Investment appraisal and financial benefits of corporate green buildings: a developing economy case study

Abstract

PurposeThis case study aims to appraise the financial benefits of green building construction in developing countries. The case study presents, green building's positive net present value (NPV) investment in real terms and potentially enhanced stock market returns at the firm level compared to competitors.Design/methodology/approachThe case study examines secondary data on a green building certification and longitudinal operation costs to estimate green building investments' financial benefits. The case study also compares the stock market performance of green building portfolio company with non-green building competitors of similar size and industry.FindingsThe case study finds out that the real return rate on green building investment is higher than the weighted average cost of capital (WACC) of the company with an inflation-adjusted payback period of fewer than ten years. Findings compare favourably to the extant literature which was mostly in developed economies. The paper further highlights that stock market performance for a green building focused company shows improved returns to shareholders relative to non-green competitors.Research limitations/implicationsThe results are specific to the time and building researched; green buildings costs have reduced over time, and a new study may show improved case study findings. The case study results on stock market performance are indicative and may need further research for evaluation.Practical implicationsThe case study presents a model for critical appraisal of green buildings investment. The paper further indicates that green building investment may lead to operational savings and superior stock performance compared to competitors.Originality/valueThe paper presents a green building investment appraisal model which might be useful for the industry and academia. Developing countries have limited literature on green buildings' financial benefits; this case study quantifies the financial benefits and compares them with the available literature related to developed economies’ green buildings.

Categorising green building features in developing countries: the case of South Africa

“…The findings also indicate that the perceptions of construction professionals regarding the most significant value-adding GBFs are on par. This result implies that there is a likelihood of increased effect of green features on green building value such as enhanced environmental performance, improved living quality of occupants, overall maintenance cost and most importantly, the decrease in greenhouse gas emissions and societal benefit (Mesthrige and Kwong, 2018; Verma et al , 2021). The seven components and the features associated with them may be useful in making sound business or economic cases to influence stakeholder’s decision to adopt green buildings in South Africa.…”

“…maintenance cost). According to Verma et al (2021), the reduction in the use of natural resources also enhance environmental performance and offers societal benefit. Similarly, a report compiled by Dodge Data and Analytics (2018) revealed that the reasons for and benefits attained by applying GBFs include enhanced occupant health because of improved IEQ and healthier living space, energy savings and greater long-term cost savings/profits and most importantly the decrease in greenhouse gas emissions, and hence, the impact of buildings on the environment.…”

“…Many studies have proven that GBFs provide stakeholders, including developers, end-users and policymakers, with great opportunities in terms of enhancing property values (Verma et al , 2021; Mesthrige and Kwong, 2018; Azis et al , 2017). The value-adding of GBFs such as cost and profits (Mesthrige and Kwong, 2018); quality in terms of material and usage (Institute for Market transformation and Appraisal institute [IMT and AI], 2013); living quality and environmental performance (Mesthrige and Kwong, 2018) have been identified in the literature.…”

Green Investment Appraisal: A Comprehensive Framework for Evaluating Environmental and Financial Returns

“…In an era where sustainability and environmental responsibility are increasingly becoming a significant concern, green investment has become essential in promoting sustainable development. This framework provides a structural basis for measuring the environmental impact of investments, considering not only the potential financial returns but also the longterm implications for ecosystems and society (Metzger & Schinas, 2019;Verma et al, 2021). The Green Investment Assessment Framework is essential for several reasons that are very relevant in the current economic and environmental context, namely as follows: a.…”

Incentive mechanism for promoting the uptake of green building in South Africa

“…To circumvent this problem, awareness and promotion efforts for GB adoption have expanded dramatically. However, in developing countries, the construction sector is still behind (Verma et al, 2021) due to conservative attitudes and a lack of facilitators in place to stimulate GB adoption. While facilitators such as incentives have been recognised as opportunities to advance GB development (e.g.…”