Quantifying the Hidden Benefits of High-Performance Building

Dave McNamara
Energy savings and other more tangible benefits of green or high performance building have long been apparent in business.

Energy savings, lower operating cost, and reduced taxes are advantages which are relatively easy to measure and monetize. For example, when a company chooses natural day lighting to offset electric lighting, they can easily calculate the power cost avoided for lights—this is a relatively simple engineering and accounting calculation.

However, some of these green building initiatives may be costly to implement. The tangible benefits might not offset the initial costs of the projects, especially when considering shorter payback horizons required in challenging times. Without including other benefits, the net present value (NPV) of many projects become negative, making them difficult for businesses to justify.

Fortunately, intangible benefits of green building also exist. The problem is that these intangible benefits are often difficult to measure and monetize. Clients and designers struggle with how to value these "soft" benefits when deciding whether to adopt the initiatives. Do these intangible benefits represent a material value to the organization?

Intangible benefits include:

  • improved health of building occupants
  • improved company brand equity and goodwill
  • reduced environmental impact
  • improved occupant comfort
  • improved employee productivity

Of these intangible benefits, improved productivity is an especially valuable factor. I was lead author on the recent Valuing Green Building (PDF, 2.66 MB) cooperative study from the Texas A&M Mays Business School. This study suggests that with even a modest improvement in productivity (as little as 0.5 to 1.0 percent), the corresponding increase in firm value may make more green building initiatives worth the investment.

The intangible benefits of green building initiatives may well provide a material benefit to clients, making such building improvements financially valuable to the company as a whole. However, it should be emphasized that this approach requires adopting a whole life cost analysis, incorporating operational costs as well as initial capital costs.

The study focuses on the relationship between green building and productivity. Productivity decay and synergy are also examined, together with ways of valuing productivity improvements. A valuation model is described and analyzed, and the authors propose future steps for the extension of the model to further illuminate the way forward for the construction industry and its clients.

Valuing Green Building (PDF, 2.66 MB) was published in the December 2011 issue of Insight, the monthly eJournal produced by the The International Society of Sustainability Professionals (ISSP). ISSP aims to improve the skills of sustainability practitioners through education, knowledge sharing and research.