"I'm optimistic about how the green building movement is becoming more normal so real estate is now saying look, we need to build minimum green building standards, this isn't about just laying the building green, this is about making sure that green is integrated across the whole building portfolio," Deloitte partner Guy Battle, an environmental engineer who is responsible for the firm's carbon footprint reduction and sustainability strategy, told "Globes" in an interview.
"We've found that if you ask yourself where the market will be in five years' time or even ten years' time, will the market be greener, will the market be demanding architecture and building for high performance, then of course the answer is yes. So if you are designing a building now but meet the lowest standards, then the chances are that your building in five years' time will have a lower value."
Battle has been a partner at Deloitte since it acquired his company, dCarbon8, in 2010. Battle founded dCarbon8 in 2006 to provide carbon management and sustainability solutions for companies. In 2007, Battle was partly responsible for the establishment of Planet Positive, the new international standard for measuring and managing carbon.
"Efficiency and creativity"
In his career, Battle has been involved with innovative high-profile projects that integrate environmental and low energy consumption principles. They include the 2012 London Olympics IT planning strategy; Manhattan's planned Freedom Tower, intended to be built on the site of the World Trade Center, destroyed in the September 11 terrorist attack; developing a carbon management plan for Abu Dhabi's carbon-neutral city Masdar City; the new headquarters in Saint Petersburg for Russian energy giant, Gazprom; Microsoft's UK headquarters; advising Marks & Spencer on developing a carbon footprint-free product line; and building the Porter School of Environmental Studies at Tel Aviv University.
Battle says, "When we started off looking at green buildings 15-20 years ago we thought it was all about the energy, and if you remember, the energy costs 15-20 years ago were really low, and so you might look at the costs of energy for an organization and it would be less than 1% of the costs of the company, and the vast majority of costs were within salaries and payment for people. And then we realized there was a very strong link between energy efficiency, sustainability and productivity, and that's where we really made a big jump. So we concentrated on increasing the wellbeing and the climate performance of the building, so the people that we designed it for have actually improved their productivity, and if you could just improve productivity by 10% then you are making a significant contribution to the overall performance of your organization.
"Five to ten years ago it was all about productivity and well placed performance, but now, in the past two years, as we've seen the great financial crash, energy prices have increased by 25% in the UK. Energy is now as important as productivity and wellbeing in the work place."
Battle added, "A lot of organizations are recognizing that the buildings they occupy are a reflection of their corporate values. So if that company thinks that they're a green or responsible business, they want to be in a building that responds or reflects that sort of sense of responsibility to the world and to society and so there is that whole issue of brand now becoming much, much more important, so you know there is a debate about organizations moving into buildings that look green and are green because it's good for their brand, and is good for their people, and then organizations are getting involved in green buildings because of staff potential issues - less people are leaving because they like to be in companies that are responsible and also their place is a better place to work and all these things come together in what is called green building."
"Blowing up the vision"
How important is corporate responsibility for sustainability?
Battle cites the example of Microsoft Corporation's (Nasdaq: MSFT) UK headquarters in Twycross, near Leicester. "It is a really low energy building, it is naturally ventilated, it is day lit, we used a borehole for all the toilets, we had on-site black water treatment, so there's no sewer connection, all water is treated on site, black water, and then the water finds its way, after being treated, into a big lake, at the bottom of the site. It's a very clever building and it is now 10-12 years old.
"I remember that when we opened the building, we were very excited, the building was 50% lower energy than any other building that was being built at the time and then all the young professionals arrived, who developed software, 18 year-olds, that drove in their Ferraris and all the smart cars and basically in one month they blew everything we sell, everything we said, and that serves a very important story - we can do a lot with our buildings, but if the organization doesn't really tackle people as well, then you know, I'm not going to say we might as well pack up and go home, because it is the wrong attitude. We need to do our bit and the companies need to do their bit as well, how the people travel from and to work, the whole sense of what makes the responsible way of getting to business, it's fundamental."
Ten green buildings in Israel
Green building is very rare in Israel. Only in July, did the Ministry of Environmental Protection and Standards Institution in Israel announces comprehensive green building standards that comply with international standards. The standards have five levels, which upgrade and expand the previous Standard 5281. The standards are neither statutory nor binding, however.
143 projects have been registered under the green standards to date, of which 1.5 million square meters (70% of the total space) is for residences, and 27% is for office space. 125 projects were registered under the previous standard and 18 under the new standard.
According to the Standards Institution, only eight office buildings and two residential buildings have received Israel's Green Building standard.
Why hasn’t green design and building taken off in Israel?
"I think there are a number of reasons. Actually, the development of the real estate industry in Israel is very similar to how I saw real estate developing in the US. In the US, buildings are seen as a product. And here as well, it is all about how to maximize the return on your product, and usually that means the lowest costs and highest rents. But the lowest costs are the driver, so a lot of things are built in a relatively low quality, expecting a rent that might not be as high as possible, so it is a reflection of the immaturity of the real estate market place and also a reflection of demand in the market place, and as things are changing and also the other key issue in Israel is there has been a massive lack of regulation.
"I mean you've only just got some building regulations that seem to work. These are new, whereas in the UK, we've had green building regulations for 5-10 years, and the US has had regulations for five years. You haven't had a lot of regulation around and as a result, developers built just enough to get passed the regulations and no more, whereas in the UK, for instance, the regulations are demanding that by 2016 all buildings must be zero carbon.
"So these are massive differences in the market base, and even now in the UK building regs will deliver buildings that are probably 50% more efficient than they are in Israel. The building regulations in the UK are significantly tougher and stronger, because the UK government recognized that you need a carrot and stick driver. The stick being the minimum standards that buildings need without making the costs of development too expensive. And then you need the carrot that offers the financial incentive or the opportunity and so within our planning regulations we have a lot of opportunities of the expansion of buildings if you've got a green building, or we have financial instruments to help drive sustainability in the market place as well. And that's what Israel is being lacking."
The value component
Battle says that one of the main drivers for instituting green building is the value component. "Developers are saying, we need to invest to on the basis that we want to protect our asset, we want to reduce the rate of depreciation in our asset through the long term - 5-10 years. So it's becoming much more normal to invest in green building, so you may have additional commitment and so we're finding that the paste and the momentum is building and across Europe we have enormous challenge of reducing emission by 80% by 2050 and this is a very large, big challenge.
"And given that buildings are responsible for 40-45% of carbon dioxide across Europe, if the building industry doesn't start making serious changes now then we're not going to meet the targets. So we're seeing that a lot of new regulations are coming into place, and that regulations are not only around the operation of carbon, as the carbon of lighting, heating, cooling, it's also around the issue of materials, so we're finding new legislation coming out in Europe, so we've not only got to operate our building efficiently, we've got to build them out of low carbon and of carbon efficient materials."
How much does green building add to the construction cost?
"It depends which country you're in. In the UK, most of the buildings that I've worked on cost no more, same price and we're getting a really good green building, that's because the cost base for building in the UK is slightly higher than in Israel. But I know that in Israel to get a gold standard you are probably looking at 10-15% extra investment, and to get platinum you're looking at 20%, which is also the evidence that's come out of the US. That's because in both the Israeli and the US markets, the cost of building is quite tight, whereas in the UK there's quite a lot of fat in the cost. What we've done in the UK is rather than increase price, we've reduced one area and spend more money on another area so it's shifted the costs around and I think this is the way this market's going to go.
"Yes, in the short term green building is going to be slightly more expensive, but actually in the long term it will become the norm way and it will suddenly cost no more companies that’s what people will have to do to get the right rent."
Battle adds, "We haven’t found any differentiation in the UK. The evidence that has come out of the States is that some clients are prepared to pay more because they can see value, and the value is in reduced running costs and also increased productivity of the work force as I have mentioned earlier. I think elsewhere it's the decision of the developer whether to pass the cost on to the rent, it doesn’t have to cost more. It's a market supply and demand issue really.
"In Israel, the market it still immature. There's an opportunity for the right building to begin to charge a premium, but I think you need to test that very, very carefully. I think that developers who go down that route need to develop or produce a very a good financial case for charging higher rents and that financial case will be based on low running costs and productivity, but they will need to show over a lease period of 10-15 years that there is a financial return to the organization for paying slightly higher rent. But it will be a brave developer to charge 10-15% per more at the moment in Israel, because I am not sure the demand is there. Things are changing, but the decision of investing in green building is based around getting accelerated space outtake , but it is also about the protection of the long term value of the asset itself, it will depreciate at a lower rate and that is a key issue for buildings.
Should green building standards be binding?
"My view is yes, because for me it's obvious. When you're investing into something you tend to invest as little as possible to get as much return, and if the regulations are low then you're going to invest just enough to meet those regulations, but if the regulations are higher, and the green building regulations across the whole industry are, then everyone will invest more because they have to.
"But I think regulators must be very careful in what they mustn't do - they mustn't raise the standards, the expectations so high that it prevents or dissuades people from investing. There is a fine balance there, in any market place. It's about finding the balance between over regulation and under regulation. It's not easy.
"I think actually Israel has been under regulated for many years, and it's the right thing to set the minimum standards, because in the UK we had minimum standards, we had building regulations, we don’t even have green regulation, we have building regulations, but they are fairly green. They demand a significant production of energy. We have carbon standards, we have water standards and many different standards in our building regulations.
"In this country it is slightly different but I think they should be compulsory, but again they need to be measured. One has to recognize also that this is a journey. Probably Israel is 5-8 years behind the US and the UK in terms of green building and design and you can't just suddenly jump because the market place won't cope with it. It needs to be made by steps. We know where we want to be - all buildings should be zero carbon full stop, and the UK should be zero carbon - all commercial buildings by 2019, all residential, housing buildings will be zero carbon by 2016, so that's where we want to be. Israel needs to be there as well, and probably 5-8 years behind that. So Israel should be looking at zero carbon commercial buildings by 2025, and plot and plan that route to the journey, and that gives you almost 15 years to plan that out."
Published by Globes [online], Israel business news - www.globes-online.com - on November 6, 2011
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