Green Buildings Aren’t the Future; They’re the Present. Are You Keeping Up?

Written by: Jérémie Proulx and Marc-Antoine Proulx

Edited by: Vanessa Lu Langley

What if the biggest risk to your next project isn’t going green, but refusing to do so? Traditionally, lower building costs were associated with higher expected returns on investment. However, this is no longer always the case as green buildings are getting increasing attention from investors, contractors, and tenants. Reduced operating costs, increased property value, and higher tenant demand often end up resulting in greater overall returns compared to conventional buildings. This new perspective on buildings should be recognized to ensure informed decision-making at every stage of a construction project. In addition to understanding the major environmental benefits of greener buildings, the public should also be informed about the financial advantages of this new approach.

Building a Bright Future by Building Sustainably

The core principle of sustainable buildings is to reduce the environmental impact of the manmade environment on the natural one. Various efforts can be made to decrease a building's impact on the natural environment, such as switching to renewable energy sources, minimizing energy use, and considering the life cycle impacts of chosen materials.

Switching from fossil-fueled sources to renewable energy is an effective way to reduce a building's environmental impact by lowering greenhouse gas (GHG) emissions,

improving local air quality, and decreasing dependence on non-renewable resources. This shift is particularly important given the significant role that building infrastructure plays in global energy consumption and emissions. According to the United Nations Environment Programme, the building and construction sector accounted for 37% of global energy and process-related CO₂ emissions in 2022, totaling just under 10 gigatonnes of CO₂ (UNEP, 2022). The International Energy Agency (IEA) further reports that building operations alone are responsible for 26% of global energy-related emissions, with 8% being direct emissions from on-site fossil fuel combustion and 18% coming from indirect emissions due to electricity and heat production (IEA, 2022). Transitioning to renewable energy in buildings is, therefore, a crucial strategy for significantly reducing these emissions, and offsetting their environmental impact.

Optimizing energy is another reliable way to reduce a building’s environmental footprint. For instance, heat pumps are energy-efficient systems that favour heat transfer over generation. Energy savings in buildings using heat pumps come mainly from efficient heating and hot water systems, boosted by heat recovery from hot water and fresh air. Recent studies indicate that heat pumps can reduce heating energy consumption by approximately 65% compared to natural gas furnaces and 59% compared to electric resistance heating. Moreover, although there is no minimum insulation regulation for green buildings, enhanced insulation is another key strategy prioritized by developers such as Groupe MACH, as it reduces a building’s energy usage. It creates a strong dilemma between maximizing fenestration and achieving energy savings through insulation. Enhanced insulation is often considered the second most important feature for green buildings, after heat pumps.

In addition to transitioning to renewable energy sources and optimizing energy usage, selecting low-impact materials is crucial for reducing a building's overall ecological footprint. One effective approach is replacing traditional Portland cement with a combination of limestone Portland cement and slag cement. In this variation, 25% to 35% of the cement component is replaced by slag cement, while Portland cement is replaced by finely ground limestone (Fonds immobilier de solidarité FTQ et al., 2024). This substitution significantly reduces CO₂ emissions and energy consumption during production. Slag cement enhances workability and finish quality, making it ideal for various construction applications such as general building projects, precast concrete, and other civil engineering activities. The use of this low-carbon concrete can reduce the intrinsic carbon of a building by approximately 17% to 22% compared to a reference building (Fonds immobilier de solidarité FTQ et al., 2024).

Greener Buildings, Greater Returns

On top of the positive environmental impacts, greener buildings bring significant financial value to their parent firms through lower renovation needs, better interest rates and insurance costs, energy costs savings, and higher rents.

Although many firms may find it daunting to take on additional capital expenditures at the beginning of a project, this investment has consistently shown to be recovered over time. The terminal value of green buildings is expected to be higher at the time of sale, as non-green buildings will likely require costly renovations to meet evolving municipal, provincial, and federal standards. Turning buildings green now can help owners avoid expensive retrofits later. For example, Montreal’s 2040 Zero Carbon Plan mandates that all buildings be powered by renewable energy, reinforcing the urgency of adopting green building practices today (Groupe de travail Bâtiment du Partenariat Climat Montréal & MACH, 2023). In addition, green building investors are increasingly benefiting from lower insurance premiums and more favorable interest rates, as insurance companies, cities, and banks show a growing preference for funding sustainable projects (Fonds immobilier de solidarité FTQ et al., 2024). For example, when refinancing, the lender will view it as a positive signal that developers are honoring their promises regarding green practices and will tend to offer better interest rates.

Green buildings are not just a smart long term investment; they also help reduce ongoing operating costs due to their higher energy efficiency, making them more financially advantageous. By reducing the use of natural gas, firms can better navigate fluctuations in energy costs and carbon taxes. Even though fossil fuels may seem cheaper today than green energy, the lower maintenance costs associated with green buildings offset any initial savings from using fossil fuels (Fonds immobilier de solidarité FTQ et al., 2024). This is because green buildings are designed with more durable materials, energy-efficient systems, and smart technologies that reduce repair, energy, and operational expenses over time.

Not only do green buildings benefit the environment and the firms that develop them, but they also prioritize the well-being of future occupants. Their design and operation focus on health and comfort, with enhanced indoor air quality, improved lighting, and better thermal conditions contributing to a healthier living and working environment. Studies have shown that occupants in green buildings experience fewer sick days and report higher satisfaction levels. Notably, workers in green, well- ventilated offices have recorded a 101% increase in cognitive scores (CAGBC, 2024). Residential and commercial tenants highly value these benefits, with commercial tenants benefiting from the reputational boost of operating in a green building. This increased demand raises market rental values, ultimately boosting operating income for these properties' investors.

Considering the risks associated with non-green buildings and the advantages of green buildings, the return on investment for a green building can be up to 45% higher for investors compared to a conventional building. The primary drivers of this increase are higher rents, important energy cost savings, and a reduced need for expensive renovations as green regulations, such as Montreal’s 2040 Zero Carbon Plan, become the norm.

Industry Leaders Agree on the Importance of Green Buildings

From leading developers like Groupe MACH and Devimco to consulting firms such as Akonovia and energy giants like Hydro-Québec and Énergir, a diverse group of industry players is collaborating to create a greener and more efficient real estate sector in Quebec. Below, we explore how these key players share their visions for a more sustainable future in the industry.

A recent study on green buildings, led by Fonds immobilier de solidarité FTQ in partnership with Akonovia, a consulting firm specializing in energy efficiency and decarbonization, found that green buildings can achieve energy cost savings of 27% to 30%. These savings are largely due to enhanced efficiency in heating and air conditioning systems, along with the adoption of energy pumps that replace natural gas with green electricity.

Philippe Hudon, President and CEO of Akonovia, emphasized the growing importance of decarbonization and green innovations in reducing future costs. He believes that as the advantages of green buildings become clearer, developers will better recognize their full potential.

Hydro-Québec and Énergir also participated in the study, which highlighted the collaborative efforts between these organizations to advance a greener future in Quebec. Eric Lachance, CEO of Énergir, stressed the critical importance of energy efficiency, especially in Quebec’s harsh winters, where heating is the primary energy demand. He pointed out the financial benefits of investing in green buildings and underscored the need for a greener vision in construction, one that can inspire future generations. The study also involved other key players, including Devimco, an influential real estate developer, Vertima, an environmental consulting firm, and Blain Joyal Charbonneau (BJC), a business advisory firm (Fonds immobilier de solidarité FTQ et al., 2024).

To further explore the developer’s perspective, we spoke with Pierre-Jacques Lefaivre, Executive Vice-President and General Manager of Groupe MACH, one of Quebec’s leading real estate developers. Mr. Lefaivre explained that the core focus at Groupe MACH is prioritizing the needs of current and future tenants, as tenants are the heart of the business. He noted that the environmental and governance benefits often follow naturally when tenant satisfaction is given top priority. Incorporating green building practices not only makes spaces more attractive to tenants and reduces energy costs by up to 40%, but it also plays a vital role in reducing environmental impact, aligning with MACH’s commitment to sustainability.

Moreover, Mr. Lefaivre offered an optimistic outlook on the costs of green buildings. Over the past few years, the costs to achieve LEED certification (Leadership in Energy and Environmental Design) have decreased significantly, now adding only 2 to 5% to the overall building cost. This reduction makes green buildings more accessible and financially viable for developers, highlighting their long-term environmental and economic value.

Smart Developers Know: Sustainable Construction Isn’t an Expense, It’s an Investment

Building green is not just about minimizing the construction sector's environmental impact; it's also about ensuring the industry's long-term financial sustainability. Various initiatives can be taken to ensure ecologically conscious choices are made when designing or renovating buildings, such as relying on renewable energy sources, enhancing insulation, installing heat pumps, and choosing low-carbon materials. All of these factors will lead to lower costs for heating, electricity, and other expenses, while also providing greater returns for investors by increasing the building's value. Amid Montreal’s housing crisis, green building provides developers with an effective way to cut operational costs while boosting property value over time, all while creating environmentally friendly solutions. By leveraging policies like energy-efficient construction incentives, better interest rates, tax breaks, and zoning reforms, developers can unlock the true financial potential of green buildings. Many are already leading the way, shaping a future where sustainability and innovation drive lasting value for communities.

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References:

Canada Green Building Council. (2024). Green building benefits. Canada Green Building Council. https://www.cagbc.org/why-green-building/green-building-benefits

Fonds immobilier de solidarité FTQ, Akonovia, Hydro-Québec, Énergir, Devimco, Blain Joyal Charbonneau (BJC), & Vertima. (2024). La rentabilité du bâtiment durable: Mesurer, agir et investir maintenant pour les générations de demain. Rapport de recherche Générations 1,5°.

Groupe de travail Bâtiment du Partenariat Climat Montréal, & MACH. (2023, November). Vers un parc immobilier décarboné et résilient: Rénover et bâtir mieux – Recommandations pour un plan de match ambitieux, prévisible et concerté. Partenariat Climat Montréal. https://climatmontreal.com/wp-content/uploads/2024/10/Rapport_RenoverEtBatirMieux_nov2023.pdf

International Energy Agency. (2022). Buildings: A source of enormous untapped efficiency potential. Retrieved from https://www.iea.org/energy-system/buildings

United Nations Environment Programme. (2022). 2022 Global Status Report for Buildings and Construction: Towards a Zero‑Emission, Efficient and Resilient Buildings and Construction Sector. Nairobi. Retrieved from https://www.unep.org/resources/publication/2022-global-status-Report-buildings-and-construction