The Impact of Sustainability Metrics on Financial Performance in Corporate Real Estate

Date: 13th January 2014

Part 3 Legislation

As previously mentioned, governments (and other bodies) around the world have been particularly active in the area of sustainable building development policies. The European Commission (2013) has shown that buildings account for 40% of energy consumption and over 35% of greenhouse gas emissions in the European Union. Policymakers are bent on raising awareness on the potential benefits of refitting older buildings with modern lighting and heat recovery systems, since they have identified such procedures to bring a 30%-80% reduction of energy consumption. Their efforts are starting to pay off, the report says, given that sustainability credentials are becoming widespread throughout the EU and are starting to become the centrepiece in certain building transactions in the UK, France, Germany and the Netherlands, as well as in Scandinavian Countries. Nevertheless, there is a continuous flux of new regulation and additional frameworks for such certification to be developed and applied efficiently on a wider scale.

Besides the Energy Performance of Buildings Directive (EPBD) in the EU, November 2012 has brought about the signing of the Energy Efficiency Directive (EED), requiring that 3% of the UK national public building stock be renovated annually. There is also a call for mandatory audits for large property owners and office and retail occupiers, to encourage a more active management system for buildings and raise awareness towards sustainability issues. The Energy Bill in the UK targets a reduction of 30% in building carbon emissions by 2020, and is currently under consideration in the House of Lords. This new framework allows for the implementation of both taxes and incentives for businesses and owners to adopt more eco-friendly solutions for their establishments. Under the Green Deal plan, most people and business owners have started making improvements to their house’s energy usage systems, greatly improving efficiency. The program hopes to help attain a very low and near zero carbon emission rating for most buildings in the UK and lowered overall carbon emissions by as much as 80% by 2050.

Copenhagen Economics (2012) is an official paper designed to support the principles behind the Europe 2020 plan to lower greenhouse gas emissions by 20%, increase the proportion of renewables in energy consumption by 20% and increase energy efficiency by 20% throughout the EU by the year 2020. Overall EU benefits from building renovations focused on energy-performance is estimated at approximately 104-175 bn Euro, with direct energy savings at 52-75 bn Euro. The paper presents future price estimations and uses energy savings specifications to obtain values for overall/specific savings from energy efficiency projects, underlining the innate economic benefit to be obtained from such endeavours. However, there are also substantial health benefits presented which, although much harder to study and quantify, play a major role in determining renovation benefits. There is also a call for public and private partnerships to promote higher energy efficiency, which the authors believe would ultimately lead to a more efficient use of public budgets. The report finds that the costs of building renovation projects focused on energy efficiency are far smaller than the general energy savings they generate.

A US study by Kats (2006) paints an interesting picture, stating that construction and demolition waste account for over 65% of total national non-residential waste in the US. This figure is daunting in and of itself, indicating that it is highly probable that governments will continue to act in reducing this figure significantly in the near future. The same paper finds that waste was reduced by 50-99% for new “green” building projects, meaning significant cost savings not only for investors but also for the government and the general society. Average construction and demolition diversion rate is reported at 74% for “green” schools in the US, meaning that public funds were spared considerable expense by the implementation of sustainable features and the use of higher quality materials.

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