The business context of sustainable commercial buildings

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This article provides an introduction to sustainability in commercial buildings and outlines the drivers, barriers, benefits and risks for implementing sustainable initiatives and practices into commercial buildings and the commercial property sector.

Summary

This article provides an introduction to sustainability in commercial buildings. The concepts of sustainability, corporate responsibility and triple bottom line are explained. The nature of a 'commercial building' is defined in terms of classes, according to the Building Code of Australia. The range of stakeholder groups involved in the planning, design, development, construction, ownership, financing, management and occupation of commercial buildings is discussed, and their roles and interests are defined. The economic, social, environmental, political and legislative drivers for implementing sustainable practices into commercial buildings and organisations are outlined. The benefits to stakeholders of incorporating sustainable initiatives and practices into commercial buildings and the commercial property sector are explained. The barriers to the uptake of sustainable practices in the Australian property industry are outlined and potential risks that are associated with the incorporation of sustainability initiatives into commercial buildings are identified. The sustainable property agenda in Australia is discussed; where it originated, where it is currently, where it is heading in the future and how we compare to the international scene. The response of government and industry to the sustainability agenda is outlined. Finally, links to sustainability tools and sustainability organisations and associations are provided, along with a list of references and resources.

Definitions

What is sustainability?

The term 'sustainable' in the Australian commercial property industry can be used to describe green developments, buildings and organisations. Sustainable development is the framework through which sustainability is delivered and driven.

The best known and internationally accepted definition of sustainable development comes from the 1987 Brundtland Report, which defines sustainable development as 'development that meets the needs of the present without compromising the ability of future generations to meet their own needs' (WCED, 1987, p.43). 

Australia uses the term 'ecologically sustainable development' (ESD), which is defined in the 1992 National Strategy for ESD as 'using, conserving and enhancing the community's resources so that ecological processes, on which life depends, are maintained, and the total quality of life, now and in the future, can be increased' (DEW — formerly DEH, 1992, part 1).

Sustainability is achieved through attaining a balance between inter-dependant social, environmental and economic factors. In order for a development, building or organisation to be considered sustainable, management and operations practices must be financially viable, detrimental environmental impacts must be minimised or eliminated, and social issues and stakeholder engagement must be enhanced. Most professional organisations associated with the built environment have developed policy positions on sustainability. These include Engineers Australia, Facilities Management Association of Australia, and the Royal Australian Institute of Architects (see below).

Sustainability can be assessed in a number of ways. The environmental component of a commercial building's sustainability can be measured using environmental assessment tools, such as the Australian Building Greenhouse Rating (ABGR) — which is part of the National Australian Built Environment Rating Scheme (NABERS) — and/or the Green Star scheme. However, these tools do not assess the social or economic aspects of sustainability. Corporate social responsibility and the triple bottom line approach are methods and approaches attempting to address this imbalance.

Corporate social responsibility (CSR) is closely aligned with the principles of sustainability, and seeks to attain a balance of economic, environmental and social outcomes. The concept of CSR applies to organisations and their duty of care and responsibility towards all of their stakeholders and the environment whilst undertaking their business activities and operations. These stakeholders can include shareholders, staff, customers, clients, suppliers and the local community.

The World Business Council for Sustainable Development (2002, p.6) proposes that 'corporate responsibility is the commitment of business to contribute to sustainable economic development, [by] working with their employees, their families, the local community and society at large to improve their quality of life'. Similarly, Business for Social Responsibility (2001, paragraph 1) states that corporate responsibility generally refers to business decision-making that is linked to ethical values, compliance with legal requirements, and respect for people, communities and the environment.

With the growing awareness of global inequities, there is increasing social pressure for organisations to behave ethically and to be accountable for social outcomes. This comes in the wake of several industrial accidents (e.g. the Chernobyl nuclear accident and the Exxon Valdez oil spill), highly publicised business failures (e.g. Enron), and examples of organisations failing in their duty of care (e.g. the James Hardie asbestos law suit). These incidents can potentially damage a company's reputation and consequently affect their value (see snapshot study below on corporate social responsibility).

Traditionally, the performance of organisations has been measured according to the financial bottom line. The triple bottom line (TBL) approach expands the criteria for performance measurement to include three bottom lines: economic, social and environmental performance. TBL reporting takes into account social aspects (opportunities to engage with community, staff/community/stakeholder benefits, productivity gains and tenant retention), environmental aspects (environmental impacts, environmental benefits and environmental opportunities) and economic aspects (life cycle costing, returns, lease-ability, valuation and tax concessions). The phrase 'triple bottom line' was coined by John Elkington in 1994 and outlined in his book Cannibals with forks: the triple bottom line of 21st century business.

The sustainability performance of organisations can be determined through their TBL framework, the results of which are usually reported in their annual sustainability report. In 1997, the Global Reporting Initiative (GRI), an official collaborating centre of the United Nations Environment Programme (UNEP), was established to develop and disseminate globally applicable sustainability reporting guidelines. Many organisations have based the framework for their TBL/sustainability reports on the GRI guidelines. Many Australian companies, such
as Landcom, Lend Lease and Stockland, have begun reporting their TBL performance in their annual sustainability report.

A number of publicly listed companies participate in a corporate responsibility index (e.g. FTSE4Good, Dow Jones Sustainability Indexes), which rates companies based on a range of criteria relating to their environmental and social performance.

Definition of a commercial building

The Building Code of Australia (BCA, 2001) classifies building types as follows:

Class	Use
1a	Single dwelling or one or more attached dwellings
1b	Boarding house or guest house <300m² or 12 persons
2	Sole occupancy units
3	Residential boarding house, hostel, motel, residential part of aged care, school or health care
4	Single dwelling in Class 5-9 building
5	Office building used for professional or commercial purposes
6	A shop or other building for the sale of goods by retail or the supply of services to the public
7a	Car park
7b	Wholesale warehouse or storage facility
8	Laboratory or factory
9a	Public buildings - healthcare, assembly, aged care
9b	Assembly building
9c	Aged care facility
10a	Non-habitable private garage, shed, carport
10b	Swimming pool, mast, antenna, fence, retaining wall

Residential buildings are defined as Classes 1-4. Most commercial office buildings fall into in Class 5, while other types of commercial buildings are located in Classes 6-10 (e.g. retail, warehouse).  

The definition of commercial buildings for the purposes of Your Building includes offices (Class 5), retail facilities (Class 6), hotels (Class 3) and mixed-use buildings with retail and/or office functions in conjunction with multi-unit residential (mixed classes).

Who are the stakeholders of sustainable commercial buildings?

A range of stakeholders are involved in sustainable commercial buildings. These are the people or organisations that participate in the planning, design, development, construction, alteration, operation, management, maintenance, occupation, ownership or sale of commercial buildings. These stakeholders could include architects, lawyers, building owners, builders, ESD consultants, engineers, furniture suppliers, cleaning contractors, investors and tenants. In addition, there are the social stakeholders of commercial buildings. These stakeholders have an interest in ensuring that socially sustainable outcomes are achieved; for example, that a commercial building contributes to meeting the needs of its surrounding community, promotes a healthy working environment, and is aesthetically in keeping with its neighbourhood. Social stakeholders may include the local community, community groups, government bodies (Commonwealth, state and/or local) and building occupants.

For the purposes of Your Building, stakeholders have been categorised into six different stakeholder groups, which were determined as a result of a stakeholder engagement process that included workshops and surveys. It is anticipated that the different stakeholder groups will have different motivations for pursuing sustainable outcomes. They may also require varying levels of technical knowledge, and will be seeking a range of detail that is particularly pertinent to their business activities and processes. The stakeholder groups are defined below.

Designers

This group encompasses design professionals who are engaged in the process of designing and planning the development or refurbishment of commercial buildings. This stakeholder group includes project managers, planners, architects, ESD consultants, engineers, interior designers and building designers.

Developers

The developer stakeholder group consists of developers responsible for the development of commercial buildings from the design phase through to project completion. The group comprises people from a range of backgrounds, development companies that range in size, as well as organisations that intend to own the building for a short or long term. Developers may have other interests in the building life cycle, such as management after completion.

Builders

The builders group is made up of those people responsible for the actual construction and commissioning of commercial buildings. It includes builders, contractors, tradespeople, and materials manufacturers and suppliers.

Managers

This group consists of people who are involved in the management and operation of commercial buildings, including those responsible for policy, regulation and benchmarking systems pertinent to commercial buildings. This stakeholder group includes facilities managers, building operators, cleaning contractors, regulators (e.g. policy makers and approval authorities) and rating agencies.

Occupiers

This group is made up of people who occupy commercial buildings during their operational phase and those who represent their interests. This stakeholder group includes building tenants and occupants, as well as tenants' agents and advocates.

Owners and investors

This group consists of people or organisations who own commercial buildings or commercial property portfolios, those who are involved in the financing and valuation of commercial property, and those who represent their interests. This stakeholder group includes building owners, property trusts, owners' representatives, corporate real estate (CRE) managers, financiers, cost consultants, and funds managers and valuers. 

Drivers for sustainability in the commercial property sector

There are a number of different economic, social, environmental, political, and legislative drivers in Australia for the implementation of sustainability practices into commercial buildings. Some of these key drivers are outlined below.

Climate change

The world is facing a number of climate change issues, such as global warming, varying levels of access to fresh water, increased storm or adverse weather intensity, and a potential rise in sea levels. Australia, in particular, has water shortage problems related to drought, and peak electricity demand problems (associated with inadequate infrastructure to service demand from increased installation of air-conditioning etc.), which could leave buildings temporarily without power or sufficient potable water. Developing sustainable buildings improves the ability of stakeholders to prepare for future climate change issues, and will reduce the impact of future increases in utility costs (such as energy, water and waste disposal) and potential taxes (such as carbon taxes). Sustainable buildings with renewable energy generation technology will benefit from carbon trading schemes or from increased returns on their energy supply in the future. Sustainable buildings that are energy and water self-sufficient provide resource security for the owners and occupants, as well as a buffer against rising utility costs (including carbon costs). The buildings will be worth more and cost less to run because they contribute less to greenhouse gas emissions, as well as having no infrastructure demand, such as peak energy. Some insurance agencies in Europe are now offering preferential treatment to green building owners, and this could occur in Australia in the future. Indeed, some organisations, such as the Insurance Australia Group, have completed their own assessment of the regions in Australia that are most susceptible to climate change.

Future-proofing

Future-proofing buildings involves making the building's design flexible, to allow for future adaptation to changing needs. This adds immediate value to the building, maintains useability, prolongs the building's lifespan and enhances the building's long-term value. Examples of flexible design include anticipating future requirements through design for deconstruction/disassembly, provision of space for new technologies, or use of relocatable partitions.

Social concerns

There is a growing awareness in the industry and community about climate change and the ability of the planet to sustain human endeavour (e.g. limitations of food supply and access to potable water resources). Increasingly, people are becoming motivated to integrate sustainability into buildings due to personal concerns for a more sustainable future. Reducing the total ecological footprint can be a social driver for both owners and tenants to construct and occupy green commercial buildings. Sustainable buildings reduce their impact on the environment (ecological footprint) by minimising their consumption of resources such as energy, water and materials. The refurbishment and recycling of existing buildings has the most potential to reduce the ecological footprint through re-use of materials, façade, structure, services and building components.

Legislation

Sustainability is currently being integrated into local, state and Commonwealth legislation, such as the Building Code of Australia (BCA). Obtaining planning permission will increasingly require the adoption of sustainable design, construction and management practices. Developing sustainable buildings now will help to future-proof them against upcoming sustainability regulations. It is expected that sustainability legislation will become increasingly stringent in the future.

Corporate responsibility

The development and construction of sustainable commercial buildings can enhance an organisation's corporate reputation and community profile, as it is a demonstration that the organisation is concerned about the environment, social impacts, the health of workers and economic viability.

The triple bottom line (TBL) reporting of an organisation's sustainability performance demonstrates corporate responsibility and provides a degree of public disclosure and transparency, potentially improving corporate image amongst the public and stakeholders. In addition, the board and/or directors of organisations have a responsibility to ensure that their assets are profitable in the long-term and future-proofed against potential risks. A number of organisations have committed to TBL reporting and public disclosure of the outcomes, with many seeing the value of their organisation increase.

Another driver for businesses to implement sustainable practices is the attraction and retention of employees, particularly from young generations of workers, who are increasingly socially aware. This increasing social awareness amongst employees is generating an underlying level of demand for organisations and workplaces that operate responsibly.

Tenant demand

Various levels of government in Australia (state, Commonwealth and some local governments) are leading by example, applying stringent sustainability standards to office accommodation that they occupy. There is also increasing demand from tenants more broadly for green leases, more efficient buildings and better indoor environment. This demand will have a potentially large effect on the commercial building sector (Reed & Wilkinson, 2006).

International pressure

There is growing pressure from the international community for each country to be a responsible global citizen, and Australia could potentially be excluded from supplying goods and services to more sustainability-focussed countries if it does not meet their environmental standards. Australia is one of the only countries, besides the US, that has not ratified the Kyoto treaty. Many other countries are actively implementing large-scale sustainability programs and initiatives to reduce both their greenhouse gas emissions and their impact on the environment in order to reach their targets. Constructing green buildings will significantly contribute to the reduction of emissions and may be used to demonstrate to the international community that the Australian building industry is taking climate change seriously.

Benefits of sustainability in the commercial property sector

An increasing number of organisations and companies are incorporating sustainable practices into commercial buildings. Some of the benefits of this are outlined briefly below — more detail is available in the business cases section of Your Building.

Development of a long-term asset

Sustainable buildings typically have a longer building life than conventional buildings, particularly if they have been flexibly designed in order to accommodate future changes. Flexible design features and control systems include modular design, design for disassembly, pre-fabricated elements, relocatable partitions, switch-less lighting systems and individual workstation thermal comfort control (e.g. air-conditioning and heating). A prolonged building life, reduced life cycle costs and the ease of end-of-life disassembly associated with a sustainable commercial building all have long-term financial benefits and the potential to generate higher returns for the owner (GBCA, 2006). There is also growing evidence that future-proofing buildings will improve capitalisation rates and rental returns, as the effect of depreciation and obsolescence is reduced over time.

Lowered operating costs

The combination of well-designed passive building fabric integrated with active efficient environmental technology and building services reduces the demand for energy and water, thereby lowering operating costs for the tenant and/or owner.

Reduced risk and liability

Commercial buildings that contain initiatives to improve indoor environment quality (IEQ) (e.g. natural daylighting, low volatile organic compounds, formaldehyde minimisation, more access to views for occupants, and localised control over the environment, noise and air quality) can mitigate the risks to workers' health from poor indoor air quality and poor indoor environment, which is sometimes referred to as sick building syndrome. There is some evidence that legal liabilities may be incurred by building owners as a result of poor indoor air quality (IAQ).

Improved worker productivity and ability to attract and retain tenants

Initiatives to improve the indoor environment quality (IEQ) of buildings contribute to improved occupant health, a reduced number of sick days, and an organisation's increased ability to attract and retain staff. Several studies have established links between improved IEQ and increased worker productivity. Fisk and Rosenfeld (1997) have conducted studies where sample calculations indicate that the potential financial benefits of improving indoor environments exceed costs by a factor of 18 to 47. Overall, tenants are less likely to leave a well-designed green building — this reduces employee churn and minimises the time that a building is vacant. This provides a financial benefit to building owners and tenants, who may in turn be prepared to pay a rental premium in order to occupy a green building.

Increased ability to win government work and attract government tenants

Many government agencies require that their office accommodation meets specified sustainability standards. For example, they may set a minimal threshold using accredited Green Star and/or ABGR ratings. Developers wishing to develop office accommodation for these government bodies must adhere to these standards and guidelines, or risk losing a potential tenant. Some government agencies also require prospective builders and contractors to demonstrate their environmental performance credentials as part of the tendering process. Accordingly, those builders with demonstrated knowledge, skills and certification in sustainable practices are more likely to win the tender. Building owners wanting to lease office space to government agencies must also adhere to their sustainability standards and guidelines.

Market differentiation

Choosing to develop or lease a sustainable commercial building, or to undertake a sustainable tenancy, enhances an organisation's marketability and promotes its corporate responsibility. It is a market differentiator for environmentally aware and discerning clients and consumers. Buildings featuring sustainability initiatives can generate publicity and media interest. Green buildings are beginning to be accepted as the 'norm' and it will become increasingly difficult in the future for non-green buildings to achieve premium rental rates.

The involvement of design and building professionals in the development or refurbishment of sustainable commercial buildings increases their knowledge and skills, and their profile in the industry, thereby increasing their ability to win work in this rapidly expanding business sector. Knowledge of sustainable design and construction techniques gives designers and builders a link to like-minded industry professionals, as well as a competitive advantage in the marketplace.

Potential capital cost savings

The incorporation of sustainable design and technology initiatives in a commercial building may lead to capital cost savings for the developer, through the reduced need for space normally required for traditional materials and building services technology. For example, smaller plant rooms may be possible due to more efficient building performance and the downsizing of the plant itself.

Capital cost savings for the developer can potentially be achieved through fiscal incentives and participation in government grant/funding schemes that offset some of the capital costs of environmental technology (e.g. photovoltaic, solar hot water). Brisbane City Council has an incentive scheme for developers where their infrastructure contributions are discounted if they incorporate a number of environmental initiatives. There are a number of government agencies who operate trading schemes, such as the Commonwealth's Mandatory Renewable Energy Target (MRET), [NSW Renewable Energy Target (NRET)|http://www.deus.nsw.gov.au/Publications/NRET Explanatory Paper FINAL.pdf], Victorian Renewable Energy Target (VRET) and NSW Greenhouse Abatement Certificate (NGACS).

Barriers to sustainability in the commercial property sector

The various sectors that make up the Australian property industry have significant potential to influence the development of sustainable commercial buildings at all stages of the project life cycle: that is, planning, design, construction, operation, management, occupation, valuation and procurement. Despite relatively high interest in sustainable development amongst property industry members, a number of barriers still remain that need to be addressed and overcome. Some of these barriers are outlined below.

Lack of industry knowledge and skills shortage

There is a general lack of knowledge in the Australian building industry about sustainable design, construction, products, materials and technology. Architects and engineers do not typically design and produce integrated sustainable building fabric and building services solutions. For example, sustainable buildings can be more complex to run, resulting in a need for skilled maintenance and facilities management. There is a risk that builders and contractors may not be familiar with the installation of some sustainable technologies, materials or innovative construction techniques, which could lead to poor construction, operational inefficiencies and delayed construction timeframes. This perceived increased risk to builders and suppliers can lead to increased premiums in excess of standard market prices.

Lack of knowledge sharing

There is a general lack of knowledge sharing between the groups involved in commercial buildings. This is often referred to as the 'silo effect', as the parties involved have a specific body of knowledge concerning their own activities, which is usually limited to a particular timeframe within the development process and is not often shared with other parties involved in earlier or later stages of development. For example, in the development of a new commercial building there is little or no communication between the design team and building managers and tenants. Designers, such as architects and engineers, tend to be involved in the design process up until the end of the construction period, whereas managers and tenants assume occupancy post-construction. As a consequence, the building may not be operated, managed and maintained by the building managers and tenants as the design team envisioned, leading to operational inefficiencies and, potentially, a greater impact on the environment. There is a lack of accountability of designers for end-use performance. Often there is no feedback loop that allows a comparison of predicted performance and actual performance. Furthermore, without knowledge sharing across the different life cycle stages, decisions made at the design stage may not be appropriate for the building's intended purpose or the needs of future occupants. This may affect the future performance of the building.

This problem is gradually being overcome in the industry as participants in the development and/or management of sustainable buildings are keen to market their achievements and share some of their experiences. It is also being addressed through the increased use and acceptance of rating tools, such as Green Star (which has a credit that requires designers to produce a user/operator guide for the building during the design stage) and ABGR (which requires performance monitoring, commissioning and finetuning to be undertaken after completion).

Split incentives

Often the operators of a building are not the same group responsible for the financing, development, design and construction of the building. The potential higher capital costs of sustainable materials and technology may lead to reduced return on investment for the building owner, developer or financiers if the building is to be on-sold, unless the market starts to consciously value green buildings. There is a split incentive in that the owners can pay to install a more sustainable energy plant and the tenants receive the savings. 
The new owners or tenants of the building will benefit from the increased efficiencies, improved occupant performance, and the environmental and social benefits of installing sustainable materials and technology. Whole-of-life analysis and life cycle costing within the Australian property industry will track the benefits of such investment over the life of the building, helping to overcome the barriers to producing sustainable commercial buildings that currently face developers.

Increased capital costs of materials, products and technology

The Australian property industry has traditionally used a 'least first cost' method as its preferred procurement strategy, meaning that materials and technology are primarily selected by their initial capital cost and not the other benefits that they may provide over the lifetime of the building. For example, double glazing is often discounted in favour of single glazing due to its lower initial short-term cost, meaning that the thermal benefits and energy savings of double glazing over the long-term are not accounted for during the life of the building. Some sustainable materials and technology may have a higher up-front cost for developers than conventional products that do not have the same environmental and social benefits. However, the potentially higher up-front cost of sustainable technology can be significantly offset by the amount of resources and costs (e.g. energy and water) saved during its long-term operational life, as well as through increased rental returns. As more people purchase sustainable products, materials and technology, and as these become more widespread, the capital costs will become lower.

Inconsistency of government standards

A barrier to developers of sustainable commercial buildings can be the potential delays to their planning approvals, due to inconsistent government standards pertaining to sustainability. Governments have an important role in encouraging the market to embrace sustainability, through leadership, guidance and legislation. However, there are often inconsistencies in policy and guidelines, as well as contradictory requirements at the various levels of local, state and Commonwealth government. The most common problem in the property industry seems to be obtaining approval for sustainable water technologies, such as rainwater harvesting and grey water recycling systems. The lack of accepted accreditation and certification programs for these systems and products hinder the granting of approvals. For example, the grey water system at 40 Albert Road, South Melbourne had to be disconnected for four months while three different jurisdictions argued over responsibility for certifying the system. There can also be local government council regulations that do not show an understanding of green building or allow for the benefits of green buildings. For example, the reduction of a building's car parking allocation below local council requirements is often not permitted, even when a sustainable building incorporates bike racks, allocates spaces for small cars and encourages the use of public transport by tenants (see snapshot study — Excess car parks and council regulations). This can create delays in obtaining approvals.

Outdated valuation techniques

The environmental and social benefits of sustainable buildings are not sufficiently understood or recognised in the current Australian property market. This also applies to the commercial benefits, such as future-proofing or employee retention. Consequently, prospective buyers do not place a value on these benefits and building owners do not profit from improved sale prices, lease structures or rental rates. This is now slowly starting to change. The inclusion of ABGR and Green Star into the Property Council of Australia's quality matrix and into government tenancy requirements has started to have an impact on capitalisation rates. Furthermore, the integration of life cycle costing into the valuation process would significantly overcome this barrier, as the operational savings and other benefits of sustainable products, materials and technology would be accounted for over the long-term, not just the up-front capital costs. For example, the effect on income and expenses could be reflected in a ten year discounted cashflow, which is commonly used in the valuation industry.

Lack of environmental labelling

The lack of third-party quality assurance of so-called 'environmentally friendly' building materials is a barrier to their integration into commercial buildings. There are many products, materials and technologies available that are marketed as 'green'. It is difficult for designers wanting to specify these products in buildings to cut through the greenwash and determine their true environmental credentials. Increasingly, material manufacturers and suppliers are undertaking the process of eco-labelling and certification (e.g. Good Environmental Choice label) so that their products are independently quality-assured and recognised as being eco-preferred relative to comparable products.

Building rating tools also suffer from this issue, with claims of greenwash being levelled at various rating tools and systems. The biggest current hurdle is the integration of the design tools (e.g. Green Star) with performance measurement tools (e.g. NABERS and ABGR). Until the loop is closed between design intent and actual delivered performance, the market will be sceptical that ratings are marketing tools, rather than just a measure of the inherent value added.

Lack of understanding of rating tools

Many stakeholders in the Australian property industry do not fully appreciate the differences between rating tools; what sustainability aspects they cover, at what stage of the building's life cycle they are used, whether they predict performance or assess actual performance, or the nature of the accreditation/certification processes. This lack of understanding is a barrier to the uptake and implementation of these rating tools.

Rating tools, such as Green Star, ABGR and NABERS are explained in detail in the performance assessment section of Your Building.

Risks associated with sustainability in the commercial property sector

Sustainability is a relatively new concept in the Australian property industry, especially in terms of perception of commercial property, where the main priority is usually to increase financial returns and decrease costs. Inherent in new trends are potential risks that generally lessen over time as the concept becomes more familiar, as lessons are learned, and as methods, processes and techniques are improved. Some of the perceived risks that come with the incorporation of sustainability initiatives into commercial buildings are outlined below.

Unpredictability of costs

Due to the lack of familiarity and knowledge amongst quantity surveyors, valuers and the Australian property industry of the capital costs, operational costs and paybacks associated with sustainability initiatives, it can be difficult to calculate the required capital expenditure and the predicted operational savings for building owners and developers. This lack of understanding and implementation of life cycle costing can lead to inaccurate budgets and potential cost blow-outs.

Potential failure of sustainable materials, products and technology

Sustainable buildings can be more complex to operate and require higher levels of technology integration. The installation of sustainable materials, products and technologies can potentially increase their risk of failure, particularly if they are innovative or experimental systems that have not been in the marketplace very long and there is a lack of market familiarity. The risk is potentially greater if the product originates from overseas and has not been thoroughly tested and proven under Australian climatic conditions.

Potentially increased liability

The incorporation of sustainable materials, products and technology into a commercial building can potentially increase the assumed risk and liability of the building owner, if a product or technology does not function as envisioned. For example, if a building is installed with a system that collects, stores and recycles water for re-use, the responsibility for water quality transfers from a water utility company to the owner of the building.

Potentially longer timeframes

The sustainable design and integration of innovative materials, products and technology into the building fabric and services can potentially increase design and construction times as designers and builders become familiar with new design techniques and technology. The take-up rate of sustainability can also be extended due to the slow dissemination of information to various stakeholders and their respective bodies, as well as by poor record-keeping with respect to day-to-day energy efficiency.

Unpredictability of climate change impacts

With global warming and the greenhouse effect becoming more of a reality, the potential impacts of changes to morphological, ecological and climatic systems are becoming increasingly serious. Greater climatic variability, hotter weather and predicted fewer but heavier rainfalls will have implications on the design and functioning of commercial buildings. It may also become necessary to be able to adapt buildings to suit different climatic conditions, changing power generation and changing transport modes.

The sustainable property agenda in Australia

According to the Organisation of Economic Co-operation and Development (OECD), buildings and their occupants in (OECD countries) consume 32% of the world's resources and produce 40% of the waste going to landfill (OECD, 2002, p.9). They also produce around 30% of CO₂ emissions (OECD, 2002, p.7) and account for up to 40% of the world's energy (OECD, 2003, p.20).

The international response to sustainability, since the Brundtland Report of 1987, has also been reflected in a series of Australian government strategies and policies. In 1992, the Commonwealth Government launched The national strategy for ecologically sustainable development. In 1999, it released the Environment Protection and Biodiversity Conservation Act (EPBC Act), which provides legislation to ensure protection of the environment. Section 516A of the Act requires Australian Government agencies to disclose details of their organisation's environmental performance and response to ESD in their annual report. These have been the building blocks for ensuing sustainable development policies.

The Australian State of environment report (DEW, 2001) outlines the negative impacts that human settlements have had on the earth. Australia, the most urbanised country in the world, suffers from acute water shortages, high energy demand, and inadequate integrated transport infrastructure. According to the report, commercial buildings in Australia produce 8.8% of national greenhouse gas emissions (cited in DEW, 2006, p.4). Additionally, according to the Australian Greenhouse Office (AGO, 1999, p.10), these emissions are expected to increase by around 94% from 32 Mt in 1990 to approximately 63 Mt by 2010. The commercial building sector has been identified as the fastest growing source of greenhouse gases in Australia and thus has a principal role in addressing and responding to sustainability aspects.

The 2006 State of environment report (DEW, 2006) re-affirms this by stating that Australia needs to undergo a major adaptive change as population and economic growth continue to increase environmental pressures, particularly in the non-sustainable consumption of resources (i.e. energy, land, water and products dependant on limited natural resources). Clearly, Australia's building stock needs to be part of this major adaptation.

Government response

Sustainable building, once perceived to be the domain of radical environmentalists, rapidly became high profile and mainstream in Australia during the Sydney Olympic Games in 2000 — the so-called 'Green Games'. Since then, Australian Commonwealth, state and local government agencies have aimed to show leadership in the sustainable commercial property industry and have produced a number of good practice guides. These include: 

• ESD design guide for Australian Government buildings, (2nd ed.), The Department of Environment and Water, February 2006
• The green lease guide, Department of Environment and Conservation (NSW), the City of Melbourne, the City of Sydney, the Institute for Sustainable Futures at UTS and Investa, 2006
• Environmental performance guide for buildings, Department of Public Works and Services (NSW), 2003
• Victorian Government office building standard guidelines, Department of Treasury and Finance, 2001
• Environmentally sustainable design and construction, (ESDC): principles and guidelines for capital works project, Department of Sustainability and Environment (Victoria), July 2003
• Building energy brief for commercial and public buildings, Sustainability Victoria, 2003
• Victorian Government Property Group office accommodation guidelines, Department of Treasury and Finance, 2005. 

Other government organisations have also developed assessment tools, including: 

• Australian Building Greenhouse rating (ABGR)
• National Australian Built Environment Rating System (NABERS)
• Sustainable Design Scorecard (SDS) — developed by the City of Port Phillip and the City of Moreland, Victoria
• BASIX
• AccuRATE. 

The Australian Building Codes Board (ABCB) implemented nationwide changes to the Building Code of Australia (BCA) in 2006 in the form of Section J, which contains mandatory performance-based energy efficiency minimum compliance requirements for Class 5 buildings (See The legislative context of sustainable commercial buildings for more information). The ABCB is currently considering the integration of further sustainability performance requirements (e.g. water) into the BCA.

Industry response

In 2002, the Green Building Council of Australia (GBCA) was established in response to a growing need within the industry for a national approach to sustainable building, to assist the transition of the Australian property industry towards sustainability and to provide a national sustainability rating system. GBCA developed the Green Star suite of rating tools, which predict the performance of a building across a range of sustainability criteria at the design stage.  A modified form of the ABGR tool (performance rating based on the past 12 months actual data) has been included in the Green Star tool as an integral part of evaluating office building energy consumption. Whilst Green Star is a comprehensive sustainable design tool, it does not measure the outcomes of design and therefore lacks accountability for performance outcomes and does not allow for a feedback loop between the designers and managers of sustainable buildings as to which designs work and which do not.

Up to November 2006, Green Star certification had been awarded to 21 projects, including: 

• Council House 2 (CH2), Melbourne, Victoria
• 40 Albert Road, South Melbourne, Victoria
• 8 Brindabella Circuit, Canberra, ACT
• RAAF Richmond Headquarters, NSW
• Bordo International, Melbourne, Victoria. 

A number of state governments are now using Green Star (and ABGR) as their preferred criteria for new offices, either built or leased. In 2005, the South Australian Government decreed that all new offices built or leased by the government must achieve 5 stars using the Green Star rating tool. The Victorian Government has also made this decision, while the Commonwealth Government's green lease requires a 4.5-star ABGR rating to be maintained for the length of the lease.

The Property Council of Australia's (PCA) 2006 office quality grade matrix now stipulates that for a new commercial office to be considered 'premium' or 'A-grade', it must achieve a minimum 4-star Green Star and 4.5-star ABGR rating. This is effectively driving the sustainable property market in Australia, as higher rental returns and values are placed on A-grade and premium buildings. Most importantly, this is the first time that property professionals must fully understand sustainable building features with regards to office buildings.

An increasing number of Australian businesses and companies are developing a triple bottom line framework as a means of implementing sustainability initiatives into their operations and activities, as well as for measuring performance. They are producing annual sustainability reports that account for their organisation's financial, social and environmental performance. The sustainability performance indicators are both quantitative and qualitative. Many of the social aspects (e.g. worker productivity and community engagement) are difficult to quantify, so are described in a qualitative manner in the sustainability reports.  Many organisations are going one step further and choosing to publicly disclose their results. These companies include Landcom, Stockland and Lend Lease.

In the future, the Australian property industry can expect:

• more stringent legislation relating to the broader spectrum of sustainability aspects of commercial buildings
• more integrated government planning policies and regulations
• increasing demand for green leases and energy performance contracts
• increasing demand from stakeholders and investors for corporate responsibility and public disclosure of sustainability reporting
• a potential requirement for mandatory disclosure of the sustainability performance of buildings.

Although the transition towards sustainable building is advancing rapidly in the Australian commercial property sector, Australia is still some way behind Europe and the United States. The UK's Building Research Establishment Environmental Assessment Method (BREEAM), on which Green Star is partially based, is the world's longest established environmental assessment method (launched in 1988) and, to date, 65,000 buildings have been certified. The European Union (EU) has implemented a policy of mandatory disclosure of the energy performance of commercial buildings throughout its member countries and provides a substantial amount of funding for demonstration projects that further the research and the development of innovative sustainable technologies and buildings. In the US, nearly 45% of certified Leadership in Energy and Environmental Design (LEED) buildings are government projects.

Links

Tools

Australian Building Greenhouse Rating (ABGR): http://www.abgr.com.au

Building Research Establishment Environmental Assessment Method (BREEAM): http://www.bre.co.uk

Docklands ESD Rating Award Scheme: http://www.docklands.com

Dow Jones Sustainability Indexes: http://www.sustainability-indexes.com/

FTSE4Good: http://www.ftse.com/Indices/FTSE4Good_Index_Series/index.jsp

Global Reporting Initiative (GRI): http://www.globalreporting.org

Green Star: http://www.gbcaus.org

Leadership in Energy and Environmental Design (LEED): www.usgbc.org/LEED

National Australian Built Environment Rating System (NABERS): http://www.nabers.com.au/

Sustainable Design Scorecard: http://www.morelandsteps.com.au/

Organisations and associations

Australian Building Codes Board (ABCB): http://www.abcb.gov.au/

Australian Property Institute: http://www.api.org.au;

Business for Social Responsibility: http://www.bsr.org/Department of Energy, Utilities and Sustainability (DEUS): http://www.nsw.gov.au

Department of the Environment and Water (formerly DEH): http://www.environment.gov.au

Good Environmental Choice: http://www.aela.org.au

Green Building Council of Australia (GBCA): http://www.gbcaus.org

Landcom: http://www.landcom.com.au

Organisation of Economic Co-operation and Development (OECD): http://www.oecd.org

Property Council of Australia (PCA): http://www.propertyoz.com.au/

Royal Australian Institute of Architects (RAIA): http://www.raia.com.au

Royal Institution of Chartered Surveyors (RICS): http://www.rics.org.au

Standards Australia: http://www.standards.org.au/

Stockland: http://www.stockland.com.au/

Victorian Government Services Group (VGSG): http://www.dtf.vic.gov.au

World Business Council for Sustainable Development: http://www.wbcsd.ch

References

Australian Greenhouse Office (1999), Australian commercial building sector greenhouse gas emissions 1990-2010, Canberra: AGO, Accessed 15 May, 2007, from http://www.greenhouse.gov.au/buildings/publications/pubs/commbuild.pdf;

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

Business for Social Responsibility (2001), 'Corporate social responsibility', Business for social responsibility, Accessed 18 May, 2007, from http://www.bsr.org/AdvisoryServices/CSR.cfm.

Department of the Environment and Heritage (now Department of Environment and Water), (1992), National strategy for ecologically sustainable development, Accessed 15 May, 2007, from http://www.environment.gov.au/esd/national/nsesd/index.html.

Department of Environment and Heritage (now Department of Environment and Water) (2001), Australia state of the environment report, Canberra: DEH.

Department of Environment and Heritage (now Department of Environment and Water) (2006), ESD design guide for Australian Government buildings (2^nd ed.), Accessed 15 May, 2007, from http://www.environment.gov.au/settlements/publications/government/esd-design/.

Department of Environment and Water Resources (2006), Australia state of the environment report, Canberra: DEW. 
Department of Sustainability and Environment, Victoria (2003), Environmentally sustainable design and construction (ESDC): principles and guidelines for capital works projects, July, Accessed 15 May, 2007, from DSE Victoria website.

Department of Treasury and Finance (2001), Victorian Government office building standard guidelines, State of Victoria, Melbourne, Accessed 15 May, 2007, from http://www.dtf.vic.gov.au/CA25713E0002EF43/WebObj/building/$File/building.pdf.

Department of Treasury and Finance (2005), Victorian Government office accommodation guidelines, State of Victoria, Melbourne, Accessed 15 May, 2007, from DTF Victoria website.

Elkington, J. (1997), Cannibals with forks: the triple bottom line of 21st century business, Oxford: Capstone Publishing.

Fisk, W. J. & Rosenfeld, A.H. (1997), 'Estimates of improved productivity and health from better indoor environments', Indoor Air, 7(3), 158-172.

Green Building Council of Australia (2006), The dollars and sense of green buildings: building the business case for green commercial buildings in Australia, Sydney: Green Building Council of Australia.

Organisation of Economic Co-operation and Development (2002), Design of sustainable building policies: scope for improvement and barriers, Paris: OECD.

Organisation of Economic Co-operation and Development (2003), Environmentally sustainable buildings: challenges and policies, Paris: OECD.

Property Council of Australia (2006), Guide to office building quality, Sydney: PCA.

RAIA (2001), 'GEN 1: RAIA environment policy (revised edition)', BDP environment design guide, Canberra: RAIA.

Reed, R. & Wilkinson, S.J. (2006), Green buildings — issues for the valuation process, Paper presented to Australian Property Institute's Queensland Property Conference, Gold Coast, Queensland, 27-28 October 2006.

Schwartz, M.S. & Carroll, A.B. (2003), 'Corporate social responsibility: a three-domain approach', Business Ethics Quarterly, 13(4), 503-530.

Sustainability Victoria (2003), Building energy brief for commercial and public buildings, Accessed 15 May, 2007, from Sustainability Victoria website.

World Business Council for Sustainable Development (2002), The business case for sustainable development, (second imprint), Accessed 18 May, 2007, from http://www.wbcsd.org/web/publications/business-case.pdf.

World Commission on Environment and Development (1987), Our common future, New York: Oxford University Press.