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The Importance of Green Buildings
Real estate development is a significant contributor to greenhouse gas (GHG) emissions, primarily through the use of concrete and other construction processes.
According to the Wall Street Journal, the cement industry alone is responsible for approximately 8% of global CO2 emissions, roughly the same as the CO2 produced by all of India. As the world faces the urgent challenge of climate change, the demand for green buildings—structures designed to reduce GHG emissions for the sake of tenants’ sustainability efforts —has never been greater.
Green buildings are characterized by their energy efficiency, use of sustainable materials, and improved indoor environmental quality. They aim to reduce resource consumption and GHG emissions, thereby contributing to a healthier environment and more sustainable development.
These buildings are often identified by three key components: certifications, sustainability disclosures, and green premium rents.
Definition of Green Buildings
Diagram 1: Overview of Definition of Green Buildings
Green Certifications
One of the essential aspects of green buildings is certification, which provides a standardized measure of a building's environmental performance. In Singapore, the BCA Green Mark Certification sets the standard for most green buildings. This certification assesses the environmental impact and performance of buildings and includes various levels: Certified, Gold, GoldPlus, Platinum, and Super Low Energy.
Other internationally recognized green building certification systems include LEED (Leadership in Energy and Environmental Design) in the U.S., BREEAM (Building Research Establishment Environmental Assessment Method) in Europe and GRESB (Global Real Estate Sustainability Benchmark) globally. These certifications set benchmarks for the sustainability and environmental performance of buildings globally.
Sustainability Disclosures in Green Buildings
Certifications are important, but transparency in environmental performance is crucial. Disclosures provide stakeholders with vital information about a building's sustainability practices.
SASB Real Estate Disclosures: Implemented globally on a voluntary basis, these disclosures set the standard for fair disclosure requirements in real estate, offering investors comparable, consistent, and reliable information.
TCFD Disclosures: Overseen by the ISSB, TCFD guidelines help organizations disclose clear, comparable, and consistent information on climate-related risks and opportunities.
GRESB: This benchmark evaluates the ESG performance of real estate assets globally, providing data and insights to investors and asset managers to understand the sustainability performance of their portfolios.
Together, these disclosure frameworks ensure transparency and accountability in green building operations.
Decarbonization Activities
Diagram 2: Overview of Decarbonization Activities of Green Buildings
A deeper look into the specific strategies employed by green buildings reveals a focus on decarbonization. This involves the adoption of various activities and technologies aimed at reducing carbon emissions.
Renewable Energy: Green buildings often use renewable energy like solar PV and wind turbines. For example, CDL uses solar PV and buys Renewable Energy Certificates to offset its carbon footprint.
Energy Efficiency: Smart technologies optimize energy use in buildings. CDL and CapitaLand use motion sensors for lighting, efficient air-conditioning, and rainwater harvesting to cut costs and boost efficiency.
Sustainable Materials: Green buildings use low-emission materials like low-carbon cement, recycled steel, and reclaimed wood. Holcim leads in promoting these sustainable materials in construction projects.
Green Premiums Rents
Diagram 3: Explanation of Green Premiums
Investment Opportunities and Scope 1 and 2 Emissions:
Green premiums Rents present significant investment opportunities for both developers and tenants. The lower costs of energy and resources and higher rental income justify the investment in green buildings. These financial benefits also pass on lower GHG emissions to tenants, helping reduce Scope 1 and 2 emissions.
Factors of Green Premium Rents:
Energy Efficiency: Green buildings feature energy-efficient systems like LED lighting, high-efficiency HVAC, and solar panels, reducing energy consumption, operational costs, and greenhouse gas emissions.
Sustainable Materials: Constructed with sustainable materials such as recycled steel, reclaimed wood, and low-carbon cement, green buildings minimize environmental impact and support the circular economy.
Operational Efficiency: Advanced insulation, double-glazed windows, and smart energy management systems maintain operational efficiency, reduce energy demand, enhance comfort, and lower utility bills.
Renting green buildings helps companies significantly reduce their carbon footprint through lower energy consumption and increased renewable energy use, leading to notable reductions in Scope 1 and 2 emissions. This not only results in cost savings but also attracts more sustainable investors.
Green Renovation: Value Creation and Green Premium Rents
Green renovation enhances building value by incorporating sustainable features that attract sustainability-oriented tenants. This increases the building's marketability and allows for higher rental rates, known as green premiums. The energy efficiency and sustainability improvements reduce operational costs, further boosting the building's overall profitability and long-term value. By investing in green renovations, property owners can achieve significant returns through higher rents and lower expenses, making it a financially and environmentally rational decision.
Case Study: CapitaGreen
Diagram 4: CapitaGreen Case Study
To illustrate the practical application of these principles, consider the case of CapitaGreen, a notable example of a green building.
CapitaGreen, developed by CapitaLand Commercial Trust, CapitaLand Limited, and Mitsubishi Estate Asia, is a 40-story Grade A office tower in Singapore’s CBD. Designed by Pritzker Prize winner Toyo Ito, CapitaGreen has won numerous local and international awards for its sustainable and inclusive design.
Green Features and Decarbonization Efforts:
The building features a double-skin façade and greenery that covers 55% of its perimeter, maximizing natural lighting and reducing heat gain by 26%.
The Cool Void, a petal-like structure at the building's crown, draws in cooler air, reducing the energy needed for cooling.
Additional features such as rainwater harvesting, highly efficient chillers and zoning, motion and photo sensors, and the recycling of demolition materials contribute to its sustainability.
CapitaGreen's estimated energy savings are about 4.7 million kWh per year, with water savings of approximately 40,000m³ per year. However, these benefits come with a premium rent of 5-15% compared to other office buildings in the area, averaging $13/sqft.
Financial Value of Green Building
Diagram 5: Green building investment benefits
Green buildings provide significant value creation and investment returns through several key factors. Their energy efficiency reduces operational costs by lowering energy and water consumption. The ability to command green premium rates attracts tenants willing to pay higher rents for sustainable features. Additionally, comprehensive sustainability disclosures such as SASB, TCFD, and GRESB enhance transparency and appeal to sustainability-focused investors, further boosting real estate value and investment returns. Ultimately, green buildings deliver not only decarbonization effects in sustainability disclosures but also elevate overall property market attractiveness.
Conclusion
Green buildings represent a forward-thinking approach to construction and real estate development, prioritizing sustainability, energy efficiency, and the use of decarbonization building materials. Through certifications, disclosures, and decarbonization activities, green buildings not only reduce GHG emissions but also offer financial returns via Green Premium Rents to developers and tenants. The adoption of green building is for not just sustainability efforts but also real estate investment opportunities.
Next Post:
Stay tuned for our next article, where we delve deeper into the real estate industry's involvement in green buildings by showcasing City Developments Limited (CDL). We'll provide a snapshot of CDL's financial overview, their extensive decarbonization efforts, and their impressive performance in reducing greenhouse gas emissions, energy, and water consumption. Additionally, we'll highlight CDL's exemplary disclosure practices, setting a benchmark for transparency and sustainability in the real estate sector.
Disclaimer:
The information provided by REANGLE in this article is for informational purposes only and does not constitute investment advice. Any investment decisions made based on this information are solely the responsibility of the investor. REANGLE disclaims any liability for financial losses or legal consequences resulting from investments in any companies or assets discussed in this article. Readers are advised to conduct their own thorough research and seek professional financial advice before making any investment decisions.
REANGLE Services
REANGLE extends its Green Finance Consulting services to institutional investors and corporations across Southeast Asia, Japan, and beyond, harnessing Singapore’s pool of talent. With global sustainable finance platforms and highly motivated green talent, REANGLE delivers Green Finance Analysis and Green Data Analytics services quantitatively, alongside providing Green Investor Relations advisory service to drive authentically sustainable investment decisions.
Do check out REANGLE’s past articles for further clarification or reach out to us at kazu@reangle.co (Kazu Watanabe).
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