Making the business case for energy efficiency

‘Green’ buildings, including those that incorporate energy efficiency measures (EEMs), have been shown to provide multiple benefits to building owners and users1. These can be divided into ‘hard’ and ‘soft’ benefits. The benefits highlighted in any business case made to executive management for the investment in EEMs should be chosen to be aligned with a company’s culture and strategic priority focus areas.

Hard benefits (i.e. benefits that are easy to quantify and measure):

Increased asset value
Studies around the world show that green buildings, such as those with increased energy efficiency, are more marketable, more easily attract tenants and command higher rents and sale prices1. For example, the World Green Business Council has illustrated the premium for certified green buildings (e.g. those designed and constructed using third party ratings such as LEED or BREEAM) compared to conventional code-compliant buildings.

Reported rental rate increases of certified green buildings as compared to conventional code-compliant unrated office buildings1

Reduced operating costs
Energy efficient buildings typically save money through reduced energy use and maintenance costs. Studies have shown how the total 20-year Net Present Value (NPV) of savings in energy, emissions, water and maintenance for LEED-rated buildings exceed US$11 per square foot, and easily outweigh construction costs over this time1.

Net present value analysis of the operational cost benefits of LEED certified buildings1

Soft benefits (i.e. benefits that are less well defined and more difficult to measure)

Mitigation of risks
The World Green Building Council (WGBC) describes how sustainability risk factors can significantly influence the rental income and future value of real estate assets, in turn affecting their return on investment and reducing risks, as shown on their risk radar1. For example, changing tenant preferences and investor risk screening may translate into risk of obsolescence for energy inefficient buildings. Likewise, regulatory risks related to energy and sustainability have become increasingly evident in countries and cities around the world, including mandatory disclosure, building codes and laws banning inefficient buildings (e.g. regulatory risks and incentives in the UK).

WGBC risk radar1

Enhanced workplace productivity and health
Research shows that the green design attributes of buildings and indoor environments can improve worker productivity and occupant health and well-being, resulting in bottom line benefits for businesses1. The World Green Building Council found a range of benefits associated with outside views, natural daylight and improved systems9.

Net present value analysis of the operational cost and productivity and health benefits of LEED certified buildings1

Improved recruitment and retention
A 2009 CBRE report established that recruitment and retention of employees are enhanced in green buildings, implying that green buildings mayA 2009 CBRE report established that recruitment and retention of employees are enhanced in green buildings, implying that green buildings may result in savings in terms of employee turnover2.

Reputational benefits
Various studies e.g.3 have concluded that in the long-term, companies whose operating models include sustainability, including energy-efficiency, typically outperform peer companies with no sustainability focus.

Regulatory Risks: An example from the UK Market

Increasing regulatory risk, particularly as a result of Article 8 of the EU Energy Efficiency Directive provides a significant driver for increasing the take-up of energy efficiency auditing and ISO 50001 in the European market, as do further policies that increase the cost of energy consumption such as the EU Emissions Trading System, Climate Change Levy and further national and local policies. The inverse of this is that many incentives exist for increasing energy efficiency in buildings (e.g. Feed in Tariffs, Renewable Heat Incentives, Enhanced Capital Allowance, etc.) that increase the financial returns of energy efficiency investments.

With capital from levies and taxes from penalty schemes often ring-fenced for energy efficiency incentives; organizations not adopting efficient technologies are effectively paying the subsidies for those undertaking these measures.

Minimum standards for rented buildings in the UK are set to increase with the requirement for commercial properties to be Energy Performance Certificate (EPC) grade A-E by 1st April 2018, landlords unable to meet these requirements risk being unable to let affected properties and could incur significant financial losses.

References

1-10 World Green Building Council (2013), The Business Case for Green Buildings – A Review of the Costs and Benefits for Developers, Investors and Occupants, World Green Building Council, Toronto. Available online

2 CB Richard Ellis, 2009. Who pays for green? The economics of sustainable buildings. EMEA Research. Available online

3 Robert Eccles, Ioannis Ioannou, and George Serafeim, 2014. "The impact of corporate sustainability on organizational processes and performance." Management Science 60.11 (2014): 2835-2857. Available online

and

3 Energy Efficiency Market Report 2015, IEA adapted from IEA (2014a), Capturing the Multiple Benefits of Energy Efficiency, OECD/IEA, Paris. Available online