Added value and return in sustainability

Provided by Ewan Willars: Head of Policy, RIBA

A major part of man-made capital comprises buildings and infrastructure. Homes, workplaces, public buildings and infrastructure account for some 70% of manufactured wealth. However, directly assessing the value of sustainable design can be a complicated calculation.

The value of a building to a city, to an organisation or to an individual arises from how it is occupied, used and perceived. The value of sustainable design can be as simple as the energy costs saved by the occupier, or as intangible as the wider social and environmental benefits that flow from it.


Understanding and assessing value

Some of the benefits of a well-designed built environment are therefore directly measurable, and it is comparatively simple to determine an appropriate level of investment to achieve specific requirements. For example, a simple cost/benefit analysis can be used to assess the payback to an occupying organisation from investment in energy conservation and/or renewable energy technologies.

While economic benefits can generally be assessed accurately in monetary terms, social and environmental benefits and penalties are less tangible. And they may accrue to a wide variety of people and organisations, such as neighbouring properties or local authorities, well beyond the organisation occupying or owning the building. This is a perennial difficulty facing the building environment - in the absence of monetary value equivalents, intangible benefits may not receive adequate recognition. The difficulty of quantifying social and environmental benefits also makes it difficult to determine an optimum level of investment to achieve them.

Our inability to capture the value of intangible outcomes often results in an understandable desire to minimise cost expenditure. As a consequence, many buildings in the past were constructed to a strict cost limit that was often set quite arbitrarily and took little or no account of future operating costs or of the impacts on outcomes. Today, as more is known about the benefits of a well-designed built environment, we are better placed to assess the value delivered by a building project and therefore the level of investment that it is sensible to make.

Whole-Life Value Assessment

The assessment of value has recently undergone a significant change, reflected in the way that public projects are audited by the Treasury and the National Audit Office, and increasingly by private investors, particularly on larger projects.

Using whole-life analysis avoids decisions being made based solely on the short-term costs of design and construction. Often the longer-term maintenance and operation costs can be a significant proportion of the whole-life cost, and for some projects will far outweigh the initial design and construction costs. Whole-life thinking is an essential component of sustainable design.

The idea is therefore very simple: when comparing alternative designs for a construction project, don’t just focus on minimising the initial investment, but select the alternative that performs best over the building’s life-cycle. A durable and efficient design is often better value than lower specification alternatives that are less efficient in use, despite higher initial investment. But not always – investing more doesn’t necessarily give good value. This basic principle applies equally from a cost-effectiveness or a carbon-saving perspective.

Designers should aim to avoid under-investment, when benefits are missed that could have been gained with greater investment; but it is equally important to avoid over-investment, when benefits turn out to be too small to justify the initial investment.

To identify efficient solutions, designers must assemble data describing the resource demand of both the initial construction and performance in use, and then analyse this data. This is whole-life assessment.

Environmental value

Buildings use finite resources including energy in their construction, generate waste which goes to landfill, occupy land which might otherwise support plants and wildlife and, after completion, require electricity and fossil fuels in their operation. Environmental value is an attempt to express the extent to which their environmental impacts are minimised, particularly in relation to social and economic benefits they deliver.

Environmental value is increased through adoption of the principles emerging from the debate about sustainability, such as protection of biodiversity, minimising the consumption of finite resources and seeking to adapt to future climate change as well as seeking to mitigate against change by increasing efficiency, reducing energy consumption and minimising harmful emissions, such as CO2.

Issues like protection of biodiversity are difficult to place a value on, since no market exists. In the case of tropical rainforests uncertainty in their future potential and irreversibility when they are lost gives them an option value. This is because future options have additional worth since future information may add to their use-value. Another argument is that they need to be preserved because they have intrinsic worth.

Other environmental aspects of building performance are easier to value. For example, through good design it is possible to create design options that offer benefits with no added costs. Careful orientation of a building and the sizing and position of windows to make maximum use of natural forces like sunshine and wind can help to reduce the use of artificial lighting and mechanical ventilation. Other measures like increasing insulation of the building fabric, the specification of intrinsically efficient lighting, heating and ventilation technologies, and controls which encourage good energy management practices, have capital cost implications but lend themselves directly to cost benefit analysis.

Low-maintenance long-life materials that are robust in use against wear and tear may cost no more than less durable materials. As with utility costs, a cost benefit analysis can be used to assess alternatives. A ‘cradle to grave’ approach will also consider future demolition and recycling issues.

Given the frequency in some sectors of ‘churn and change’, a building which is flexible or adaptable and so able to accommodate future requirements and upgraded services without major alterations, will have a higher option value.


Evidence of the Economic Value of Sustainable Design

In a newly released report for the RICS by John Quigley, Piet Eichholtz, and Nils Kok titled Doing Well by Doing Good?, the authors discuss the economic value of green building certification in the commercial (office) sector.

The US-based research matched publicly available information on 694 certified green buildings (Energy Star and LEED) with 7489 other office buildings located within a quarter mile of the certified green buildings.

The research revealed systematic evidence that rents for green buildings are about 2% higher than rents for comparable buildings located nearby. Effective rents, or those adjusted for the occupancy levels in the building, are about 6% higher in green buildings than in comparable office buildings nearby. The authors deduce that conversion of a averaged size non-green office building to an equivalent green building would add more than $5 million in market value.

Achieving high efficiency ratings also acts as a safeguard to minimise the effects of future energy price increases – the impact of which should not be underestimated. Investors are increasingly seeing socially responsible investment as a priority and developed countries are increasingly recognising carbon emissions as a real cost, with future cost and taxation implications.

The importance and awareness of such non traditional costs is growing, with many companies and individuals concerned about greenhouse gas emissions and climate change. If, in the future, a tax is imposed on energy consumption, a more energy efficient building will incur a lesser impact. And with fossil-fuelled energy likely to rise in cost significantly over the coming years it makes strong economic sense to develop greener buildings.