassets’cashflowsiftheyhavenotalreadydoneso.Investorswillalsohavetoconsidertheissueofbuildingcomfortandtheabilityofbuildings’systemstoensurethatoccupierswillviewpremisesasdesirable;withincreasedtemperaturespredictedthereisacashflowriskforbuildingswhicharenotsufficientlyresilienttoensurefutureoccupiersatisfaction.Howinvestorsdealwiththeseissueswillofcoursevaryfromplace-to-placeandbuilding-to-buildingbutitisinconceivablethatefficientinvestorsarenotundertakingsustainabilityriskprofilingoftheirportfolios(whichshouldincludeassessmentofregulatoryrisksasdiscussedabove).Insomeinstances,realestateownerswillbeabletomitigatethesephysicalrisksbysharingthem,ortheircosts,withtheirtenants,buttodosotheywillneedtoensurethatleasesmakesuitableprovisionforthis.Othermitigatingmeasureswillincluderetrofittingbuildingswithadaptationstodealwithclimatechangeeffects,suchassolarshading,improveddrainageandwaterharvesting.Investorswillalsoneedtolookattheresilienceoflocalinfrastructure,asevenaresilientbuildingwillbecompromisedifitislocatedinacitythathasdonelittletomanagephysicalrisks.Again,landlordswillneedtobecertainastowherethecostburdenforsuchworkswilllie.THEBUSINESSCASEFORGREENBUILDING88SustainabilityatthePortfolioLevelLegislationisanimportantdriverofgreenbuildingadoptionintherealestatesector.Butwhilethepaceandstrengthoflegislationisaffectedbythevolatilityofpolicymaking,thereisanotherforceingreenbuildinginvestmentquietlyhappeningeveryday,drivenbythecapitalmarket.Withtheglobalgrowthofgreenbuildingoverthepastdecade,energyefficiencyandsustainabilityinthebuiltenvironmenthavenowbecomevehiclestoenhanceandtoprotecttheassetsheldbythelargestinvestorsacrosstheglobe–endowments,pensionfundsandinsurancecompanies.These‘institutionalinvestors’increasinglyrealizethatthesustainabilityperformanceofbuildingsisdirectlyaffectingthefinancialperformanceoftheirrealestateinvestments,whichisespeciallyrelevantgiventhelong-terminvestmenthorizonsoftheseinvestors.Institutionalinvestorstypicallyinvest5to10%oftheirtotalassetsinrealestate,andthisexposureismostlybuildupindirectly–viaprivatelymanagedfunds,orvialistedpropertycompanies(REITs).Institutionalinvestorsarethusnotsomuchinterestedintheenergyefficiencyofjustonebuilding;theyareinterestedintheaverageefficiencyofaportfoliocomparedwiththeaverageefficiencyofpeers.So,toassessthesustainabilityperformanceofinstitutionalrealestateinvestments,informationisneededattheportfoliolevel,ratherthanattheleveloftheindividualasset.Inaddition,atypicalpensionfundorinstitutionalinvestorisnotnecessarilyinterestedina‘greenpropertyfund’perse.Whatinvestorsareconcernedaboutistheriskinherenttotherealestateportfolio,includingriskfromanenvironmentalperspective.Thisisoftennotanumberonepriority—that’sstilllocation,accesstopublictransport,etc.Butsomewhereontheprioritylist,there’senvironmentalrisk.Investorsareusedtoinvestigatingthepresenceofasbestos,landcontamination,andotherenvironmentalelements.Now,investorsshouldbethinkingaboutenergyefficiencyandwaterefficiency,andhowwellabuildingispositionedcomparedtopeers.THOUGHTPIECEToaddresssustainabilityattheportfoliolevel,aconsortiumofmorethan40pensionfunds,insurancecompaniesandotherlargeinvestorsarenowactivelyscreeningtheirinvestmentsinpropertyportfolios,usingtheGlobalRealEstateSustainabilityBenchmark(GRESB)–aquantitativetoolthatbenchmarksapropertycompanyorfund’senergyefficiencyandbroadersustainabilityperformanceattheportfoliolevel.Morethan450propertycompaniesandfundscurrentlyreporttoGRESB,representing$1.3trillioninassetsundermanagement,andsome36,000properties.ThebasisforGRESBisanannualsurveymeasuringtheenvironmentalandsocialperformanceofrealestatecompaniesandfundsattheportfoliolevel.BasedonresponsestotheannualGRESBsurvey,abenchmarkingframeworkhasbeencreatedthatcapturesalmost50datapointsmeasuringsustainability,includingenergyandwaterconsumption,butalsosustainabilitypoliciesand,ofcourse,asset-levelcertification.Thelargest,mostsophisticatedinvestorsinrealestateareincreasinglytakingthenecessaryinitiativestoimprovetheenergyefficiencyandsustainabilityoftheirportfolios,inordertoprotectandincreasethevalueofpensionsandendowments.Butforthecapitalmarketstofunctionproperly,informationtransparencyonenvironmental,socialandgovernance(ESG)metricsisakeyingredient.Atthebuildinglevel,LEEDandothergreenratingsystemsprovidethatinsight.Attheportfoliolevel,schemeslikeGRESBthatassistinvestorsthecapitalmarketwillultimatelyshapetheroleofgreenbuildingsinoursociety.RISKMITIGATION89byNilsKokMaastrichtUniversityTechnologyRiskInnovativetechnologiesinnewbuildingshavetheirownrisks(e.g.,LEDlighting,HVACequipment,solarinstallations)arisingfromunintendedoutcomesfromtheiruse–orthefearofthese–orconcernsaboutappropriatemaintenanceregimes.Thesecanbebarrierstoimplementingsustainabilitysolutions.However,reticencetousenewtechnologiesthatcanchangedemand-sidebehavior(e.g.,wirelessmeasurementofenergyuseatappliancelevel)couldincreasetheriskofobsolescenceandmissedopportunitiesforreducedoperationalcosts.Itisclearthatsustainabilityrepresentsanumberofrisksandpotentialrewardsforrealestateinvestors.Inordertomitigatetheformerandbenefitfromthelatter,investorsneedtounderstandthefullrangeofsustainabilityissuesthatwillaffecttheirassets.Undertakingsuitableriskmanagementofsustainabilityissuesshouldnotbeconsideredoutsideofefficientportfolio,assetandpropertymanagement,itshouldbeverymuchapartofit.Failuretoheedthismessagewillresultinlowerincome,smallercapitalreceipts,highercostsandthepossibilityoflegalaction,whereasbyfuture-proofingtheirassets,investorsshouldbeablereaptherewardsflowingfrommoresecurecashflows,greaterliquidityoftheirassetsandanincreasedabilitytoaccessdebtandequityfunding.THEBUSINESSCASEFORGREENBUILDING90•Understandtheimplicationsofregulatoryandclimatechange:Investorsneedtounderstandtheimplicationsofregulatoryandclimatechangeandfactorthisintosustainabilityriskassessmentsforthedevelopment,ownershipandoccupancyofbuildings.•Appreciatethegrowingdemandforgreenbuildings:Buildingownersneedtoappreciateoccupierpreferencesfor‘green’buildings,particularlywhich‘green’featuresappealtothem.•Considerbrowndiscountsandgreenpremiums:Therealestateinvestmentsectorneedstodeterminetheextentof‘browndiscounts’forpropertieswhichdonothave‘green’certification.NEXTSTEPSFORINDUSTRY1Koketal,20122Parker,20083OSS2012;CoreNet,20114Eichholtzetal,20135Baueretetal,20116Cajiasetal,20117Eichholtzetal,20128Matsumuraetal,20109Koketal,201210Milleretal,2008;Pivoetal,2010REFERENCESRISKMITIGATION9192THEBUSINESSCASEFORGREENBUILDINGSCALINGUPFROMGREENBUILDINGSTOGREENCITIES9293SCALINGUPFROMGREENBUILDINGSTOGREENCITIES•Bygreeningthebuiltenvironmentattheneighborhoodandcityscale,wecandeliveronlarge-scaleeconomicprioritiessuchasclimatechangemitigation,energysecurity,resourceconservationandjobcreation,long-termresilienceandqualityoflife.93SCALINGUPFROMGREENBUILDINGSTOGREENCITIESTheBusinessCaseforGreenBuildinghassofaroutlinedthevaluethatanindividualgreenbuilding-oraportfolioofgreenbuildings-candeliverintermsofdesignandconstructioncosts,assetvalue,operationalcostminimisation,productivityandriskmitigation.Initssimplestform,acityisacollectionofbuildings,andthenextsectionofthisreportbroadensthefocusfromabuilding-by-buildingapproachtosustainabilitytoonewhichlooksathowwegreenentireneighborhoods,districtsandcommunities.Itisonlybyleveragingthelessonslearnedfromgreeningindividualbuildingsthatwewillunlockthepotentialofourbuiltenvironmenttodeliveronmacrosocialandeconomicprioritiessuchasclimatechangemitigation,energysecurity,resourceconservationandjobcreation,long-termresilienceandqualityoflife.Asmentionedintheintroduction,itisthe‘bigpicture’benefitsthatarethepriorityissuesforgovernmentsaroundtheworld,andareincreasinglydriversforbothpublicandprivategreenbuildingprograms.Allofthesechallengesrequirelarge-scalesolutionsandcanonlybesolvedifwescaleuptogreencities.Leadersatthecitylevel,inparticular,aredemonstratingthataddressingclimatechangecanmakeourcitiesbetter,moreliveableplaces.Inthischapter,welookathowcitygovernments,particularlythroughtheC40CitiesClimateLeadershipGroup,andindustryleadersaretransformingtheirexistingcitiesandensuringgreenisprioritisedinemergingcities.Citygovernmentsgenerallyhavecloserrelationshipswiththeirresidents,businessesandinstitutionsthanstateandnationalgovernments,whichenablesmorerapidanddecisiveactiononregulation,policiesandtargets.Atthesametime,risingutilityprices,tighteningregulatoryrequirementsandmorestringentinsuranceriskassessmentsareplacingpressureongovernmentsatthecitylevel.Thesefactorsaremotivatingthemtoseekoutsolutions–andmanyarerecognisingthatgreenbuildingprogramsprovideanunparalleledopportunitytoreinforcefiscalresponsibility,increaseproductivityandworkersatisfaction,addresshealthissuesand‘futureproof’investments.94THEBUSINESSCASEFORGREENBUILDING95SCALINGUPFROMGREENBUILDINGSTOGREENCITIESTheCarrotandtheStickTHOUGHTPIECECitiesaroundtheworldareattheepicenterofthebattletocurbtheimpactsofglobalclimatechange.Inarelativelyshortamountoftime,globaltrendssuchaspopulationshiftstocitiesandtheinabilityofnationalgovernmentstocommittolong-term,bindingglobalclimatechangereductiontargets,hastransferredinternationalattentiontotheworkbeingundertakenbycitiesandtheirgovernments.Citieshavetwoprimarymethodsofhelpingtodrivethe‘greening’ofprivatebuildings:throughmandatoryrequirements,or‘sticks’;andthroughincentives,referredtohereas‘carrots’.Thebusinessbenefitsofgreenbuildingsaremostfullyrealizedbycitiesthatareabletoenactregulationsand/ortoprovideincentivestogreenthecity’sbuildingstockanddevelopalocalmarketandindustryforenergy-efficientbuildings.Theworld’sleadingcitiesinthisareaarethosethatcollaboratewiththepropertysectortoutilizebothcarrotsandstickstoachievetheirenergyefficiencygoals.TheBenefitsofGoodIncentivesandSoundRegulationsRegulationsprovidethecertaintythepropertysectorrequirestomanageitsassetsandtomakelong-termdecisionsaboutenergyefficiencyretrofittinganddevelopingnewgreenbuildings.Regulationsalsocreatealevelplayingfieldbymandatingorprohibitingactionsbyallpropertyownerswithbuildingssubjecttotheregulation.Thebusinessbenefitsofincentivestothepropertysectorinclude:•Improvingtheoverallreturnoninvestmentandbusinesscaseforenergyefficiencymeasures;•Rewardingearlyadoptersoftechnologiesorretrofitmodels;and•Helpingtodeveloptheenergyefficiencymarketandindustryplayersineachcity.Whenacityadministrationcombinesathoughtful,stableandforward-lookingpackageofpoliciesandprograms,regulationsandincentives,itencouragessustainableactionbypropertyownerswhilesimultaneouslymovingthecitytowardsachievingitslong-termemissionreductiontargets,withtheiraccompanyingmacroeconomicbenefits.BESTPRACTICECARROTSANDSTICKSINLEADINGCITIESTODAYCapacitytoActEverycityaroundtheworldhasadifferentcombinationofpossibleincentivesandregulations,whicharefunctionsoftheirindividualcitypowersanddeterminedbytheirgovernancestructuresandthepoliticalcontextwithinwhichtheyoperate.Greatexamplesofleadershiphavebeensetbycitiesmaximizingeachoftheiravailablecarrotsandsticks,including,forexamplewithNewYorkCity’sGreenerGreaterBuildingsPlan(GGBP)andTokyo’sCap-and-TradeProgram,bothofwhicharediscussedbelow.SUMMARYOFBESTPRACTICESTICKSRegulatorybestpracticesfallintoafewkeycategories,rangingfromenergyefficiencycodesforwholebuildingenergyconsumptiontoindividualmeasureslikemandatorysmartmeteringorlightingupgrades.MandatoryEmissionReductionProgramsOneofthemostinnovativeexamplesofacityusingitsregulatorypowertomandateactualemissionreductionsfromitslargestbuildingsisTokyo’sCap-and-Tradeprogram.LaunchedinApril2010,itappliestoover1,300ofTokyo’slargestcommercialandindustrialbuildings.1Theclearrulesandtargetsto2019enablepropertyownerstoplantheirapproachandmakenecessaryinvestmentdecisionsthatsuittheircircumstances.FirstyearresultsfromTokyo’sprogramhavebeenimpressive:statisticsshowthatbyprovidingmarketcertaintyforlong-termaction,38%ofallapplicablebuildingshavealreadyachievedtheendof2014targetandafurther26%havealreadyachievedtheendof2019target,resultinginemissionreductionsof1.44milliontons(equivalenttoa13%averagereductionacrossapplicablebuildings)inoneyear.MandatoryEnergyDisclosureAnumberofcities,especiallyintheUnitedStates,havepassedregulationsrequiringthedisclosureofenergyconsumptiondataincommercialbuildingsofacertainsize.ThecitiesofAustin,WashingtonD.C.,NewYorkCity,Philadelphia,SanFranciscoandSeattlehaveallpassedmandatorydisclosureregulationsforcommercialbuildings,andthisdatahasquicklybecomeinvaluablemeansforcitiestogainbetterunderstandingoftheirenergyconsumptionpatterns;and,wheremadepublic,asamarketdrivertoimprovepoorlyperformingbuildings.96THEBUSINESSCASEFORGREENBUILDINGPolicyPackagesLeadingcitieswilloftenpackagesomeoralloftheabovetypesofregulationstoprovideacomprehensivesuiteofpoliciestodriveenergyefficiencyintheprivatesectorbuildingspace.NewYorkCity,forexample,hasnowpassedasuiteoffourlocallawsaspartofitsGGBP,includingrequirementsformandatorydisclosureofannualenergyandwaterconsumptiondata,periodicauditandretro-commissioningmeasuresforlargebuildings,renovationoralterationprojectsmeetingcurrentcodes,andlightingupgradesandsub-metersinlargenon-residentialbuildings.Takentogether,NewYork’sGGBPprovidesaworld-classexampleofhowcitieswithstrongpoliticalleadershipandlong-termthinkingcancollaboratewithallnecessarystakeholders(includingthepropertysector,utilitycompanies,NGOsandotherlevelsofgovernment)toutilizethefullextentoftheirpowersandpassmeaningfulgreenbuildingandenergyefficiencyregulationsthatresultinrealconsumptionandemissionreductionsincities.SUMMARYOFBEST-PRACTICECARROTSIncentivescurrentlyusedbycitiescanbelooselydividedintofourcategories:1.Accesstomoneyortaxrelieftobeusedtooffsetcostsassociatedwithenergyefficiencyservicesandequipment;2.Administrativeincentiveslikeexpeditedpermitting;3.Accesstooutsidefundingforenergyefficiencyprojectsfromthird-parties(utilities,energycompanies,banksandothers);and4.Utilizingthemayor’svisibilitytoencourageleadershipinenergyefficiencyamongstprivatepropertyowners.Money/TaxIncentivesGovernmentsmostcommonlyusefundingsupportintheformofrebates,taxrelief/abatementandloans.Examplesofrebateprogramsinclude:•Berlinprovidesfreeassessmentsand€195persquaremeterinfunding,uptoone-thirdoftotalcosts,forhomeownersandmulti-unitresidentialbuildingownerstoinvestinsolarthermalsystems.2•SanFranciscooffers,inpartnershipwiththepublicutility,freeauditsforsingle-familyhomeownersandincentiveswhereatleasta15%energyreductionwillbeachievedviatheretrofitmeasures.Taxreliefofferingsbycitiesareanotherwidelyusedformofincentive:•HoustonhasestablishedapartialtaxabatementforcommercialbuildingsthatachieveLEEDcertification,3providinganincentiveforpropertyownersindecidingwhethertoinstallenergyefficiencymeasuresandachievecertification.•NewYorkCityhasaprogramunderwhichbuildingownerscandeductaportionofcapitalspentonasolarphotovoltaicsystemfromtheirpropertytaxes.4Anothertoolgrowinginpopularityisprovidingloansforenergyefficiencyimprovementstoexistingbuildingswithmorefavorabletermsthanthosecommerciallyavailabletopropertyowners:•TorontohasseveralloanofferingsthroughtheTorontoAtmosphericFundandBetterBuildingsPartnership.Theserangefrominterest-freeloansforexistingprivatemulti-familybuildingstomarket-attractiveloansforcommercialbuildings.•Philadelphiaalsooffersbelow-marketloansrangingfromUS$100,000to$1millionforenergyefficiencyretrofits,availabletoownersofcommercial,industrialandmixed-usebuildings,aswellastotenantsincommercialbuildings.PlanningIncentivesCitiesmayalsoprovideanincentivetopropertyownersthroughadministrativemeans,suchasexpeditingbuildingpermitsorincreasingthegrossfloorarea(GFA)allowableforbuildingsincorporatingenergyefficiencyintotheirplans.Afewprominentexamplesinclude:•Chicago’sGreenPermitProgram5offersanexpeditedpermitprocessandpossiblereductioninpermitfeesofuptoUS$25,000.Tobeeligible,commercial,multi-unitresidentialandsmallerresidentialprojectsmustearnLEEDcertificationandcomplywithoneormore‘menuitems’listedbythecity,includinggreenroofing,renewableenergyandpassiveventilation.•Singapore’sGreenMarkProgramincludesaGFAincentiveschemeforbuildingsachievingthehighestGreenMarkratings.Upto2%additionalGFAisavailablebothresidentialandnon-residentialbuildings,includingbothnewandexistingbuildingsundergoingenhancements.6•HongKongcontinuestoofferasimilarGFAconcessionforbuildingsachievingcertainlevelsofgreenstandardsundertheirBEAMratingsystem.797SCALINGUPFROMGREENBUILDINGSTOGREENCITIESIncentivestoFacilitateAccesstoRetrofitFinanceCitiescanalsofacilitateaccessbypropertyownerstoretrofitfinancefromthirdpartieswhilesimultaneouslyassuringfinanceprovidersthatthegovernmentiscontractuallycommittedtohelpingthemtorecovertheircapital.ProgramslikethisareinplaceinAustralia’stwolargestcities,theUnitedStatesand,mostrecently,Singapore:•BothMelbourneandSydneyhaveprogramsthatallowforthesigningofatripartite‘EnvironmentalUpgradeAgreement’betweenapropertyowner,thefinancierandthecitywherebythecityhelpsthefinancierrecovertheircapitalthroughtheassessmentofastatutorychargeontheproperty.8•PropertyAssessedCleanEnergy,alsoknownasPACE,programsexistinseveralU.S.cities,includingLosAngelesandSanFrancisco,andallowforrepaymentofretrofitcoststhroughlocalpropertytaxassessment,incentivizingboththepropertyownerandfinancier.•Singaporeisrunningapilotprograminwhichthecitysharesthedefaultriskwithfinanceprovidersonloanstocommercialbuildingownersundertakingretrofitprojectsviaenergyperformancecontracting.9VoluntaryLeadershipProgramsSeveralcitiesandtheirmayorshaveshownincreasedinterestinutilizingthevisibilityofthemayor’sofficetorewardprivatesectorbuildingownersthatdemonstrateleadershipandactiononenergyefficiency.Houston,Chicago,Toronto,NewYorkandLondon,amongothers,havelaunchedvoluntaryprogramswherebyprivatepropertyownerscommittominimumenergyreductionsinexchangeforpositivepublicity.Mayors’officespromotetheleadershipdemonstratedbyprogramparticipantsthroughvariousavenues;forexample,theCityofChicagoarrangedforafull-pageadintheChicagoTribunetoappearspecificallynamingthefirstsevenpropertyownerswhosignedupforthecity’s‘RetrofitChicagoInitiative’.10Theseareinadditiontoprogramsdevelopedforpublicsectorbuildingstomakesimilarcommitments.CostsandImpactsWhilemanyoftheabovepoliciesandprogramsarenewandtheirimpactsarestillbeingtracked,somefiguresonfinancialsavingsforbusinessesarereportedwhileothershavebeenprojectedaspartoftheimplementationofthesepolicies.Toronto’sBetterBuildingsPartnership,forexample,whichhasbeenestablishedforalmost20years,hasbeentrackingtheimpactofitsloans,incentivesandtechnicalassistanceprogramandreportsthat,asofDecember2012,ithashelpedtoundertake1,972projectsresultinginCDN$655millionineconomicimpact;annualcostsavingsof$59million;annualcarbondioxideemissionreductionsof444,000tonsandatotalof29,000personyearsofjobcreation.11SingaporeBuildingandConstructionAuthorityanticipatesthatifitreachesthegoalof80%ofthebuildingstockbeinggreenby2030,thenbuildingownerscouldsaveS$1billioninenergycostsalone.12SanFrancisco’senergylabeling,disclosure,andauditrequirementsforexistingbuildingsareestimatedtohaveanetpresentvalueofUS$612millionoverthefirsttenyearsofimplementation,withthebenefitsofenergyefficiencysignificantlyexceedingthecosts.Fromanenvironmentalperspective,theMayor’sTaskForceonGreenBuildingsestimatedthatthecumulativeeffectofadoptingthegreenbuildingordinancefrom2008to2012wouldresultinsaving220,000megawatt-hoursofpowerperyearandpotablewatersavingsof100milliongallonsor370millionliters.13AsnotedinthepieceinthisreportfromtheCityofNewYork,implementationoftheGGBPisestimatedtonetbuildingownersacrossthecityatotalofUS$7billion.Further,measuresenactedbyNewYork’sGreenCodesTaskForceareprojectedtosave$400millionby2030.TheCarrotandtheStick(continued)98THEBUSINESSCASEFORGREENBUILDINGPublicandPrivateSectorsWorkingTogetherCitieshavebeenclearthatemissionsfromallbuildingtypeswillhavetocomedowniftheyaretomeettheiremissionreductiontargets.Byutilizingarangeofregulationsandincentives,citiescanachievetheseobjectiveswhileimprovingthefinancialbottomlineofbuildingowners,supportingjobcreationandstimulatingboththeirlocaleconomiesandrealestatesectors.Aspartofthis,manycitieshaverecognizedtheneedtoincreaseengagementwithstakeholdersofallkinds,includingtheveryimportantgroupofprivatesectorbuildingowners.Inturn,theyhavefoundthatthismarketofpropertyownersiswillingtoactwhenpresentedwithforward-lookingregulationsandmeaningfulincentives.Thisinterplaybetweenthepublicandprivatesectorsrecognizestheincreasinglyimportantrolethatthebuildingsectorplaysinbothlocalandnationaleconomies.Itisthiscombinationofproactivelocalleadershipandindustryactionthatisdrivingthecreationofamorevaluable,moreresilientbuildingstockthatbenefitsusall.ABOUTC40CITIESCLIMATELEADERSHIPGROUPTheC40CitiesClimateLeadershipGroupisanetworkof63largeandengagedcitiesworkingcollaborativelytoreducethegreenhousegasemissionsandclimaterisksineachmembercity,withafocusonareassuchastransportation,waste,andreducingenergyconsumptionfrommajorsources,includingbuildings.REFERENCES1EnvironmentofTokyo(www.kankyo.metro.tokyo.jp)2BerlinEnergyAgency(berliner-e-agentur.de)3CityofHouston,20094USDepartmentofEnergy(www.dsireusa.org)5CityofChicago(www.cityofchicago.org)6SingaporeUrbanRedevelopmentAuthority(www.ura.gov.sg)7HongKongGovernment(www.gov.hk)8CityofMelbourne(www.melbourne.vic.gov.au)9SingaporeBuildingConstructionAuthority(www.bca.gov)10CityofChicago(www.cityofchicago.org)11CityandCountyofSanFrancisco,200912WorldGreenBuildingCouncil,201113CityandCountyofSanFrancisco,200999SCALINGUPFROMGREENBUILDINGSTOGREENCITIESbyJonathanLaskiC40CitiesClimateLeadershipGroup100THEBUSINESSCASEFORGREENBUILDINGGreenPlacesareGreatPlacesCASESTUDYLiverpoolcitycenterrehabilitationcombinessustainability,innovationandeconomicbenefitsHistorically,Liverpoolhadbeenathrivingindustrialcityandanimportantshippingdock.Theslowdownoftheshippingindustrybroughtaperiodofsignificantunder-investmentacrossallsectorsfordecades.Duringthistime,Liverpoolslumpedinretailrankingsandlostbusinesstosurroundingcenters,withLiverpudliansoftentravellingoutsidethecitytoshopandworkfurtherafield.Thiswasasadfateforapreviouslymagnificentcityandonesteepedinrichhistory.However,theLiverpoolCityCouncilsawanopportunityinthissituation,andin2000selectedGrosvenorasdevelopmentpartnerfora42-acreparcelofinner-cityland.Muchofthisareahadbeenheavilybombedduringthewarandwasderelict,neverhavingbeenrebuiltinacomprehensivefashion.TheresultisLiverpoolONE,amixed-usedevelopmentthatopenedin2008,bringingvitalityandreinstatingastrongsenseoflocalprideandloyalty.Theschemeincludes160shops,500apartments,twohotels,3,000squaremetresofoffices,andmorethan20barsandrestaurants-allcentredaroundtherevitalisedfiveacreChavassePark,anewfocalpointforsocialactivity,communityeventsandsportsleagues.Thisprojectrepresentedanopportunitynotonlytoconstructgreenbuildings,buttobeambitiousandthinkatalargerscaletocreateasustainableneighborhood.Thefundamentalsofthesitewereexcellent:brownfieldcitycenterland,accessibletoalargecatchmentareaandlocatedonexistingpublictransportationnodes.Thedeveloperadopteda‘buildingsinthecity’approach,withdifferentarchitecturefirmsselectedtodesignthe26buildings,resultinginavariedstreetscapeinkeepingwiththehistoryandoriginalfootprintofthecity.AllbuildingsarecertifiedBREEAMGoodorVeryGoodstandardswithallresidentialpropertiesalsoachieving‘Good’or‘VeryGood’EcoHomesratings.CreatingadevelopmentatthisscaleenabledGrosvenortoconsidersustainabletravelholistically,creatinganewbusstationaswellasnewcycleandwalkingroutes,alldevelopedincollaborationwiththecouncilandlocalcyclingandwalkinggroups.Agreentravelplanencouragesstaffandcustomerstousepublictransport,resultinginonly30%ofLiverpoolONE’svisitorsarrivingbycar(comparedwithcloseto100%inmostlargeregionalmalls).Thecarparkissituatedunderground,creatingoneofthelargestgreenroofsinEurope,hometonumerousspeciesofwildlife.Developingatthisscalehasalsoenabledtheprojecttotrialnewtechnologies,includinganinnovativebio-dieselplant(thefirstofitskindinthecountry)thatproducesenoughfuel–fromusedcookingoilfromon-siterestaurants–topowerallonsitevehicles,afoodwastebiomassinitiative,andanew‘wastetowater’systemtodealwithfoodwaste.ArguablythemostexcitinglegacyofLiverpoolONEistheworkbeingundertakenwithlocalschools,collegesanduniversities.Theprojectoffersvariousopportunitiestopeopleinlocalcommunities,employslocalapprentices,andhasprovidedjobsformanyyouth,localandpreviouslylong-termunemployedfortheconstructionaswellaslongtermpositionsinretailunits,creating5,000jobsintotal.LiverpoolONEnowattracts26millionvisitorsayear,helpingmovethecityfromthe16thtothefifthmostpopulardestinationtoshopintheUK,andisamodelforhowcollaborationandholisticthinkingcanbringaboutlarge-scalebenefits.101SCALINGUPFROMGREENBUILDINGSTOGREENCITIESCodes,ComplianceandCollaborationCASESTUDYWakingthesleepingenergy-efficiencygiantinJakartaMarketplaceswithvibrantgreenecosystemsdependonallofthepiecesofthepuzzlefittingtogetheracrossthevaluechain:frominvestorstodevelopers,frommanufacturerstoenergyservicecompanies,andfrommunicipalgovernmentstothosewhoown,live,andworkingreenbuildings.Withtheaimsofmitigatingcarbonemissionsandimprovingbuildingefficiencyinthecapitalcityoftheworld’sfourthmostpopulouscountry,anewsetofgreenbuildingcodesisbeingimplementedinJakartainApril2013.Thecodes,alongwithahostofcomplementarymeasures,aretheresultoftwoyearsofpartnershipbetweenthegovernment,localindustryandtheInternationalFinanceCorporation(IFC).JakartaGreenBuildingProgramWhileclimatechangeremainsanabstractconceptinmanyplaces,itseffectshavebeenquiteapparentinJakartainthelastfewyears.ItisconsideredoneofthecitiesmostvulnerabletoclimatechangeinSouthEastAsia.Itisalsooneofthemajorcontributorstogreenhousegas(GHG)emissionsintheregion.Floodscausedbyrainfallandsealevelrise,increasedurbanheatislandscausinghigherairtemperature,poorairquality,regulardiseaseoutbreakandincreasingfreshwaterscarcity(despitehaving13riversrunningthroughthecity)arenowcommonoccurrencesinJakarta.Indonesiaalsohasafairly‘dirty’sourceofitselectricity,thecostofwhichisheavilysubsidizedbythegovernment.Thebuildingsectoraccountsforaboutonethirdofthecountry’stotalenergyconsumptionandhasbeenidentifiedasoneofthekeyareasoffocusforthenationalemissionreductionplan.TheJakartaprovincialgovernmenthassetitselfatargetof30%GHGreductionby2020ascomparedtoabusiness-as-usualscenario.Atthesametime,thecountryisexperiencingrapidconstructiongrowthandhasalackofstringentgreenbuildingregulations,makingachievementofthesetargetschallenging.Thiscombinationoftheeconomicandenvironmentalconditionsandpolicyconditionsledthecollaboratorstouseavarietyofmeanstocatalyzegreenbuildinggrowth,including:•Mandatorygreenbuildingcodestoimprovethebaselinebuildingperformance;•Fiscalandnon-fiscalincentivestoincreasetheuptakeofgreenbuildings;•Marketawarenessandcapacitybuildingtoincreaseacceptabilityandunderstandingofofficials,professionalsandbuildingowners;and•Financialinstrumentstoovercomethefirstcostbarriers.LocalContextWhenthisprojectcommenced,thesituationinJakarta’sconstructionsectorwascharacterizedbyhavingbothalackofnationalstandardsguidingenergyandwaterefficiencyandtoofewtrainedstaffwithingovernmenttoenforcethestandards.Further,productslikeenergy-efficientchillersandglasswerenotbeingmanufacturedlocally,andtheseimportedproductshadahighcost.Whilethereisstrongsocietalinterestingreenbuildings,theaverageawarenessamongprofessionalsandbuildingownerswasfairlylow.Thelocal‘Greenship’greenbuildingratingsystemdevelopedbythenewly-establishedGreenBuildingCouncilofIndonesiawasgrowinginpopularity,butthenumberofcertifiedbuildingswasfairlysmall.DevelopmentProcessThegoalwastocreateacodethatwassimpletoimplement,effective,andeasytomonitor.Theproject’sanalysismodeledarangeofpossiblechangesforeachcommercialbuildingtypeinJakartathatmetclearcriteriaformarketpreparednessandeaseofimplementation,whilemaximizingthebenefitsofenergy,greenhousegasemissionsandwaterreductioninacost-effectivemanner.Thedetailsofthecodehavebeendevelopedincloseconsultationwithgovernmentaswellasprivatesectorstakeholders,includingdevelopers,landlords,andprofessionalassociations.ThenewJakartaGreenBuildingCodestipulatesenergy,waterandsiteefficiencyrequirementsforbothnewbuildingsandexistingbuildings.Duetothelimitedexistingimplementationandenforcementcapacity,thefloorareathresholdforbuildingsthatarerequiredtomeetthecodehasbeenkeptfairlyhigh.BottomLineImpactsontheLocalMarketAdetailedmarketstudywasundertakentoestimatetheconstructionandinstallationcostsoftheitemsbeingtestedforinclusioninthecode.Thesensitivityanalysisalsoinvolvedcalculationofenergyandwatersavingsfornumerousconservationmeasuresforallbuildingtypesaswellasthesimplepaybackperiodforeachmeasure.Onlymeasureswithreasonablepaybacks(typicallylessthansixyears)wererecommendedforinclusioninthecode.Typically,theoverallcostincreaseforalltherecommendedstrategieswasbetween3to6%andthesimplepaybackbetweenfourandeightyears.ThepaybackcalculationsweredoneusingthecurrentelectricityratesforJakarta,whichareheavilysubsidized.Thegovernmenthasannounceditsintentiontograduallyremovethesubsidyoverthenextfewyears,whichwouldreducethepaybackperiodsevenfurther.102THEBUSINESSCASEFORGREENBUILDINGCostsforsomeofthehigh-efficiencytechnologymeasuressuchaschillersandglassarealsoexpectedtocomedownasthedemandincreasesafterthecodebecomesmandatory.Inordertosoftentheimpactoftheincreasedfirstcost,optionsforfiscalornon-fiscalincentivesarebeingconsideredbythegovernment.IFCisalsoworkingonsettingupinvestmentfacilitiesthroughotherfinancialinstitutionstofinanceconstructionofnewbuildingsmeetingorexceedingthegreenbuildingcoderequirements.Thesefacilitiescouldfinanceconstructionloansfordevelopersaswellas‘greenmortgages’forbuyers.ChallengesandSolutionsAlthoughtheprojectpotentiallyfacedmanychallenges,throughcollaborativeeffortwithindustry,proactivesolutionswerefound:CHALLENGESOLUTIONLackofexistingdataonconstructionpracticesandcosts,andbuildingenergyconsumptionConductingdetailedmarketresearchandbuildingsurveysLackoftraining/capacityProvidingworkshops,hands-onexercises,detaileduserguidesandtoolsLackofprivatesectorsupportEstablishinglocalteamsandnetworks,includinglocalconsultantstocoordinatetheprojectwiththelocalgovernmentApprehensionaboutcomplexityofprocessRunningaseriesofpilotprojectsinclosecollaborationwithdesignteamsResistancetochangeIncreasingawarenessoftheeventualchangeinartificially-lowenergytariffsandencouragingquickandregularupdatesofnationalstandardsRiskofpoorimplementationAdoptingamulti-prongedapproach,includingcapacitybuilding/training,developmentofsuitablefinancialinstruments,andincorporationofgreenbuildingcurriculuminprofessionaldegreecoursesThedevelopmentprocessandresultingcodesandprogramshavebeenwidelyseenassuccessfulbythoseinvolved.Asaresult,theJakartaGreenBuildingprogramisbeingviewedasatemplateforapplicationinotherprovincesaroundthecountry.Thetruetest,ofcourse,willlieintheoutcomesoftheimplementation,bothforthemarketplaceandfortheenvironment.ABOUTTHEIFCInternationalFinanceCorporation(IFC),partoftheWorldBankGroup,istheworld’slargestprivatesector-focuseddevelopmentbank.InFY12,IFCcommittedUS$1.6billioninclimate-relatedinvestmentsrangingfromrenewableenergy,wastemanagementtosustainablewater,agricultureandforestryprojects.Thegreenbuildingsectorisattheforefrontofthisbusinessasitrepresentsoneofthemosteffectivewaystoreduceglobalcarbonemissionsthatareprimarilyresponsibleforclimatechange103SCALINGUPFROMGREENBUILDINGSTOGREENCITIESbyAutifSayyedInternationalFinanceCorporation(IFC)104THEBUSINESSCASEFORGREENBUILDINGGreeningaCitythePlanNYCWayTHOUGHTPIECEPlaNYCisNewYorkCity’scitywidesustainabilityplangroundedinenvironmentalandeconomicanalysistomeetanambitiousbutachievablegoalof30%reductioningreenhousegas(GHG)emissionsby2030.Launchedin2007,PlaNYCfocusesonthefundamentalelementsofasuccessfulbusinessclimate,suchasefficientinfrastructureandqualityoflife,andputsinplacepoliciestoensureathrivingeconomicenvironmentwhilereducingcitywideemissionsandenablinglong-termresilienceforthecity.TheresearchbehindPlaNYCshowsthatinfrastructureandqualityoflifearestronglytiedtobuildings.Asthefiguresbelowshow,buildingsrepresentaresource-intensivesectorandthelargestsourceofemissions.Realizingtheimportantrolethatexistingbuildingsplay,NewYorkCityinitiatedtheGreener,GreaterBuildingsPlan(GGBP),themostcomprehensivesetofenergyefficiencylawsintheUSaddressingenergyinformationtransparencyandcontinuousimprovement.GGBPrequiresallbuildingstofollowthelocalenergycode,whichismorestringentthanthestateenergycode,withfurtherrequirementsforlarge,existingbuildings(morethan50,000squarefeetor4,645squaremeters,oragroupofbuildingsonasinglelotthatarecollectivelymorethan100,000squarefeetor9,290squaremeters).Largebuildingsmakeupjust2%ofthecity’sproperties,butaccountforhalfofthecity’ssquarefootageand45%ofcitywideGHGemissions.AspartofGBBP,thesebuildingsmust:•Annuallysubmitenergyandwateruseforpublicdisclosureanddataanalysis;•Performenergyauditsandretro-commissioningeverytenyears;•Upgradelightinginnon-residentialspacestocurrentcodeby2025;and•Providesub-metersforcommercialtenantsthatoccupyover10,000squarefeet(929m2)by2025.ImplementingGGBPwillresultinthereductionofalmost5%inGHGemissionswhilegeneratingroughly17,800construction-relatedjobs.Estimatesshowthatby2030,GGBPwillcostbuildingownersUS$5.2billionincapitalcosts,yetsavethem$12.2billionindirectenergycosts,resultinginanetsavingsof$7billioncitywide.Toensureacomprehensivelookatlocalpolicies,theCityalsoassembledaGreenCodesTaskForce(GCTF)in2008torecommendcost-effectivechangestocurrentbuildingcodesandregulations.Ofits111proposals,37havealreadybeenincorporatedintoCitylaworpractice.Eachproposalwasthoroughlyvettedbynumerouscommitteesforimpactsonresourceefficiency,GHGemissions,healthandtoxicity,andmore.Additionally,allproposalswereputthroughacost-benefitanalysis,addressingcategoriessuchasstandardconstructioncosts,incrementalcosts,costchangesfromtotalconstructioncost,annualsavings,andpaybackperiods.TheGCTFmeasuresthathavealreadybeenimplementedareexpectedtoreapnumerousbenefitsby2030:•Reducecitywideemissionsbyalmost5%;•Lowerdailywaterconsumptionbytheequivalentof30CentralParkReservoirs;•Annuallydivert100,000tonsofasphaltfromlandfills;•Trainover2,100architectsandengineerstoimplementthecity’snewenergycode;•15milliongallonsofconcretewastewaterwillbetreatedbeforeenteringthesewersystem;and•Reducelightingenergycostsby10%.The29measurespassedasofFebruary2012alonewillsave$400millioncitywideby2030.Withtheseandotherefforts,suchastheMayor’sCarbonChallenge,anda30%emissionsreductiongoalformunicipalbuildings,NewYorkCityisontracktomeetits30%reductiongoalby2030.Thecity’s2012carboninventoryreportalreadyshowsadecreaseof16.1%.ByfollowingMayorBloomberg’sleadershipinsustainability,andimplementingpolicybasedonresearchandcost-benefitanalysis,thecityisclearlydemonstratinghowtoreduceGHGemissionsandsupportthelong-termhealthofitseconomywhilecreatingtoday’sjobs,bottom-linebusinessbenefits,andahigherqualityoflifeforNewYorkers.HilaryBeber&StacyLeeNewYorkCityMayor’sOfficeofLong-TermPlanningandSustainability105SCALINGUPFROMGREENBUILDINGSTOGREENCITIESAbuDhabi’sFirstSustainableMandateCASESTUDYAbuDhabihasundergonearapidchangeinthelastfiftyyears,withtheeconomicrewardsfromoilandgasreservespropellingthecityintothemoderncapitalitistoday.Previously,theregionwasapredominantlynomadicherding,fishingandpearldivingculture,withdateandvegetableplantationscontributingtothelocaleconomy.Bedouinlife,whilehardandwithoutmanyoftoday’screaturecomforts,requiredlittlefromthelandandmadelittleimpactinreturn;wastingnothing,theBedouinwayoflifewastrulysustainable.Today,AbuDhabiandtheUnitedArabEmirateshavesomeofthehighestresourceconsumptionratesandpercapitacarbonemissionsintheworld.Inpart,thisisduetotheenvironment.TheMiddleEastischallengedwithoneoftheworld’sharshestclimates;hotsummersofupto50°C(120°F)intheshadeandhyper-aridconditionspervadeeachyear.Thepreciouswaterusedfordrinking,agricultureandindustryrequiressignificantfossilfuelresourcesduetothedependenceonthedesalinationofseawatersourcedfromtheArabianGulf.Atthesametime,utilitytariffsareheavilysubsidizedbythegovernment;theelectricitysubsidyinresidentialbuildingsrangesfrom55to90%andthewatersubsidyrangesfrom79to100%(seeFigure14).Inrecentyears,thenumberofgovernment-fundedprojects,whichincludeshousingforitscitizens,represents72%ofallnewdevelopment.Thetotalcosttogovernmentfortheseprojectsincludesboththeinitialcapitalandasignificantproportionofoperationalexpenditureasaresultofthesubstantialsubsidies.ReducingconsumptionandgovernmentcostsisthereforeakeyfactorsupportingthebusinesscaseforsustainabledevelopmentinAbuDhabi.Torespondtothesechallenges,theAbuDhabileadershipidentifiedandcommittedtotheneedforasustainabilityframeworktoguidedevelopmentofthecityateverylevel.TheAbuDhabiUrbanPlanningCouncil(UPC)hasdeveloped‘Vision2030’-aplantoevolvethecityintoavibrantmetropoliscompletewithworld-classindustry,commerce,education,healthcare,transportandtourism.Vision2030wasdevelopedtorespondtothelocalclimate,wayoflifeandvaluesofthepeopleandisbasedaroundfourkeypillars:social,cultural,economicandenvironmental.ThisframeworkiscalledEstidama-theArabicwordforsustainability.020406080100Subsidy(%)Source:RegulationandSupervisionBureau:CustomerTariffs&Charges(http://www.rsb.gov.ae)FarmsGovernment/schoolsCommercial/industrialResidential(Non-UAENationals)Residential(UAENationals)Residential(remotelocation)WaterElectricityFigure14FigureRegulationandSupervisionBureau:CustomerTariffs&Charges.http://www.rsb.gov.ae/106THEBUSINESSCASEFORGREENBUILDINGREFERENCES1http://www.kankyo.metro.tokyo.jp/en/climate/cap_and_trade.html2BerlinEnergyAgency,“AttractivefundingforsolarthermalinBerlin”-http://berliner-e-agentur.de/en/node/23843CityofHouston,OrdinanceNo.2009-858,“CityofHoustonTaxAbatementProgram”(September2009).4See“NewYorkCity–PropertyTaxAbatementforPhotovoltaic(PV)EquipmentExpencitures”athttp://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=NY52F&re=1&ee=1.5CityofChicago,“OverviewofGreenPermitProgram”-https://www.cityofchicago.org/city/en/depts/bldgs/supp_info/overview_of_the_greenpermitprogram.html.6Singapore,“GreenMarkGrossFloorAreaIncentiveSchemeforPrivateDevelopmentsthatAchievedHigher-TierGreenMarkRatings”-http://www.ura.gov.sg/circulars/text/dc09-04.htm.7HongKong,“GreenBuildings”-http://www.gov.hk/en/residents/environment/sustainable/buildings.htm8SeeCityofMelbourne,1200Buildings“Gettingstated–funding”,at-http://www.melbourne.vic.gov.au/1200buildings/Pages/Funding.aspx;andCityofSydney,“ProgramsforBusinesses”at-http://www.cityofsydney.nsw.gov.au/environment/EnergyAndEmissions/BusinessPrograms.asp.9SingaporeBuildingConstructionAuthority,“PilotBuildingRetrofitEnergyEfficiencyFinancing(BREEF)Scheme”-http://www.bca.gov.sg/GreenMark/breef.html.10CityofChicago,“RetrofitChicago”Initiative-http://www.cityofchicago.org/city/en/progs/env/retrofit_chicago.html11TorontoBetterBuildingsPartnership-http://bbptoronto.ca/.12WorldGreenBuildingCouncilGovernmentLeadershipAwards:ExcellenceinCityPolicyforGreenBuilding,201113Mayor’sTaskForceonGreenBuildingsReport(2009)http://www.sfenvironment.org/downloads/library/gbtfrrreleasev1.3.pdfFalahMohamedAlAhbabiAbuDhabiUrbanPlanningCouncilEstidamaisfocusedondeliveringresultsonthegroundtosafeguardtheinterestsoffuturegenerationsandalsorepresentsAbuDhabi’scontributiontotheglobalsustainabilityagenda.Asatoolforsustainabledevelopment,Estidamaisbeingusedasafoundationforthedesignofeverynewbuildingandcommunity.Inordertosupportandacceleratetheimplementationofsustainabilitytargets,thePearlRatingSystem(PRS),akeycomponentoftheEstidamaprogram,receivedgovernmentmandateinJuly2010.Everynewbuildingandcommunitymustadheretothesystem’sminimumrequirements,withhigherlevelsofsustainableachievementencouragedtopromotepositivechangeandcompetition.Uniquefeaturesofthesystemincludetheintegrationofcultural,religiousandsocialvaluescombinedwithanemphasisonbothenergyandwatersavinginthescoringsystemtoreflectthestrainplacedonthenation’snaturalresourcesandfragileecosystem.Toimproveefficiencyoftheconstructionprocessandtokeepcostsdown,auditsarecarriedoutatfourstagesoftheconstructionperiod,andon-sitetestingreducesdefectsandliabilityissuesandremovesinstancesofnon-compliance.ThePearlOperationalRatingSystemensurescontinuityofbuildingperformanceandefficiencythroughmandatingoperationalmaintenanceprotocols,extendingbothbuildingandsystemlifetimes.ImplementationoftheEstidamaprogramhasbeenprovidedfreetoindustrybythegovernmenttoensureallnewprojectsareincludedandsupported.Comprehensivetraininghasacceleratedthespreadofawarenessthroughtheconstructionindustryandwiderpopulation.Sinceitwasformallyimplementedthreeyearsago,theEstidamaPRSprogramhasalreadymadeheadwayintomakingapositivechangewith234rateddevelopments,equatingto6,630,000squaremetersofGFA(morethan71millionsquarefeet)with4,200,000millionconstructed(45millionsquarefeet);5,800peopletrained;and197constructionauditscarriedout.AninitiativeoftheUrbanPlanningCouncilcalled‘CompleteSustainableCommunities’hasbeenestablishedtoensuretoday’scommunitiesbuildasustainablefuturefortomorrow.Connectivityisakeyelementofthisinitiative,withaholisticplanfortransportaimingtoconnectinternalandintercityraillinkswithmuch-neededbusandtaxiservices.TheEstidamaframeworkiscontinuallybeinginterwovenintoemergingregulations,policiesandbuildingcodestoproduceanintegratedapproachtoAbuDhabi’ssustainabledevelopment.Engagementwithstakeholdersincludingutilitiescompanies,governmentandplanningagencieshasbeenundertakentocreatesmoother,morecost-effectivesustainabledevelopment.GuidedbyAbuDhabiVision2030,alarge-scaleurbanmasterplanforthecityisalsobeingdeveloped,progressingtheethosofEstidamatoprovideaworld-classsustainable,secureanddynamicsocietywiththevaluesofthenation’scultureatitscore.EchoingtheidealsofitsBedouinancestors’ecologicalandculturalprinciples,AbuDhabiiswellonitswaytonurturingafirstgenerationgreensociety.107SCALINGUPFROMGREENBUILDINGSTOGREENCITIESGLOSSARYAppraisalAnexpertopiniononthevalueofaproperty;theactorprocessofestimatingvalue.AssetAresourcewitheconomicvaluethatanindividual,corporationorcountryownsorcontrolswiththeexpectationthatitwillprovidefuturebenefit.BuildingResearchEstablishmentEnvironmentalAssessmentMethod(BREEAM)AmethodofassessingthesustainabilityperformanceofbothnewandexistingcommercialbuildingsprimarilybasedintheUK.1CommissioningAqualityassuranceprocessintendedtoconfirmthatallsystemsofabuilding—heat,airconditioning,electrical,plumbing,safety,security—areoperatingasintendedbythebuildingowneranddesignedbythearchitectandengineer.EnergyPerformanceCertificates(EPC)Amandatorycertificationrequiredwhenabuildingisbeingsold,builtorrented,thatprovidesanenergyefficiencyrating(fromA-G)andrecommendationsforimprovement.1EnergyStarAnenergyperformanceratingsystemforcommercial,institutionalandindustrialbuildingsdevelopedbytheUSEnvironmentalProtectionAgency.TheratingcanalsobeusedtodeterminewhetherapropertyqualifiesforEnergyStarrecognition.1FiduciaryApersonlegallyappointedandauthorizedtoholdassetsintrustforanotherperson.Thefiduciarymanagestheassetsforthebenefitoftheotherpersonratherthanforhisorherownprofit.2FinancialReturnThegainorlossofasecurityinaparticularperiod.Thereturnconsistsoftheincomeandthecapitalgainsrelativeonaninvestment.Itisusuallyquotedasapercentage.2GreenCertificationSchemeswhichprovidethird-partyassessmentofgreenbuildingmeasuresonawidevarietyofbuildingtypes.GreenLeaseA“greenlease”seekstoremovedisincentivesinacommercialleasetoreducedenergy,waterandrawmaterialconsumption,increasedrecycling,aswellastheuseofsustainablematerialsintenantimprovements,andencouragessustainablepracticesbyboththelandlordandthetenant.Agreenleaseworkstoensurethattenantsandlandlordsarerequiredtoadoptenvironmentallyfriendlypractices.GreenMarkVoluntaryschemewhichwaslaunchedinJanuary2005BySingapore’sBuildingandConstructionAuthorityasaninitiativetodriveSingapore’sconstructionindustrytowardsmoreenvironment-friendlybuildings.GreenStarAvoluntaryenvironmentalratingsystemforbuildingsinAustralia,launchedin2003bytheGreenBuildingCouncilofAustralia.HauteQualitéEnvironnementale(HQE)AstandardforgreenbuildinginFrancethatconsidersenvironmentalissuesinbuildingconstruction,designedtoimprovetheenvironmentalqualityofbuildingsandmonitorenvironmentalimpacts.HumanCapitalAmeasureoftheeconomicvalueofanemployee’sskillset.Theconceptofhumancapitalrecognizesthatnotalllaborisequalandthatthequalityofemployeescanbeimprovedbyinvestinginthem.2THEBUSINESSCASEFORGREENBUILDING108IntegratedDesignProcessAnintegrateddesignapproachrequiresthattheprimarystakeholdersofabuildingareinvolvedintheentiredesignprocessandcontinuetoprovideinputthroughconstructionsothatalloftheobjectivesaremet.LeadershipinEnergyandEnvironmentalDesign(LEED)ThegreenbuildingcertificationprogramcreatedbytheUnitedStatesGreenBuildingCouncil(USGBC).Thecomprehensiveratingsystem(basedonprerequisitesandpoints)takesawholebuildingapproachfactoringincommunityresources&publictransit,sitecharacteristics,waterefficiency,energyefficiency,materials&resources,indoorenvironmentalquality,awareness&education,andinnovation.3LiquidityThedegreetowhichanassetorsecuritycanbeboughtorsoldinthemarketwithoutaffectingtheasset’sprice.Liquidityischaracterizedbyahighleveloftradingactivity.Assetsthatcanbeeasilyboughtorsoldareknownasliquidassets.2MarketValueTheestimatedamountforwhichapropertyshouldexchangeonthedateofvaluationbetweenawillingbuyerandawillingsellerinanarm’s-lengthtransactionafterpropermarketingwhereinthepartieshadeachactedknowledgeably,prudentlyandwithoutcompulsion.1NABERSTheNationalAustralianBuiltEnvironmentRatingSystem,measuringtheenergyefficiency,waterusage,wastemanagementandindoorenvironmentalqualityAustralianbuildings,tenanciesandhomes.NetPresentValueThedifferencebetweenthepresentvalueofcashinflowsandthepresentvalueofcashoutflows.NPVisusedincapitalbudgetingtoanalyzetheprofitabilityofaninvestmentorproject.2ObsolescenceThelossofdesirabilityorusefulnessduetochangesindesign,useoradvancesinmarketrequirements.1PlugLoadTheelectricalcurrentdrawnbyallequipmentthatisconnectedtotheelectricalsystem.6PortfolioAgroupingoffinancialassetssuchasstocks,bondsandcashequivalents,aswellastheirmutual,exchange-tradedandclosed-fundcounterparts.Portfoliosarehelddirectlybyinvestorsand/ormanagedbyfinancialprofessionals.2RealEstateInvestmentTrust(REIT)Asecuritythatsellslikeastockonthemajorexchangesandinvestsinrealestatedirectly,eitherthroughpropertiesormortgages.2WholeLifeCostThetotalcostofownershipoverthelifeofanasset,throughplanning,acquisitionordevelopment,operation,maintenanceandrefurbishmentandultimatelyreplacementordisposal.1ValuationSeeAppraisal.REFERENCES1RICS.(2010).IsSustainabilityReflectedinCommercialPropertyPrices:AnAnalysisoftheEvidenceBase.ResearchReport.2www.investopedia.com3www.greenresourcecouncil.org4Brooks,M.S.(2008).GreenLeasesandGreenBuildings.REALpac.5www.wbdg.org6www.usgbc.org109GLOSSARYREFERENCES1.Addae-Dapaah,K&Chieh,S.J.(2011)GreenMarkCertification:DoestheMarketUnderstand?JournalofRealEstate.Vol.3No.1,pp.162-191.2.AmericanChemistryCouncil.(2003)“AnalyzingtheCostofObtainingLEEDCertification.”Arlington,VA.,ascitedinJackson,J.(2009)HowRiskyAreSustainableRealEstateProjects?AnEvaluationofLEEDandENERGYSTARDevelopmentOptions.JournalofSustainableRealEstate.Vol1No1,pp.91-106.3.Apte,M.G;Fisk,W.&Daisey,J.M.(2000)AssociationsbetweenIndoorCO2ConcentrationandSickBuildingSyndromeSymptomsinUSOfficeBuildings:AnAnalysisofthe1994-1996BaseStudyData.IndoorAir.Vol10No4,pp.246-57.4.Bauer,R.,Eichholtz,P.M.,Kok,N.&Quigley,J.M.(2011).Howgreenisyourpropertyportfolio?Theglobalrealestatesustainabilitybenchmark.RotmanInternationalJournalforPensionManagement.Vol4,pp.34–43.5.BCASingapore.(2008)TheBusinessCaseforGreenBuildingsinSingapore.6.BerlinEnergyAgency.“AttractivefundingforsolarthermalinBerlin.”Availableat:http://berliner-e-agentur.de/en/node/23847.Berman,A.(2001)GreenBuildings:SustainableProfitsfromSustainableDevelopment,ascitedinKats,G.(2003)“GreenBuildingsCostsandFinancialBenefits.”Boston:MassachusettsTechnologyCollaborative.8.Bernstein,H.M.andRusso,M.A.BusinessCaseforEnergyEfficientBuildingRetrofitandRenovation.McGrawHillConstructionSmartMarketReports8.BetterBuildingPartnership.(2010)GreenLeaseToolkit.Workingtogethertoimprovesustainability,pp.1-2.9.Bodeker,C.,Vidgen,R.,MeagherK.,Cogin,J.,Mouriten,J.&Runnalls,J.M.(2011)“Leadership,CultureandManagementPracticesofHighPerformingWorkplacesinAustralia:TheHighPerformingWorkplacesIndex.”SocietyforKnowledgeEconomics.10.BRE(2007)“CostingSustainability:HowmuchdoesitcosttoachieveBREEAMandEcoHomesratings?”InformationPaper.11.BRETrust(2005)PuttingaPriceonSustainability.BRE:Watford.12.Brounen,D.&Kok,N.(2011)OntheEconomicsofEnergyLabelsintheHousingMarket.JournalofEnvironmentalEconomicsandManagement.Vol62No2,pp.166-79.13.BuildingDesign&Construction(2003)WhitePaperonSustainability.14.BuildingDesignandConstruction(2007)GreenBuildingResearchWhitePaper.FifthinaSeriesofAnnualReportsontheGreenBuildingMovementpp.15.BureauofEnvironment(2012)“TokyoCapandTrade.”Availableat:http://www.kankyo.metro.tokyo.jp/en/climate/cap_and_trade.html16.Cajias,M.,&Bienert,S.(2011)DoesSustainabilityPayoffforEuropeanListedRealEstateCompanies?TheDynamicsbetweenRiskandProvisionofResponsibleInformation.JournalofSustainableRealEstate.Vol3No1,pp.211-231.17.Carmody,C.(2010)SustainablePracticesImportanttoRetention,AttractionofYoungerWorkers.GreenPlusNews.Availableat:http://gogreenplus.org/latest-news/sustainable-practices-important-to-retention-attraction-of-younger-workers.18.CBRE.(2009)Whopaysforgreen?Theeconomicsofsustainablebuildings.EMEAResearch.19.Chegut,A.,Eichholtz,P.&Kok,N.(2012)Supply,Demand,andtheValueofGreenBuildings.RICSResearch.20.CityofChicago.(2010)“OverviewofGreenPermitProgram.”Availableat:https://www.cityofchicago.org/city/en/depts/bldgs/supp_info/overview_of_the_greenpermitprogram.html21.CityofChicago(2010)“RetrofitChicagoInitiative.”Availableat:http://www.cityofchicago.org/city/en/progs/env/retrofit_chicago.html22.CityofHouston(2009)“CityofHoustonTaxAbatementProgram.”OrdinanceNo.2009-858.23.CityofMelbourne.“1200Buildings:Gettingstated–funding.”Availableat:http://www.melbourne.vic.gov.au/1200buildings/Pages/Funding.aspx24.CityofSydney.“ProgramsforBusinesses.”Availableat:http://www.cityofsydney.nsw.gov.au/environment/EnergyAndEmissions/BusinessPrograms.asp.25.ColliersInternational.(201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uctionmarketsworldwideandadvancedpublicpolicyandtheevolutionofenvironmentallyresponsibledesign.LisaiscurrentlyaprincipalwithIntegralGroup,anengineeringfirmdedicatedtodeepgreendesign.GaryPivoProfessorofUrbanPlanning&NaturalResources,UniversityofArizonaTucson,Arizona,USDr.GaryPivoholdsprofessorshipsattheUniversityofArizonainthePlanningDegreeProgramandtheSchoolofNaturalResourcesandiscurrentlyAdvisortotheResponsiblePropertyInvestingCenter.ProfessorPivohaspublishedextensivelyonresponsiblepropertyinvesting,lessautodependenturbanform,andsustainableurbanization.Hisstudiesofofficesuburbanization,howurbanformshapestravelbehavior,andresponsiblepropertyinvestingaresomeofthemostwidelycitedresearchintheseareas.FrankHovorkaDirectionduPilotageStratégique,duDéveloppementDurableetdesEtudes,CaissedesDepotsParis,FranceFrankHovorkastartedhiscareerinconstructionfieldforVINCIgroupinEasternEurope.InFranceheworkedforEMGP(REIT)inthedevelopmentofseveralcommercialbuildings,focusinginrecentyearsonsustainabledevelopment.SinceSeptember2010,hehasbeeninchargeofrealestatesustainabledevelopmentpolicywiththeCaissedesDepotsgroup,whereheisalsoinvolvedinresearchfornetzeroenergybuildingsandfinancialindicatorsforgreenvaluethroughseveralresearchprojectsandinternationalbodies(SBA,REHVA,RICSandUNEP-FI).THEBUSINESSCASEFORGREENBUILDING114GregKatsADVISORPresident,CapitalEWashingtonDC,USGregKatsisPresidentofCapital-E,anearly-stageinvestorincleantechnologyfirmsandprojectsinternationally.Previously,hewasManagingDirectorofGoodEnergies,aleadingglobalinvestorinrenewableenergy,energyefficiencyindustriesandgreenbuildings,with$6billionundermanagement.GregisafounderofNewResourceBank,thefirstU.S.greenbank,andheisafounderoftheAmericanCouncilonRenewableEnergy.Heistheprincipalauthorofthemostwidelycitedstudyonthecostandbenefitsofgreenbuildings,conductedfor40Californiastateagencies.UrsulaHartenbergerGlobalHeadofSustainability,RICSBrussels,BelgiumHavingworkedonenvironmentalissuesforanumberofglobalorganisations,UrsulaHartenbergerjoinedRICSin2006.ShetookontheroleofRICSGlobalHeadofSustainabilityin2009andisresponsibleforcoordinatingtheorganisation’sstrategicactivitiesinthisfieldandhigh-levelstakeholderengagement.SheismemberofanumberofinternationalsustainabledevelopmentthinktanksandsectorinitiativesandhasbeencloselyinvolvedinaseriesofRICSpublicationsonsustainabilityandvalueandassociatedinvestmentdecision-makinginthepropertysectorandregularlywritesontheseissuesforexternalpublicationsandacademicjournals.NilsKokAssociateProfessor,MaastrichtUniversityMaastricht,NetherlandsNilsKokisanassistantprofessorinFinanceandRealEstateatMaastrichtUniversityandavisitingscholarattheHaasSchoolofBusiness,UCBerkeley.Hismainresearchfocusisonsustainabilityissuesintherealestatesector,concentratingontheeconomicsof“green”buildingsinthemarketplace.Nilsalsoworkswithinstitutionalpropertyinvestors,suchasAPG,PGGMandTriodosBank,ontheimplementationofsustainabilitypoliciesandisacontributingmemberofvariousrealestateandmarketnetworks.ShengkaiChiuEnergyandSustainabilityManager,JonesLangLaSalleSingaporeShengkaiisaTaiwaneseAmericanwhomovedtoGeorgiatotapintothegreatAmericaneducationalsystemwhenhewas13.Aftergraduatingwithamaster’sdegreeinengineering,ShengkailandedajobwithJohnsonControls,specialisingindevelopingenergysavingprojectsandbundledsolutionsforperformancecontracts.Forthelasttenyears,Shengkai’scareerhasrevolvedaroundthebuildingenergymanagementindustry.HeisnowresponsibleforrollingoutJonesLangLaSalle’ssustainabilityplatformtofacilitymanagementclientsinSoutheastAsia.LaurenHaasAustralasiaSustainabilityManager,BrookfieldMultiplexSydney,AustraliaLaurenHaasisresponsibleformanagingtheimplementationofsustainabilityacrossalltheBrookfieldMultiplexAustralasianbusinesses,empoweringandengagingthebusiness,keystakeholders,clientsandgovernmentindemonstratingthevaluepropositionofsustainablepropertydevelopment,managementandinvestmentintermsthatmakebusinesssense.LaurenisaCertifiedPublicAccountant(CPA),commencinghercareerwithErnst&YoungLLPandthenworkingasaFinancialAnalystforapublicREITinSanFrancisco.115STEERINGCOMMITTEEACKNOWLEDGEMENTSContributingAuthorsBusinessBenefitsMarylisRamos,PRPMilesKeeping,DeloitteRealEstateLaurenHaas,BrookfieldMultiplexExecutiveSummaryJoanneWheeler,UKGreenBuildingCouncilThoughtPiecesLisaMatthiessen,IntegralGroupUrsulaHartenberger,RoyalInstitutionofCharteredSurveyorsSarahSayce,KingstonUniversityShengkaiChiu,JonesLangLaSalleGeorgeSalah,GoogleNicolaMilneNilsKok,MaastrichtUniversityJonathanLaski,C40CitiesClimateLeadershipGroupHilaryBeber,NYCMayor’sOfficeofLong-TermPlanningandSustainabilityStacyLee,NYCMayor’sOfficeofLong-TermPlanningandSustainabilityCaseStudiesFalahMohamedAlAhbabi,AbuDhabiUrbanPlanningCouncilLaurenHaas,BrookfieldMultiplexFrankHovorka,CaissesdesDepotsKateBrown,GrosvenorYonaKamelgarn,NovethicReportContributorsTheWorldGreenBuildingCouncilwishestothankthefollowingindividualsfortheircontributionstothisreport:NatalieGoodrick,BrookfieldMultiplexPilarMedina,ColombiaGreenBuildingCouncilDiegoIbarra,EABuildingsAmandaChang,GoogleLoraLee,GoogleRobinMellon,GreenBuildingCouncilofAustraliaAutifSayed,InternationalFinanceCorporation(WorldBank)KarenJamal,KJCommunicationsFrancesChen,NewZealandGreenBuildingCouncilHarryVerhaar,PhilipsAndrewMellor,PRPKirstenBurrows,PRPSionedHolland,PRPLeeHeffron,PRPRoyAntik,SkanskaCatieRyan,TerrapinBrightGreenColinDevenish,V&AWaterfrontJamesDrinkwater,WorldGreenBuildingCouncilKimSurtees,WorldGreenBuildingCouncilRochelleAdeWewouldalsoliketothankthefollowingcompaniesfortheirin‑kindcontributionsandsupport:THEBUSINESSCASEFORGREENBUILDING116ExpertAdvisorsTheWorldGreenBuildingCouncilalsowishestothankthefollowingfortheirinsightsonWorkplaceProductivityandHealth:VivianLoftness,CarnegieMellonBillBrowning,TerrapinBrightGreenChrisGarvin,TerrapinBrightGreenJudithHeerwagen,UnitedStatesGeneralServicesAdministrationSpecialthankstoMichelleMalancaFreyforhereditingandcoordinationofthisreport.ACKNOWLEDGEMENTS117ABOUTTHEPROJECTPARTNERSTheWorldGreenBuildingCouncilisanetworkofnationalGreenBuildingCouncilsinmorethan90countries,makingittheworld’slargestinternationalorganizationinfluencingthesustainablebuiltenvironment.GreenBuildingCouncilsaremember-basedorganisationsthatworkwithmorethan25,000organizationsworldwidetoacceleratethetransformationoftheirbuildingindustriestocreatemoresustainablebuildings,communitiesandcities.TheWorldGBCcollaborateswithitsmembercouncilstoadvocateforgreenbuildingpoliciesandprovideacommonvoiceforagrowingindustry.Ourmissionistoensureweunlockthepotentialofoursectortoreducecarbonemissionsandresourceconsumptionwhilealsodeliveringaffordablehousing,energysecurity,jobcreationandbetterqualityoflifeforpeoplearoundtheworld.AbouttheWorldGreenBuildingCouncilTHEBUSINESSCASEFORGREENBUILDING118PRPisaninternationalmulti-disciplinarypracticeprovidingarangeofdesignandconsultancyservicesincludingArchitecture,UrbanDesignandMasterplanning,LandscapeDesign,Environmental,Researchanddevelopment,ProjectManagementandPlanning.WeoperateacrosstheUnitedKingdomandinoverseasmarketswhereourknowledgeandexpertiseinhousing,sustainabledesignandplace-makingaddsvaluetotheregenerationanddevelopmentoftownsandcities.AtPRP,wearecommittedtoimprovingthedesignandtechnicalperformanceofthebuiltenvironmentandadvocatingsustainabilityasameansofcatalyzingchangeintheindustry.Ourresearchanddevelopmentprojectsfocusonthefuture–leadingtheindustryindevelopingnewideas,processesandsolutionsforourrapidlychangingworld.Ourdiverseanddynamicteamofcreativeandhighlyskilledresearchersandtechnicalexpertsuseinnovativeapproachestoresearchanddevelopmentinthefieldsoflowcarbonbuildings,sustainablecommunities,smartcitiesandsmartsystems.AboutPRP119ABOUTTHEPROJECTPARTNERSABOUTTHEPREMIUMSPONSORSThroughout126years,Skanskahasbeenamodernandinnovativedeveloperandcontractor,buildingwhatsocietyneeds.Today,Skanskaisoneoftheworld’sleadingprojectdevelopmentandconstructiongroupswithexpertiseinconstruction,developmentofcommercialandresidentialprojectsaswellaspublic-privatepartnerships.TheGroupcurrentlyhasabout57,000employeesinselectedhomemarketsinEurope,intheUSandLatinAmerica.SkanskaisheadquarteredinStockholm,SwedenandlistedontheStockholmStockExchange.Salesin2012totaledSEK132billion(USD19.5billion,EUR15billion).Skanska’sambitionistobetheleadinggreenprojectdeveloperandcontractor,anambitionthathasbeentranslatedintoourJourneytoDeepGreen™,thecompany’sapproachtowarddeliveringprojectswithanear-zeroenvironmentalimpact.OurapproachissignifiedbythenumerousLEEDPlatinum,BREEAMOutstandingandCEEQUALExcellentcertifiedprojectswehelpeddelivertoourcustomers.TofindoutmoreaboutSkanska’sJourneytoDeepGreen™,pleasevisitusathttp://group.skanska.com/en/Sustainability/Our-Journey-to-Deep-Green/.AboutSKANSKATHEBUSINESSCASEFORGREENBUILDING120Grosvenorisaprivatelyownedpropertygroupwithofficesin18oftheworld’smostdynamiccities.TheGroupoperatesandinvestsinthreedifferentbusinessareas;directproprietaryinvestmentinrealestatethroughourOperatingCompaniesinBritain&Ireland,theAmericasandAsiaPacific;indirectproprietaryinvestmentinrealestatemanagedbyothers,whichistheresponsibilityoftheholdingcompany;andourinternationalfundmanagementOperatingCompany-GrosvenorFundManagement-whichmanagescapitalonbehalfofinvestors.Asat31December2011,theGrouphadtotalassetsundermanagementof£12.5bn.Unusuallyforaprivatecompany,GrosvenorpublishesafullAnnualReport&Accounts,availableat:www.grosvenor.comEstidama,whichmeans“sustainability”inArabic,isbothafoundingprincipleofTheGovernmentofAbuDhabi’sPlan2030andaprogrammeofcomplementarypoliciesdevelopedbytheAbuDhabiUrbanPlanningCouncil.Basedonfourpillars–environment,economy,society,andculture–theEstidamaProgrammeguidessoundinvestmentsinthebuiltenvironment--toensureecologicalheritageisprotected,neighborhoodsareconnected,buildingsachieveandretainquality,andwater,energyandmaterialresourcesarestewardedprudently.TheEstidamaPearlRatingSystemthroughagovernmentalmandatesetsminimumsustainabilitystandardsforallnewbuildings,villas,andcommunitiesaswellasvoluntaryguidelinestorewardworldclassprojectsandadvancementofthebuildingindustry.Ittracksperformancethroughoutthelifecycleofprojects,withreviewsatthedesignstage,duringconstruction,andafterbuildingoperation.Importantly,government-fundedprojectsarerequiredtoachievehigherstandards,bothtorealizegreaterreturnsoninvestmentinresourceefficiencyandtoprovideleadershipbyexample.AboutAbuDhabiUrbanPlanningCouncilAboutGrosvenor121ABOUTTHEPREMIUMSPONSORSTHEBUSINESSCASEFORGREENBUILDING122www.worldgbc.org

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