Calculating Sustainable Return on Investment

The U.S. Green Building Council’s 2010 Federal Summit focused on how green site and building practices can be used to implement President Obama’s new executive order (13514), which calls for all federal buildings to be net-zero by 2030 and the federal government to reduce its greenhouse gas emissions (GHGs) by 28 percent by 2020. 

Martha Johnson, administrator of the General Services Administration (GSA), said the U.S. government makes purchasing decisions that impact 350 million square feet per year, meaning its a “fulcrum for sustainable performance.” Johnson introduced the GSA’s zero environmental footprint (ZEF) initiative, which aims to eliminate the negative impact of the federal government on the environment. “This is our moonshot. It’s the right thing to do, but we need to take risks, innovate, and get out of our comfort zone.” Johnson added that the government is also now taking a cradle-to-cradle (C2C) approach so we create “design use and reuse cycles.” She also said the GSA has been incentivizing investment in “seeding new technologies,” such as more efficient roof-based solar panels.

USGBC CEO Rick Fedrizzi said the GSA’s zero environmental footprint (ZEF) initiative is a critical component to spreading green site and building best practices. He that across the U.S. one million square feet of building space is already being certified LEED every day. While environmentalists argue that this is “still a tiny amount, it’s still the largest demonstration project in U.S. history.”

Panelists at one session focused on calculating the costs and benefits of sustainable sites and buildings with a new accounting model: sustainable return on investment (SROI). Stephane Larocque, Principal Economist, HDR Architecture, said SROI is about determining the “triple bottom line.” To ensure all stakeholders buy into the SROI calculated by the model, HDR holds “public calculation sessions” to generate transparency.

Larocque outlined the main components of HDR’s model: benefits and costs. Benefits include cash benefits (reduced costs) and non-cash benefits (health, productivity, water, resiliency, safety, reduced greenhouse gas emissions, and reduced air contanimants). Costs included capital, operating, maintenance and waste disposal. Once the model (which HDR developed as an excel spreadsheet) is integrated with a set of data on each factor, HDR creates a set of financial results,  financial + internal non-cash impacts, and financial + internal and external non-cash impacts. HDR said “it’s all about monetizing inputs, adding social and environmental factors, and using good data sources.”

To ensure they use good data sources, HDR does “meta-research analyses,” covering all known environmental and scientific research on a given social or environmental factor. As an example, HDR reviews all legitimate research studies with numbers on the economic benefits of green buildings on worker health, aggregates the data, and then selects a median number and range. To create a price on CO2 emissions that can be used in the model, a range of data types were considered. “We looked at financial insurance markets, Chicago carbon exchange, and E.U. carbon markets, willingness-to-pay surveys, and expert opinions.” HDR also looked at EPA state-by-state data on environmental pollutants per megawatt hour of energy. “We can create a probability curve around these values to generate an example cost of CO2 for our model.” Still, HDR enables a wide range of numbers to be plugged in. For instance, some people think climate change isn’t real, so they’d put the cost of one ton of carbon at zero. In comparison, the E.U. currently said the cost is around $75 per ton. The U.S. Department of Transportation (DOT) has listed $33 per ton in its TIGER challenge grants. 

In one recent project, a government hospital calculated the SROI of LEED silver vs. doing nothing. HDR monetized the external non-cash benefits of LEED silver and determined it would generate “more robust returns” than doing nothing. In another example, Johns Hopkins University determined that the financial return of its campus sustainability initiative was 11 percent, but once society’s perspective was added in, the return was 43 percent. “In this case, external benefits had to be added in to get grant money and gain Board approval for the campus greening project. SROI was used to prove environmental stewardship.”

Sustainable sites’ internal and external non-cash benefits were explored by applying the model to the army-run Ft. Belvoir Community Hospital, a landscape case study mentioned. Inside, the hospital focused on improving natural lighting and energy efficiency. Outside, the hospital invested in increasing access to nature through healing gardens, green roofs, and expanded green space. An overall integrated site design was used to improve patient recovery rates. One of the additional benefits: $40,000 in GHG emissions costs were saved per year. In a U.S. Marine’s hospital in Korea, pervious pavements and healing gardens were also added to both achieve financial success and increase the return on investment to Korean society as a whole. “Sustainable site benefits include CO2 and criteria air contaminants avoided.”

HDR concluded that many projects still use plain-old ROI, NPV or other methods, to determine project financing, which means a lot of sustainable projects don’t get built. Adding “environmental externalities” into any ROI model is crucial to increased investment in sustainability. 

The firm has gotten a wide range of support for the model, including a mention at the Clinton Climate Initiative, and Larocque said he will be developing a curriculum on the model with Harvard and Columbia universities. Unfortunately, HDR has yet to make the model (or data sets) available to all. Hopefully, checklists and assessment tools will be forthcoming.

Learn more about HDR’s approach in this powerpoint presentation.

Image credit: K. Duteil / ASLA 2006 General Design Honor Award. The Elizabeth & Nona Evans Restorative Garden Cleveland Botanical Garden, Cleveland, Ohio. Dirtworks

One thought on “Calculating Sustainable Return on Investment

  1. Mark Johnson 05/26/2010 / 1:07 pm

    Does this new goal truly improve the future of our environmental communities throughout the national and global landscape? I am concerned that we are creating new games for people to play; while we do little to change the national consciousness about biodiversity. I realize that we should rightfully be considering the health and welfare of those who use our buildings; so a lot of the emphasis is on affects on inhabitants. I realize that LEEDs, etc. is about motivating us to build more environmentally sensitive buildings and the “zero environmental footprint” has the same goal. But, we can construct buildings and cities that receive high points in the game, while we slowly deplete the ability of the planet to support all the life that we are ultimately responsible for and need for our own survival.

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