Sustainability in the built environment: Why green buildings make economic sense

Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.

The built environment influences various facets of human existence ranging from residences and workplaces to industrial facilities and road networks, encompassing both real estate and infrastructure. Remarkably, it contributes to approximately one-third of global greenhouse gas emissions.

Approximately 11 percent of emissions in the built environment originate from the production of construction materials, such as steel and cement, while the remaining portion arises from the operation of buildings and the generation of energy to power them. It has been predicted that 80% of the buildings that will exist in 2050 already exist today, making it critical to look beyond constructing new green buildings, and towards decarbonizing the existing building stock through incorporating more energy efficient systems.

Decarbonizing the built environment can create as much as USD 800 billion to USD 1.9 trillion in new green value pools across sectors. Unlocking the potential of decarbonizing the built environment is not just an environmental imperative; it’s an economic opportunity. This article touches on some of the key economic benefits that can arise from decarbonizing the built environment.

1. Reduction in utility bills

For many buildings, decarbonization is grounded in retrofitting current spaces, which requires upfront investment but garners long-term benefits including reduced utility and operational costs. These cost savings can come from the implementation of high-efficiency heating, ventilation, and air conditioning systems, improved insulation, LED lighting, on-site renewables, and other measures. Between 2015 and 2018, LEED-certified buildings (buildings that have met rigorous environmental performance standards set by the US Green Building Council) in the United States were estimated to have USD 1.2 billion in energy savings, USD 149.5 million in water savings, USD 715.2 million in maintenance savings, and USD 54.2 million in waste savings.

2. Enhanced property value with green certification

In an environmentally conscious market, with tenants being more selective about which buildings to occupy, buildings with green certification have a competitive edge and may command higher rental rates or sales prices. In JLL’s 2022 Future of Work Survey, 74% of organizations said they would be willing to pay a premium for leasing a building with leading sustainability or green credentials, and 22% said they already have.

Furthermore, climate change is reshaping the real estate landscape and the perception of home value. Zillow reported that more than 80% of homeowners today consider climate risks when searching for a new home. The increased incidence of floods, wildfires, hurricanes, and droughts in some areas have decreased the value of climate-vulnerable homes and increased the value of climate-resilient homes.

3. Benefits from complying with local policies and regulations

Across the world’s most developed cities at least 90% of buildings are over 10 years old. Most of these assets would not meet today’s energy efficiency standards for new buildings and very few have firm plans in place to prepare for even more stringent regulations on the horizon as governments pivot efforts to decarbonize existing buildings.

New York City passed Local Law 97 in 2019, “the strongest city policy in the world to cut greenhouse gas emissions from buildings.,” as per its Mayor Bill de Blasio. The law will require buildings over 25,000 square feet (about four times the area of a basketball court) to follow strict reporting and emissions guidelines from 2024 onwards. Non-compliance with regulations such as Local Law 97 can lead to substantial financial penalties for building owners and developers, further emphasizing the financial importance of decarbonization efforts across the built environment.

Furthermore, businesses can capitalize on incentives and tax benefits tied to green initiatives, further bolstering their bottom line.

The path forward

As the old saying goes, “You can’t manage what you can’t measure.” Energy and sustainability reporting systems can provide a feedback loop that continuously informs and guides building construction and retrofits. When buildings have systems in place that report on their energy usage and emissions, we can glean vital insights into where changes need to be made, tailor plans around specific building needs, and track improvements in energy savings and emissions.

The climate transition will create new responsibilities for real estate players to revalue and future proof their portfolios. The environmental, economic, and social benefits of decarbonizing buildings are immense, with some of the key arguments being reduced utility bills, enhanced property value, and regulatory compliance.