The Business Case to Avoid a Brown Discount

by | Feb 9, 2022 | Buildings, News

New market forces related to climate change and buildings are moving the conversation of green building premiums to “brown discounts”. Guy Grainger, of JLL, has cited that “a building in the U.K. was hit with a “brown discount” of about a third of its price” explaining how a building that “was valued last year at a certain level, and then when you took into account the costs of transitioning it to net-zero carbon, then the price was reduced by 30%”.

A similar trend in New York is happening, as building owners are attempting to attract tenants back to their vacant buildings. Higher quality buildings with “above-average maintenance with outdoor spaces and plenty of natural light [are] 65% of new deals… meaning properties that were recently constructed or have undergone a significant renovation.” “The requirements for a building are so much higher coming out of the pandemic,” said Sarah Hawkins, East Region CEO at Hines.

BlackRock, the world’s largest asset manager, has described a “Tale or two economies: green vs. brown”. According to them, “2020 was marked by flows into ESG assets”, but because of dropping oil prices he then explained how there is still “complexity to the economic transition underway”. “We use sustainability data to paint a clearer picture of the potential winners of tomorrow’s economy…. we aim to solve for what we call the double bottom line: improved outcomes for shareholders and stakeholders.”

Autocase has been in discussion with many on how to begin the transition to net zero, but a common theme prevailed – that there is commitment behind “going green”, but budget constraints are still there. It is no longer the case that these future regulatory and climate changes can be ignored, but financing to allow returns to go beyond the typical payback periods is one constraint.

Here at Autocase, as a response, we have seen a commitment to net zero “readiness”. Minimum codes are catching up, but with the acceptance of an uncertain future for the built environment due to climate change, slow moving regulation changes are outpaced by the market demanding that net zero ready be the new standard.

Autocase has been focused on quantifying the benefits associated with additional sustainable investments compared to minimum code buildings, and is pleased to see this market response to climate change. The business case remains more important than ever, showing not just upfront capital costs, but life cycle costs and whole building life cycle carbon impacts as well, in order to meet the constraints of today without adding a “brown discount” cost tomorrow.

We understand the need to make the business case work for today, but also the importance of showing the future trade-offs that are made from decisions being made now – showing the impacts to both the financial bottom line and the broader environmental and community stakeholders. EV readiness is one example of a commitment to the future. Check out the new Transportation analysis category in Autocase that shows the carbon to cost trade-offs for EV charger investments.


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