Business continuity and the business case for sustainable commercial buildings

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This article examines the contribution that sustainable commercial buildings can make to these non-financial elements of the competitive advantage that is necessary for business continuity.

How can a sustainable commercial building contribute to my company's business continuity?

For any business to survive, it must continue to perform and be profitable in a competitive and changing environment. While the major cause of business failure is financial, it is apparent that competitive position may be eroded – even to the extent of business failure – by other factors, such as poor reputation, lack of brand recognition, inability to attract and retain quality employees, and the inability to attract and retain new customers and new business. This article examines the contribution that sustainable commercial buildings can make to these non-financial elements of the competitive advantage that is necessary for business continuity.

Traditionally, decisions in building projects have been cost and time-based, with a view to achieving short-term benefits and paybacks, while tending to overlook those non-financial factors that are critical to longer term business survival. Yet integrating the management of these non-financial issues – often classed as intangible assets – with the economic purpose of the company is important, and can be considered a 'constitutional requirement of the management of any profit-orientated company' (Schaltegger & Wagner, 2006).

There is growing awareness of the contribution that sustainable buildings can make to creating and maintaining value in intangible assets, which can, in turn, enhance a company's competitive position. Some of that value derives directly from the physical characteristics of a sustainable commercial building, while some may result from associated changes to organisational culture, behaviours, policies, structures or processes.

Business continuity factors

The table below, which is based on the matrix developed by the ASBEC Building Case Sub-committee, summarises business case factors that may influence business continuity, and indicates the industry groups that are impacted on by each of them.

Improved occupant productivity

While precise cause and effect is difficult to prove, there is a lot of anecdotal evidence that sustainable commercial buildings can contribute to improved productivity through better indoor environment quality, more efficient planning, and arrangements that encourage the generation and sharing of knowledge.

More information on this issue is available in the Indoor environment, productivity and sustainable commercial buildings article.

Whose business case benefits?

The occupiers of sustainable commercial buildings are the primary beneficiaries of improved productivity, because of its impact on employee productivity, health, retention and satisfaction. Building owners, developers, and mangers can also use this benefit to their advantage in creating long-term value, by using improved occupant productivity as a leasing feature and point of differentiation from other buildings. Long-term value can also be achieved by reducing occupant complaints, which may in turn contribute to the attraction and retention of tenants.

Improved corporate profile and community relations

Sustainable commercial buildings can provide branding, marketing and publicity benefits, leading to competitive advantage for companies, particularly those that take an early leadership position. Value is typically created by:

• living corporate values through the building asset
• enhanced marketability
• enhanced publicity.

Living corporate values through the building asset

Public organisations have always been accountable to the public for their licence to operate. However, the public, investors and clients are increasingly interested in the social and environmental performance of both private and public companies, and are increasingly demanding that their operations be more accountable and transparent. Buildings are the largest visual symbols of an organisation's corporate presence and culture, and can link into a company's sustainability profile (CABE & BCO, 2005), therefore contributing to brand recognition and the value of reputational assets.

Enhanced marketability and publicity

Case studies exist in America where developers have derived marketing benefits from free and unsolicited coverage in major publications because of their association with sustainability. In America, the Durst Organisation has received large amounts of free press in The New York Times and other media outlets for its Bank of America at One Bryant Park (Building Design+Construction, 2006, p.15).

In April 2007, Melbourne City Council's CH2 was featured in a segment on the ABC's show Catalyst in a segment entitled 'Council House Two - the eco-office block of the future', while companies such as Collier's International, Bovis Lend Lease, Kador Group, Szencorp, and NAB have all been publicised for their involvement in, or ownership of, sustainable commercial buildings (Southgate, 2007).

Some companies receive public recognition when their buildings achieve sustainability ratings under designated building ratings schemes, while others have received publicity from winning green awards (e.g. Banksia Built Environment Award).

Whose business case benefits?

All industry groups can benefit from their involvement in sustainable commercial buildings, through improved brand recognition and strengthening of their reputation as being socially and environmentally aware and responsible.

Ability to attract and retain employees

The ability to attract and retain employees has become a major imperative in the continuing success of Australian businesses. Yudelson (2006, p.234) highlights that this is becoming a critical long-term business continuity issue for many organisations as the baby-boom generation reaches retirement age, and terms it the 3R's of the new economy – recruit, retrain and retain. The so-called 'war for talent' has come about through a combination of an ageing population, the need for employees to have increasingly sophisticated interpersonal skills, and the shift from manufacturing to service industries.

Sustainable commercial buildings can contribute to business continuity through their ability to assist in employee attraction, motivation and retention, innovation, and knowledge creation and retention. For businesses, investing in human capital and knowledge may have short-term financial costs, but there is a long-term financial gain and competitive advantage to be achieved from being able to attract and develop talent.

As the baby-boom generation moves closer to retirement age, there is a smaller workforce of generation X and generation Y to fill their place, and it is predicted that by 2011, the Australian workforce will have transformed to include at least twice the current percentage of the more environmentally conscious generation Y workers (Colliers International, 2006). How to keep and attract these employees is an increasingly important facet of business planning, and sustainability can be an important consideration. The major Australian bank Westpac is the world leader in the banking sector in corporate social responsibility, according to the Dow Jones Sustainability Indexes. In a market briefing on sustainability benefits, the bank's CEO claimed that 'even taking a very conservative approach, the benefits from reducing our employee turnover over the past five years are now in the order of $50 million of avoided costs per annum' (Morgan, 2006).

Sustainable commercial buildings can play a part in attracting and retaining employees through providing healthy working conditions, by being visible symbols of sustainability, and by providing an inviting work environment that expresses organisational values beyond the pursuit of profit.

Whose business case benefits?

All industry groups have the potential to gain long-term value from the attraction and retention of top-quality talent.

Tenancy benefits

The business continuity of commercial building owners and developers is enhanced by their ability to attract and retain tenants and to reduce vacancy rates. A commitment to sustainability can contribute to both of these issues.

Ability to attract and retain tenants

It is becoming common practice for both government and private sector tenants to specify sustainability performance requirements for the space they intend to occupy (Davis Langdon Australia, 2007). Most government tenants are now encouraged to ensure that the building they select is at least a 4-star ABGR building, and many of the major accounting and consulting firms have adopted a similar selection criteria.

The Commonwealth of Australia's green lease schedule, released in September 2006, puts binding obligations on Commonwealth-owned and occupied premises, and in turn obliges landlords to obtain and maintain a 4.5-star ABGR (or equivalent performance standard) annually. The green lease schedule applies to new and existing premises of over 2,000 m² with a term of two years or longer (Wheeler, 2007).

Whose business case benefits?

Failure by owners, investors and developers to recognise this movement for improved building performance increases their risk of being locked out of these markets, and therefore risks their business continuity. An added benefit of meeting higher performance standards is that the quality of tenant may also be improved: the experience of Andrew Quade of the GPT Group is that a sustainable commercial building is more likely to attract tenants that respect sustainable outcomes, and to minimise the risk of attracting irresponsible tenants. Developers may benefit by being able to attract tenants and pre-sell buildings.

Responding to client demands

Companies that successfully manage their client relationships by aligning their performance with their clients' needs, strategies and values are more likely to be able to attract and retain clients, and so enhance their business continuity.

According to Suzette Jackson, of architects HASSELL, it is now rare for firms to receive a design brief that does not include a mention of sustainability goals. This increased demand for sustainable commercial buildings is being driven by changing corporate values, the market's growing awareness of compliance requirements, and by environmental issues such as climate change and water shortages, and is being facilitated by sustainability rating tools (Investa, 2006). Most large publicly reporting companies have ESD objectives and reporting requirements, and client demand is also being driven by organisations responding to their CSR responsibilities and accountability to consumers, investors, shareholders and the government.

In Australia, 76% of investors surveyed listed tenant expectations as 'the most significant issue' when considering sustainability (Matthews, 2006, p.9). In the same survey, investors also cited ABGR and Green Star ratings, achieving outgoings reductions, impact on rent, and impact on valuations as key sustainability considerations for investments. At this stage, legislation, data measurement and reporting were not noted to be of high importance.

In a survey of Australian investor sentiment, respondents indicated that sustainability is already having a significant impact on their investment decisions. All other things being equal, 56% of respondents indicated that sustainability would sway their choice between alternative investments. A further 28% indicated that they would be willing to pay more for a building with sustainability potential, and 24% believed that sustainability will be a critical issue within one year, while 76% considered that it will be critical within five years (Matthews, 2006, p.9).

Whose business case benefits?

All industry groups have the potential to gain long-term value and ensure their business continuity by being able to respond to the changing needs and demands of the market for sustainability and sustainability-related products, including sustainable commercial buildings. Service providers, such as designers, engineers and builders, can benefit by being able to offer a more comprehensive set of services than their competitors.

Ability to attract new business

Attracting new business is important to top-line performance and competitive advantage, and is consequently a major factor in business continuity.

Through involvement and experience in sustainable commercial building projects, individuals and organisations are beginning to build new competencies that lead not only to competitive advantage, but also open their business up to new market segments. Service providers, such as designers, builders and managers, can establish themselves as leaders in the field and gain 'first mover advantages' from selling their new solutions and innovations to other companies (Porter & van der Linde, 1995).

Impact on new business

A 2006 Australian survey found that more than half of designers (architects/engineers/designers) and builders expected 'some' to 'significant' increases in sales growth from sustainable (not specifically commercial) buildings. Owners were slightly less optimistic and only about 37% indicated they expected 'some' to 'significant' increases in sales. Members of the Green Building Council of Australia (GBCA) (all user groups) had higher expectations for their increase in sales relating to sustainable buildings, with 24% expecting 'significant' growth and 46% expecting 'some' growth (BCI & GBCA, 2006) (see the two figures below).

In a US-based study, 39% of respondents said that green building expertise bought in new clients, but only 11% said that this new business was a 'significant amount' of new business. Expertise in sustainability was seen as being helpful to client retention by 42% of respondents (see figure below).

Whose business case benefits?

All industry groups have the potential to gain long-term value and to facilitate their business continuity by the attraction of new business due to their involvement in sustainable commercial buildings.

References

Australian Sustainable Built Environment Council (ASBEC) (2006), Business Cases value factors, ASBEC Business Case sub-committee, unpublished.

Building and Construction Interchange Australia & Green Building Council of Australia (2006), Green building market report, Sydney: BCI & GBCA.

Building Design+Construction (2006), Green buildings and the bottom line, Oak Brook, IL: Building Design+Construction, Accessed 5 March, 2007, from Building Design+Construction website.

Colliers International (2006), Lifeblood: sustaining the value of Australian business, Sydney: Colliers International.

Davis Langdon Australia (2007), The cost and benefit of achieving green buildings, Accessed 1 May, 2007, from http://www.davislangdon.com.

Investa (2006), Sustainability report, Accessed from
http://www.investa.com.au/Sustainability/SustainabilityReport.aspx

Matthews, K (2006), Survey of investor sentiment: Australia fourth quarter 2006, Accessed 6 March, 2007, from http://www.joneslanglasalle.com.au/en-gb/research/.

Mills, E. & Lecomte, E. (2006), From risk to opportunity: how insurers can proactively and profitably manage climate change, Boston: CERES, Accessed 15 May, 2007, from http://www.ceres.org/pub/publication.php?pid=0.

Morgan, D. (2006), Sustainability market briefing: Chief Executives Officer's introductory comments, Accessed 28 May, 2007, from Westpac website.

Porter, M. & van der Linde, C. (1995), 'Green and competitive: ending the stalemate', Green and Competitive: Ending the Stalemate, 73(5), 120-34.

Schaltegger, S. & Wagner, M., 'Capturing the relationship between sustainability performance, business competitiveness and economic performance', in Schaltegger, S. & Wagner, M. (eds) (2006), Managing and measuring the business case for sustainability, Sheffield: Greenleaf Publishing.

Southgate, L. (2007), 'Better building blocks', The Australian Way: Qantas In-flight magazine, February, 58-61.

The Commission for Architecture and the Built Environment & British Council for Offices (2005), The impact of office design on business performance, London: CABE & BCO, Accessed 1 March, 2007, from http://www.cabe.org.uk/AssetLibrary/2191.pdf.

Wheeler, C. (2007), The Commonwealth's green lease schedule and policy in practice, Paper presented to Melbourne Forum, Melbourne, Accessed 10 May, 2007, from http://www.airah.org.au/downloads/MelbForumApr07_CW.pdf.

Yudelson, J. (2006), Marketing green buildings: guide for engineering construction and architecture, Lilburn, GA: The Fairmont Press Inc.