If there is well researched information that shows green buildings are more efficient, environmentally friendly and healthier than conventional buildings, and only cost marginally more to build, is it ‘risky’ to NOT build a green building?
Some green building experts, such as Gregory Kats, Managing Principal of the U.S. based Capital E Group have reached that conclusion. Mr. Kats impressive credentials include Senior Advisor to Cherokee Investment Partners, a brownfield development fund, former Director of Financing for Energy Efficiency and Renewable Energy at the U.S. Department of Energy and member of the LEED steering committee.
In a RENX interview, Mr. Kats said; “It used to be risky to go green. Now, its clear, its more risky to design inefficient and unhealthy buildings. It’s bad management and bad investment strategy to not build green buildings”
The strength of Mr. Kats convictions may arise from having authored two frequently cited reports: Green Buildings; Green Building Costs and the Financial Benefits (2003) and Greening America’s Schools Costs and Benefits (2006).
Green Buildings Costs and Financial Benefits examined 33 LEED certified offices and schools from across the U.S. It showed that the average cost premium to build green was:
Basic level certification – .66%
Silver – 2.11%
Gold – 1.82%
Two subsequent U.S. studies by real estate consultant Davis Langdon and the U.S. General Service Administration arrived at simlar findings to Kats that most projects achieve sustainable design within their initial budget, or with small supplemental funding.
Mr. Kats said a study examining the costs of Canadian Green Buildings in 2007 would generate comparable results.
Greening America’s Schools Costs and Benefits looked a 30 LEED certified green schools in nine U.S. States. It found an average construction cost premium of 1.65% ($3/sf). An average energy and water savings of around 33% ($12/sf) ensured a very rapid payback.
The study found that the benefits derived from having healthier buildings through reduced incidents of asthma, colds and flu, teacher retention and recruitment totaled about $11/sf. Another measurement, referred to as “increased lifetime earnings”, the educational ‘advantage’ provided children by Green Schools over their first 20 years was assigned $49/sf.
While benefits to people of Green Buildings are notoriously difficult to prove, clearly the $3/sf construction premium for Green Schools is rapidly offset by a fraction of the $60/sf human related savings found in the study.
Dr. Matthew Kiernan, Chief Executive of Innovest Strategic Value Advisors, shares a similar opinion to Kats regarding the risk associated with building green.
Innovest is an environmental investment research advisory firm, with an office in Toronto. It rates more than 2,000 publicly-traded companies from around the world in four strategic areas: environment, strategic governance, stakeholder capital and human capital.
Speaking to RENX, Dr. Kiernan said, “The vast majority of investment advisors perceive it to be ‘risky’ to incorporate an environmental analysis while there is no factual or legal proof of that.” On the contrary, he stated, it has become ‘necessary’ for businesses to conduct an environmental analysis.
Dr. Kiernan’s firm is establishing an Australian based fund to invest in ‘Green REITs’. There are approximately 300 REITs in the World and the fund will invest in the ‘greener’ REITs. The definition of a ‘greener REIT’ is yet to be determined.
There are many questions regarding how a building portfolio is analyzed for its ‘greenness’. Office building owners and school boards have tended to make ‘green’ investments and their building type is intrinsically ‘greener’ than others. The greatest gains in energy efficiency, environmental clean-up and human benefits may be available from the worst offenders such as fast food restaurants, hospitals and the industrial sector.
Innovest is also known for its expertise in the field of “carbon finance” and is the chief technical advisor to the Carbon Disclosure Project (CDP). CDP is an international initiative by 225 institutional investors with more than $31.5 trillion in combined assets. CDP provides a process whereby institutional investors agree to public disclosure of information on greenhouse gas emissions.
All of Canada’s major pension funds; CPP, BCIMC, Caisse des Dépôts, OTPP, and OMERS, have registered with CDP. As Canadian pension plans directly own over $100 billion in real estate, the level of accountability implied by the CDP indicates a serious commitment to issues related to a ‘greening’ of the build environment.
In an October 2006 address given at the release of CDP Report 2006, Canada 280, Doug Pearce, CEO of BCIMC stated examination of "our (BCIMC’s) own carbon management practices is related to our green real estate holdings.” BCIMC owns a mixed portfolio of commercial properties valued at approximately $8 billion. He added, “13 properties in BCIMC’s real estate portfolio have received LEED or BOMA environmental certification.” He went on to say that a property related energy efficiency and carbon emissions reduction strategy is practiced by BCIMC and 73% of the Canadian 2006 CDP respondents.
Finally, in 2006 there were news reports about insurers pushing policyholders to ‘Go Green’. Notable among these was a report about the Fireman's Fund in the U.S. which agreed to cut premiums for "green" buildings and direct claimants to environmentally friendly products.
As the insurance industry is the second largest industry in the world in terms of assets, with a direct link to most homeowners and business, when there is a shift in the insurance industry, it can have considerable clout.
Gregory Kats, Dr. Matthew Kiernan and Doug Pearce will be presenting at the Green Real Estate Conference, April 18, 2007, at the Toronto Convention Centre.