Going green may keep you in the black
Environmentally friendly green buildings are replacing traditional construction as corporations and organizations become aware of the financial advantages of environmentally sustainable building development – ranging from lower energy costs to higher employee productivity.
“These green, or sustainable, buildings use key resources like energy, water, materials, and land more efficiently than traditionally constructed buildings,” said Stephen Bushnell, Fireman’s Fund Insurance’s Real Estate Industry Product Director. “With more natural light and better air quality, green buildings strongly attract tenants who prioritize employee health and comfort.”
According to Gregory Kats, former Director of Financing for the Office of Energy Efficiency and Renewable Energy at the U.S. Department of Energy (DOE), green buildings, when compared to conventional buildings, are:
- On average 25-30 percent more energy efficient
- Characterized by even lower electricity peak consumption
- More likely to generate renewable energy on-site
- More likely to purchase grid power generated from renewable energy
The Case for Going Green
“Green is rapidly becoming a necessity. Companies as diverse as Bank of America, Genzyme, Goldman Sachs, IBM, and Toyota are now pushing green buildings fully into the mainstream,” said Charles Lockwood, an environmental and real estate consultant and author of the book “Building the Green Way.”
“Hundreds of studies have proven the financial advantages of going green, from reduced construction costs to lower operating costs,” said Lockwood in a June 2006 issue of the Harvard Business Review. “Employers have experienced significant workforce benefits in green buildings, including stronger employee attraction and retention, as well as fewer illnesses and lower absenteeism, which reduces health care costs.”
“Market demand for green buildings is surging as businesses study the long-term financial benefits, lower operations and maintenance costs, and savings from increased productivity and health,” said Bushnell. “They also find it easier to hire and retain top talent to work in these buildings.”
Growing Demand for Construction
Green buildings significantly lower energy consumption and costs compared to standard buildings, reported the Harvard Business Review article. “In its first year of operation, Genzyme’s green 12-story headquarters in Cambridge, Massachusetts used 42 percent less energy than standard buildings of comparable size,” said Lockwood.
In the U.S., buildings account for 39 percent of the nation’s total annual energy consumption, whereas transportation – including cars – comprises only 27 percent of our total energy use, according to recent studies by DOE and U.S. Department of Transportation (DOT).
“The average commercial structure will cost 10 times as much to operate over its typical 100-year life span as it cost to build,” said architect Phillip Bernstein in “Going Green,” a Forbes magazine article published in August.
“Green buildings provide financial benefits that conventional buildings do not,” said Kats in his report “Green Building Costs and Financial Benefits” published in 2003.
“The cost of green design has dropped in the last few years as the number of green buildings has risen,” said Kats. “The trend of declining costs is associated with increased experience in green building construction.”
Many green building measures can be incorporated with minimal or zero increased up-front costs that, over the life of the building, yield enormous savings, says Kats. However, Green buildings are commonly perceived to be a lot more expensive than conventional buildings, according to Bushnell.
This perception has been the single largest obstacle to the more widespread adoption of green design. The majority of this cost is because of the increased architectural and engineering design time, modeling costs and time necessary to integrate sustainable building practices into projects, according to Kats.
Green Building Certification
The United States Green Building Council (USGBC), a national non-profit membership organization, developed the Leadership in Energy and Environmental Design (LEED) System to provide a guideline and rating system for green buildings. USGBC currently certifies 500 buildings and 4000 more under construction.
“USGBC, comprised of allied professional organizations, promotes producing a new generation of environmentally sustainable buildings that deliver high performance inside and out,” said Bushnell.
As the leading coalition representing the industry on environmental building matters, USGBC influences the way buildings are designed, built and maintained. LEED is a voluntary, consensus-based national standard for developing high-performance, sustainable buildings. Current LEED standards cover the following:
- new construction and major renovation projects
- existing building operations
- commercial interiors projects
- core and shell projects
Going Green Brings the Green
Gregory Kats, now Chair of the Energy and Atmosphere Technical Advisory Group for LEED, offered a detailed review of 60 LEED-rated buildings in his report. He concludes that an up-front investment of less than 2 percent of construction costs yields lifecycle savings of over 10 times the initial investment.
For example, he said, an initial up-front investment of up to $100,000 to incorporate green building features into a $5 million project would result in a savings of at least $1 million over the life of the building, assumed conservatively to be 20 years.
The U.S. Environmental Protection Agency (EPA) reported in a study that a 30 percent reduction in energy use translates into a 5 percent increase in net operating income and asset value. Today’s energy costs probably make the EPA-estimate increases even larger than when initially reported in 2001.
The green building approach applies a project lifecycle cost analysis for determining the appropriate additional expenditures. These and other cost-savings can only be fully realized when they are incorporated at the project’s conceptual design phase, according to Kats. The integrated-systems approach of green buildings ensures that the building is designed as one system, rather than a collection of stand-alone systems.
Productivity and Health
Four of the attributes associated with green building design-increased ventilation control, increased temperature control, increased lighting control and increased use of daylight interior illumination – have been positively and significantly correlated with increased productivity, said Kats.
Lockwood reports in Harvard Business Review that employee productivity in green buildings is boosted nearly 15 percent.
“A 1 percent increase in productivity – equal to about 5 minutes per working day – is equal to $600 to $700 per employee per year,” said Kats. “A 1.5 percent increase in productivity – or a little over 7 minutes each working day – is equal to about $1000 per year. The relatively large impact of productivity and health gains reflects the fact that the direct and indirect cost of employees is far larger than the cost of construction or energy.”
Consequently, added Kats, “even small changes in productivity and health translate into large financial benefits. Assuming a longer building operational life, such as 30 or 40 years, would result in substantially larger benefits.”
Traditional Buildings Obsolete
Lockwood sees the looming shift to green buildings bringing many benefits to companies, but also resulting in massive obsolescence to hundreds of billions of dollars in existing commercial space in the U.S. and worldwide.
“The owners of standard buildings must act now to protect their investments,” said Lockwood in the Harvard Business Review. “The impact of green going mainstream will be as profound on commercial real estate as the invention of central air conditioning in the 1950s and 1960s, or elevators in the 19th Century.”
Source: Fireman’s Fund Insurance Company
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