Green building - or sustainable building - is the activity of improving the efficiency of the building life-cycle from design to construction and maintenance. This practice embraces a wide range of aspects whose aim is to enhance the so-called triple bottom line (TBL): social, environmental and financial performances.
It is a known fact that buildings account for over half of global energy use and are responsible for 20% of CO2 emissions worldwide. For this reason, it is of paramount importance to promote a more sustainable approach to manage the construction industry.
It’s been - and it continues to be - a difficult task to put into practice those recommendations that the international community has been claiming for over the last decades. Unfortunately, when it comes to move from theory to action, there are often many obstacles that stand in the way of a more sustainable development. In particular, concerns over extra costs have long classified some solutions as non-profitable for investors. And the focus on environmental performances has led people to believe that they couldn’t get any social – or more important – any economic benefit out of green building practices. In recent years, a wide range of studies have tried to prove them wrong while outlining the “business side” of some approaches.
First of all, research has shown that green buildings don’t necessarily cost more than conventional ones, especially when environmental strategies are integrated into the whole process right from the start. It means that decisions taken at the very beginning can impact the long-term value of a building and its return on investments. In this context, specific data from a given region with its own climate can allow businesses better understand the financial implications of a more sustainable approach that fits with the site they are working on.
The initial costs of a building’s life cycle refer to the design and construction stages. In order to not exceed original budgets, it is important to make the right choices that don’t necessarily include the use of some visible green technologies like photovoltaic panels on the roof. There is a misconception among some practitioners who propose these solutions without a robust overall environmental strategy. In these cases, buildings can cost more than expected while not bringing any additional value. To avoid this in the future, it is required to increase general awareness on this topic through education and let green building become a standard practice while keep on conducting more research on green solutions and related costs.
Besides initial expenses, green buildings have shown to work pretty well on the long term thanks to operation and maintenance features. The first one includes reduced energy and water consumptions, among the rest, whose economic benefits usually exceed design and constructions costs within a reasonable period of time. The second one focuses on the durability of systems and finishes applied in a building. In this case, the choice between two different materials takes into consideration the entire life cycle of a product in association with its use and installation.
Parallel to initial and long term expenses, risk mitigation plays a key role in affecting return on investments. What are the potential reduction or increase in costs associated with a given investment? And to what extend can investors attract equity and debt competitively?
There are several aspects to be taken under consideration: regulatory risk is one of those. It is important to properly evaluate how future legislation can impact the value of a building. As an example, since the construction sector has been regarded as responsible for contributing to climate change, legislation on carbon emissions has been affecting the capital value of some existing buildings. Besides, regulation on its turn can bring about repercussions on the property market. In fact, inadequate sustainability performances might lead tenants to leave the building or not lease it in the first place. As more green buildings are available, the non-green ones face a rising depreciation that can worse even further if we add to it the effects of physical risks.
The latter are related to the insurability of a building. In the UK, as an example, some insurers are no longer willing to provide weather related protection - like in case of floods - because it’s not economically viable anymore. Investors are then forced to extend their thinking on new aspects like location that can increase the climate resilience of the building.
In light of the above, enhancing the economic value of green building has become crucial. In a money-driven society, pointing out the way sustainability pays off represent the key topic that will eventually lead investors to change their attitude.