Investing in Green Buildings

How sustainability factors influence investment decisions in the European real

estate market?

BACHELOR THESIS

THESIS WITHIN: Business Administration

NUMBER OF CREDITS: 15 ECTS

PROGRAMME OF STUDY: International Management & Marketing Management

AUTHORS: Seyedamirhossein Alavidehkordi, Saara Emilia Rautio, Matei-Andrei Stancu

TUTOR: Jasna Pocek

JÖNKÖPING May 2021

Bachelor Thesis in Business Administration
Title: Investing in Green Building - How sustainability factors influence investment

decisions in the European real estate market

Authors: Seyedamirhossein Alavidehkordi, Saara Emilia Rautio, Matei-Andrei Stancu

Tutor: Jasna Pocek

Date: 2021-05-24

Key terms: Green Building, Sustainability Factors, European Real Estate Market, BREEAM,
LEED, Property Certifications

Abstract
Background: The concept of sustainability has been applied to almost all industries and
business areas in recent decades. Many researchers and journalists have addressed the
importance of sustainability in real estate and construction. Not only have numerous
countries adopted sustainable construction techniques and begun using green building
materials, but it has also become increasingly important to have sustainable facility
management, sustainable real estate valuation techniques, and a significant movement toward
sustainable real estate investments on the investment side.

Purpose: Many real estate companies in Finland, Romania, and Sweden are interested in
investing in "green" buildings. The purpose of this study was to find out what is driving these
investments, whether it is investors' personal consciousness, the overall market trend, or the
premium that they would earn from investing in green building. The main focus was set
especially on the certification market and whether these sustainability factors add value to the
investment. The aim was to better understand the reasons for investing in green real estate
and look further into the difference in value between certified sustainable real estate and how
it affects investment decisions.

Method: The following thesis was conducted by qualitative research with an inductive
approach to gain a deeper understanding of companies' motivations for investing in green
building. Semi-structured interviews with seven industry professionals were obtained within
the European real estate sector.

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Conclusion: According to the research, real estate investors in the European market are most
interested in buying green buildings because of their potential to generate higher income and
the buildings' own sustainability. The main premium they expect from such investments is
lower life cycle costs and better returns on investment. Both the literature review and
empirical research confirmed this conclusion.

Acknowledgement
The researchers would like to express their gratitude to everyone involved in writing this
thesis; without you, this research would not have been possible.

First and foremost, a special thank you to our tutor Jasna Pocek who guided us throughout the
research process. Her expertise and feedback provided us a lot of useful insight and tips that
helped us transform the thesis into its final form.

Secondly, a big thank you to all of our interviewees who contributed their time and
knowledge to our research during these rather strange times. Without their valuable insights,
this research would never have been possible.

Thirdly, we would like to thank the opposing groups for challenging us with valuable
discussions and providing constructive feedback during the seminars.

Lastly, the researchers would like to express their gratitude to all lecturers who led workshops
on thesis writing and other related topics, as their contributions were precious and helpful
throughout the process.

Seyedamirhossein Alavidehkordi, Saara Emilia Rautio and Matei-Andrei Stancu

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Table of Contents
INTRODUCTION 7
1.1. BACKGROUND 7
1.2. PROBLEM 8
1.3. PURPOSE 9
1.4. RESEARCH QUESTIONS 9
1.5. SCOPE OF THE RESEARCH 10
1.6 STRUCTURE OF THE REPORT 10

2. FRAME OF REFERENCE 11
2.1 METHOD OF CONSTRUCTING THE FRAME OF REFERENCE 11
2.2 REAL ESTATE MARKET 12
2.2.1 Sustainable real estate in a relation to global trends 13
2.2.2 Core drivers in the sustainable property market 13
2.2.3 Key drivers in sustainable real estate 15
2.2.4 Factors limiting the sustainable property investment 16
2.2.5 The risks of not investing in green 17
2.2.6 Radical green 18
2.2.7 The future of the sustainable values 20
2.3 GREEN BUILDING 21
2.3.1 Investing in Green Building 23
2.3.2 Green Building Certification Market 24
2.3.2.1 BREEAM 25
2.3.2.2 LEED 27
2.3.3 Green Leases and the trend in Europe 29
2.3.4 Green Financing and Green Bonds 30

3. RESEARCH METHOD 32
3.1 RESEARCH METHODOLOGY 32
3.1.1 Research Paradigm 32
3.1.2 Choice of methodology 33
3.1.3 Qualitative Method 34
3.2 DATA COLLECTION 34
3.2.1 Interview questions 35
3.2.2 Data Analysis 36
3.3 RELIABILITY AND VALIDITY 37
3.4 ETHICS 38

4.EMPIRICAL FINDINGS 38
4.1 INVESTMENT RATIONALE IN SUSTAINABLE REAL ESTATE 40
4.1.1. Return on Investment 40
4.1.2. Government subsidies 41
4.1.3. Place or Location 42
4.2 GREEN BUILDING 43
4.2.1 Reasons to invest 43
4.2.3 Greening the brown 44
4.3 MEASURING THE GREENNESS OF A BUILDING 45
4.3.1 Green building characteristics 46
4.3.2 Certifications 47

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 4.3.3 Brand image 49
4.3.4 Valuation 50

5. A NALYSIS 51
5.1 INVESTMENT RATIONAL IN SUSTAINABLE REAL ESTATE 51
5.2 GREEN BUILDING 52
5.3 MEASURING THE GREENNESS OF A BUILDING 54

6. CONCLUSIONS 55

7.DISCUSSION ( IMPLICATIONS, RECOMMENDATIONS, CRITIQUE OF METHOD) 56

7.1 IMPLICATIONS 56
7.2 LIMITATIONS 57
7.3 RECOMMENDATIONS FOR FUTURE STUDY 57

8. References 58
APPENDICES 66

List of Figures

Figure 1: “Closing real estate data gaps for financial stability monitoring and macroprudential
policy in the EU” ’ IFC Bulletin, 46; ESRB (2016), ‘Recommendation of the
EuropeanSystem Risk Board of 31 October 2016 on closing real estate data gaps
(ESRB/2016/14),’ OJ, C 31

Figure 2: 10 Year Power and Gas Domestic Price Index & long term trend* (According to
2013 data from British Gas, SSE & NPower; Guy Thompson 2013)

List of Tables

Table 1: Own illustration from Nelson (2008) data

Table 2: List of BREEAM International schemes and descriptions (BREEAM, 2021). Own
illustration.

Table 3: Area descriptions in BREEAM assessment (BREEAM, 2021).Own illustration.

Table 4: BREEAM classification levels (BREEAM, 2021). Own illustration.

Table 5: LEED rating schemes in use. Own illustration (LEED, 2021)

Table 6: List of interviewees

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Table 7: Data analysis of practical methods of evaluation

Definitions

Sustainability

Sustainability means a development that is worldwide, regionally, and locally continuous and
controlled social change. At the same time, the development is ecologically, economically,
and socially sustainable. Its goal is to secure a good life for the present and future
generations.

Green Building

Green building is the practice of creating structures and using environmentally responsible
and resource-efficient processes throughout a building's life-cycle in design, construction,
operation, maintenance, renovation, and deconstruction. The classical building design issues
of economy, utility, durability, and comfort are expanded and complemented by this practice.
Green buildings are designed to reduce the overall effect of the built environment on human
health and the natural environment by efficiently utilizing energy, water, and other resources
and reducing waste, pollution, and environmental degradation. A sustainable or
high-performance building is also known as a green building. (U.S. Environmental Protection
Agency 2010)

BREEAM

BREEAM is the world's first environmental assessment method and rating system for
buildings, launched in 1990. A BREEAM assessment uses recognized performance measures,
set against established benchmarks, to evaluate a building's specification, design,
construction, and use. The measures used represent a broad range of categories and criteria
from energy to ecology. They include aspects related to energy and water use, the internal
environment (health and well-being), pollution, transport, materials, waste, ecology, and
management processes. BREEAM Europe has six different rating levels: Unclassified, Pass,
Good, Very good, Excellent, and Outstanding (BREEAM, 2021).

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LEED

LEED, or Leadership in Energy and Environmental Design, is an internationally- recognized

green building certification system. It was developed by the U.S. Green Building Council
(USGBC) in March 2000. It provides building owners and operators with a framework for
identifying and implementing practical and measurable green building design, construction,
operations, and maintenance solutions. LEED promotes sustainable building and
development practices through a suite of rating systems that recognize projects that
implement better environmental and health performance strategies. LEED 2009 has four
different levels of certifications which are Certified, Silver, Gold, and Platinum. (U.S. Green
Building Council 2011)

Zero energy building

A zero-energy building is a residential or commercial structure that uses almost no energy.

The net-zero building generates as much electricity as it uses over the course of a year.
Performance gains are matched with energy needs met using renewable energy technologies
in such a building.

Investor

In this research an investor refers to a property owner or companies who own the properties.

Introduction

1.1. Background
In 2015, 195 countries announced their intention to ratify the Paris Agreement and retain
global warming well below 2 degrees Celsius compared to pre-industrial levels (UNFCCC,
2015). Despite stated political will and scientific consensus, currently announced nationally

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agreed contributions under the Paris Agreement are expected to result in a global temperature
increase of 2.7-3.7 degrees Celsius (Dagnet et al. 2016). This becoming a reality, the effects
on global natural systems and livelihoods would be detrimental (IPCC, 2014). One of the
most common ways to achieve the target is to reduce Greenhouse Gas (GHG) emissions by
enacting appropriate policies (OECD, 2003). On the other hand, climate issues may be
approached by motivating investors to engage in more sustainable and "green'' investment
projects. A rapid transformation of the built environment will be crucial to changing this
trajectory. In the coming years, this green transformation would necessitate massive
infrastructure investments worldwide, driving the construction of green buildings (OECD,
2017a, p 18).

Experts and institutional investors are increasingly regarding Green building investment as a
tool for mitigating environmental effects and achieving energy efficiency, emissions
reduction, and corporate social responsibility in the ongoing debate on global climate change
(Miller et al. 2010; Chequt & Eichholtz 2013:1-22; Aliagha et al. 2013;3(11):471-8; Kok,
2014). The growing evidence that the building sector is a major consumer of resources and
energy, accounting for about 44 percent of society's total material usage and a significant
proportion of more than 50 percent of primary resources, drives the change to green building
(Nelms et al. 2005). Accordingly, green buildings are often referred to as healthy, safe,
comfortable, and environmentally sustainable buildings, therefore promoting the green
building concept to become a primary theme of modern construction (Darko & Chan, 2016).

Green building concept being established in the construction world, The Building Research
Establishment's Environmental Assessment Method (BREEAM) was created in 1990 to
evaluate buildings in a more detailed and comprehensive manner (BREEAM, 2021).
Additional green building ranking tools, such as the Leadership in Environmental and Energy
Design Leadership (LEED), were created due to this. According to Doan et al. (2017),
BREEAM is currently the most dominant rating system. Furthermore, these rating tools
assess green buildings using a variety of criteria. Green rating systems typically concentrate
on criteria such as indoor environment quality, energy, and material (Doan et al., 2017;
Illankoon et al., 2017). Nonetheless, most of these green building rating tools assess buildings
in two phases. One phase is when the building is being designed and the other when the
building is being used.

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In this research, the focus is on investing in Green Building in the European market. The
topic will be discovered from the investor's perspective, and the different sustainability
factors' influence on investment decisions will further be explored in the following sections
of this research. Emphasis will be placed on the drivers of the green investments, whether it is
investors' personal consciousness, the overall market trend, or the premium that they would
earn from investing in green building. The main focus will be set especially on the
certification market and whether these sustainability factors add value to the investment. The
aim is to better understand the reasons for investing in green real estate and look further into
the difference in value between certified sustainable real estate and how it affects investment
decisions. The research is conducted by inductive approach, and semi-structured interviews
have been held in order to compare the literature review on empirical findings.

1.2. Problem
Green buildings are becoming increasingly common in the commercial real estate sector. For
a variety of factors, both occupiers and investors are becoming increasingly involved in
sustainable real estate. To begin with, several companies are attempting to pursue a pattern of
socially responsible investments, with the primary motivation being environmental and
sustainability concerns (Pivo, 2005; Berry and Junkus, 2012). Other factors, such as the
willingness of companies to choose “green” buildings, can affect their behavior.

In many previous research, it has been recognized that how the different sustainability factors
influence the investment decisions in green buildings has been understudied. Accordingly, the
key reasons that are increasing the overall value of green buildings as an investment should
be further evaluated. The gap was found to be in the investor’s perception of different
certification levels and whether they are willing to invest money into buildings with different
certification levels (Ding et al., 2018).

1.3. Purpose
The purpose of this study is to find out what is driving the investments in green building,
whether it is investors' personal consciousness, the overall market trend, or the premium that

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they would earn from investing in green building. The main focus was set especially on the
certification market and whether these sustainability factors add value to the investment. The
aim was to better understand the reasons for investing in green real estate and look further
into the difference in value between certified sustainable real estate and how it affects
investment decisions.

1.4. Research questions

Research questions have been designed to guide the research in order to achieve the research
goal. The following are the research questions:

RQ1: How sustainability factors influence investment decisions in European real estate
market?

RQ2: What are the key reasons that are increasing the overall value of green buildings as an
investment?

RQ2.1: What are the benefits of investing in sustainable real estate/ green buildings
for an investor?
RQ2.2: In what ways certificates affect the overall value of sustainable real estate
investments.

1.5. Scope of the research

In this thesis, the focus will be on direct, green real estate investments. Instead of indirect
investments, the direct investments were only considered since they necessitated a greater
level of involvement from companies in the physical characteristics of the building. The
geographical scope of this study will be limited to a few European countries. The countries
from the empirical data will be gathered are Finland, Romania, and Sweden. Interviews with
foreign and domestic real estate actors who work in the countries in question form the basis
of the empirical research.

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In this study, the terms "sustainable" and "green," as well as terms "investor" and "property
owner," are used interchangeably.

1.6 Structure of the Report

This thesis is divided into three parts. Each segment represents a distinct stage in
investigating the most important sustainability factors in the real estate and green building
sector. An introductory section, an empirical section, and a discussion section make up all
three parts.

The introductory section informs the reader about the importance of this research and depicts
current issues in the real estate industry. The history of the topic, the research methodology,
and the literature review are all included in this section. The study begins by explaining the
context for potential events, but the literature review of recent publications provides a more
detailed image of the research goal. The literature review takes the reader on a
straightforward path from sustainability to investing in green building, ensuring that they
understand the factors affecting the investments in green real estate. This section also
includes the research problem, aim, scope, and structure.

The empirical study of this research is the second phase. All interviews are extensively
reviewed to provide definitive responses to specific research questions. Finally, the issues
posed during the interviews are studied and compared to the literature reviewed. The
conclusion of the research and main findings are also included. The validity of the research
data and procedures and guidelines for future research are discussed at the conclusion of this
thesis.

2. Frame of reference
The frame of reference begins with the method of constructing the frame of reference.
Thereafter, sustainability and investing in green building's overall aspects are presented. The
frame of reference concludes with an explanation of the current criticism of the existing body
of research and the identified gaps.

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2.1 Method of constructing the frame of reference
The sources for this analysis were deliberately chosen for their publicity value, importance,
reputation, and trustworthiness. Primarily, the most fundamental hypotheses have been
chosen based on their inclusion in the ABS Journal 2018, which is a journal ranked for its
content and relevance in terms of effects. The journals are ranked from 1 to 4, with 4 being
the highest. The majority of the publications used in this study are ranked between third and
fourth. Additional secondary data points include Primo and Google Scholar, where the
majority of publications have been peer-reviewed to ensure their high validity. In terms of
publication importance, the authors attempted to use recently published papers wherever
possible; but, in some situations, older articles were still used because they were deemed
important and few newer studies in the same topic were discovered. To ensure the reliability
of the slightly older references, the authors verified that they had been quoted several times
and that the authors were known. In order to find relevant articles this study uses these
keywords: Real Estate, Sustainability, Green Buildings, Investing in Greenbuilding, Building
certifications in European market, BREEAM, LEED, Real estate rating.

2.2 Real estate market

Real estate is usually referred to as land coupled with any other tangible improvements that
are installed upon it according to the Association of the Bar of the City of New York (2017).
Improvements include man-made objects such as buildings, roads, fences, etc. Unimproved
real estate refers to vacant land (Association of the Bar of the City of New York, 2017). A
market is a mechanism through which goods and services are voluntarily exchanged among
different owners (Miller et al, 2007). In a 2018 study, Gaca defines the real estate market as
unique, due to its qualities that distinguish it from other goods. These characteristics are
complexity, stability in place, durability, and diversity. (Gaca, 2018)

The real estate market can be divided into 2 sections, the commercial real estate (CRE) and
the residential real estate (RRE). As the name suggests, commercial real estate refers to
property that is used by businesses for business-related purposes while residential real estate’s
main purpose is to provide a living space. In their 2017 study, Dierick and Point note that

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there are serious definitional problems of data scarcity and data comparability for the
commercial real estate sector compared to the residential one. In order to tackle the
classification issue, they provide a categorization in the form of a decisional tree as can be
seen in the figure below:

Figure 1: Decisional Tree Residential Real Estate/Commercial Real Estate Source: Dierick, F. & Point, E.
(2017)

2.2.1 Sustainable real estate in a relation to global trends

Over the past decades, sustainability and socially responsible activities generally have been
successfully combined into corporate strategies and deliberated now as a value-driver for
companies in the long run (Caiias & Bienert, 2011). There is no exception for the real estate
industry trend for going green; according to Nelson (2008), due to the globalization of the
property market and increasing popularity among global investors, green building and paying
attention to sustainable activities have become a worldwide trend.

According to Ionascu et al. (2020), we have to know that the real estate industry consumes
more than forty per cent of the global energy annually and produces more than twenty

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percent greenhouse gas from its buildings. In addition to these numbers, we have to address
that the real estate sector uses forty per cent of raw materials globally and generates
twenty-five per cent of the solid waste. Therefore, sustainability is a real challenge for
companies in the real estate market and becomes a core activity among construction and
green buildings in the industry. In the case of Europe, Caiias et al. (2012) stated that real
estate sectors in Europe generate thirty-five per cent greenhouse emissions and consume
forty-five per cent of the energy.

Although the trend in green building and sustainable activities in the real estate market has
been increasing in the last few decades, a gap can be seen between sustainable activities and
acting towards sustainability. This gap is recognized since there is a lack in the strategy,
culture, and tools needed to turn promises into actual actions among the industry players
(Ionascu et al., 2020).

2.2.2 Core drivers in the sustainable property market

As we mentioned before, the real estate sector caused the vast majority of the greenhouse gas
emissions and consumed many natural resources (Holness, 2009). Additionally, Nelson
(2008) argued that globalization and ease in the flow of information had increased the
awareness of the environmental impacts of the real estate industry among the public. He
argued that although the environmental forces' impact does not play a significant role in
forcing the industry to shift towards sustainability, this awareness has increased the demand
from the public to increase investment in sustainable constructions and buildings generally.

The other primary driver in the sustainable property market is governments where it can
directly impact the market by three primary techniques. These techniques, according to
Nelson (2008), are:

● “regulation of what buildings can be constructed and how they are to be managed –
typically, promulgated through building codes or via the light of transparency, by
requiring building owners to post energy or other environmental performance scores.

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 ● taxation and environmental regulation that alters market dynamics – by raising the
cost of inefficiency through taxes, an emission trading system or subsidizing moves to
more sustainable buildings; and,
● the occupancy and construction of their own facilities – which can set market
standards since in most countries the federal government represents the single largest
tenant and developer." (p.8)

Nelson (2008) also argued that governments could indirectly influence the actual state market
by increasing the public's awareness about the benefits of sustainability in the property
sectors.
Another key driver to push companies in the actual state sector to shift sustainability is
tenants and demand from customers. Darko et al. (2017) argued that besides the cost
limitation, customers and the public would influence the real estate market to practice
sustainability in their projects if the public becomes more aware of the benefits and see the
bigger picture of sustainable actions long term. According to Darko et al. (2017), education
and better information flow play a significant role in increasing public awareness and rising
consumer demand.

2.2.3 Key drivers in sustainable real estate

In the literature review study conducted by Falkenbach, Lindholm and Schleich (2010), a
framework of key drivers was identified. In this study, key drivers are divided into three
categories which are external level drivers, corporate level drivers and property level drivers.
Each driver explained separately, and they have found only one key driver in the corporate
level which is image benefits.

External drivers discussed at the international level were the Kyoto Protocol and the UN
Principles for Responsible Investment are the most important global initiatives. Additionally,
much national legislation is directed at home energy efficiency, CO2 elimination, and waste
management. The rules put a heavy burden on taxpayers, affecting all stakeholders. Other
than policies, many countries are adopting green building incentives. This also requires
subsidies for refurbishing old stock, as well as tax exemptions for green developments,
including the LEED certification for Arlington's Green Building Incentive Program
(Falkenbach et al. 2010)
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One main corporation-level engine could be seen in the image benefits. Recognizing that
sustainability has been a major issue for industry and the environment causes good reputation
benefits for the company. Newell's (2008) study examines property corporations' approaches
to sustainability. He learns that companies will show their commitment to the environment
and society by producing corporate social responsibility and carbon disclosure reports.
According to Newell (2008), sustainability efforts allow property companies to stand out as
leaders in the sustainability revolution. He states that leading real estate companies actively
promote their environmental stewardship, thereby being able to attract substantial media
interest. Sustainable property companies additionally benefited from inclusion in global
sustainability indices.

At the property level perspective, To make a business case for sustainable buildings, it is
essential to have credible data on their effect on economic cash flows. Thus, when assessing
the economic factors of sustainability, the rent premium associated with renewable or
accredited assets is a critical factor to consider (Falkenbach et al. 2010).

Apart from leasing rates, reduced maintenance costs are seen as a factor in supporting
sustainable buildings. While advancements in sustainable real estate, there are relatively few
researches examining the impact of sustainability on operating expenses (Falkenbach et al.
2010).

The probability of an investment can be affected by a number of factors. Reduced costs in

sustainable buildings are also addressed in terms of reduced chance of obsolescence or
vacancy. Reduced obsolescence or future-proofing versus the risks associated with non-green
buildings being more common. According to regulations and customer demands,
uncertainties arise in all sorts of ways, such as increased cost of retrofitting non-sustainable
homes, as well as increased cost of reduced targets and increased penalties for greenhouse gas
emissions and electricity consumption (Falkenbach et al. 2010).

2.2.4 Factors limiting the sustainable property investment

Even though the sustainable property market has seen unprecedented growth and has been a
growing trend of the past decades, there are still shortcomings that limit Sustainable Property
Investment, thus making the sustainable business suffer.

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In a study penned by Nelson (2010), he identifies five different limiting factors that can limit
the growth and fast adoption of green buildings.

1. Lack of comprehensive and transparent operating and transaction data needed to form
the basis in real estate investment decision making
2. A lack of universal standards for green building
3. The agency problem, that shows the misalignment between owner costs and tenant
benefits
4. The issue between current costs and future benefits
5. Longer earn-back period of green improvements

These limiting factors can be attributed to limiting the sustainable property investment along
with other factors such as high transaction costs, information knowledge, gaps in belief,
insufficient participation by international organizations, a high cost to integrate clean energy
sources, regulatory risk, unclear intellectual property, etc (Hoen, 2014).

According to a study by Tran, Thi & Do, Nhung & Vu, Thi & Do, Nguyen. (2020), the most
significant difficulty is access to capital for green investment projects and identifying the
government as a key player in this issue. This limiting factor along with the other several
ones identified and due to the challenges imposed by the market participants (such as, but not
limited to: the government, investors, financial intermediaries) still impede green investment
options.

A need for better policy making was identified constantly among the literature, and Yang &
Yang (2015) survey that analyzed sustainable housing in Australia identified it as a main
issue affecting sustainable investing among the respondents of their survey.

Duong and Trang (2019) argue that five motivations affect more than 60% of the green
investment decision process. With the key motivator being Competition in the Market, the
other four are Scarcity of Fuel, New Government Regulations, Smart Technology and
Knowledge and Innovation.

2.2.5 The risks of not investing in green

For a high-growth market such as the real estate market, fast adoption of new strategies and
techniques can play a major role in a company’s survival. The immediateness that

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sustainability imposes is no stranger to fast adoption and is not an exception within the
property market. A multitude of risks can be identified for investors not adopting green
building as identified by Nelson (2008). Such risks are of environmental, market and
regulatory nature and are due to grow in significance with the passing of time. For the
environmental nature, risks of using outdated building techniques can result in property
damage due to the ever-changing climate that the planet is currently facing. Natural
calamities are no longer freak occurrences and can pose major risks to buildings. As time
goes by, more and more governments adopt harsh regulatory measures in order to encourage
green building, thus, a regulatory risk arises from not adopting sustainable building practices
and designs. The market risks may be one of the most obvious issues encountered, rising
green standards risk making non-green buildings obsolete, as more and more of the market
trends in the way of sustainability. Higher costs of operating as well as the stigma that a lack
of sustainable infrastructure brings can deter potential clients away from non-sustainable
properties. (CB Richard Ellis 2009; Nelson 2008)

Steadily increasing energy prices coupled with rapid growth of demand have caused the
European market to turn to energy efficient properties and sustainable building practices. This
growth can be observed in the graph inserted below, which displays the growth of both
energy and gas prices in the United Kingdom for a period of 10 years.

Figure 2: 10 Year Power and Gas Domestic Price Index & long term trend* (According to
2013 data from British Gas, SSE & NPower; Guy Thompson 2013)

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The inability of certain investors to adapt to the new standards is one of the highest risks
faced and a lack of vision can harm adoption in local markets and slow down development of
key sustainable infrastructure. (Nelson, 2008)

2.2.6 Radical green

The term “Radical Green” is relatively new and refers to the emerging trend of “second
generation green buildings”, these buildings should “provide significant improvements on
today’s first generation green buildings” (Kibert & Grosskopf, 2006). Kibert and Grosskopf
(2006) note that current green buildings are less integrated with the ecological system as the
new radical green buildings create a synergistic relationship between human and natural
environments.

In Finland, the Swedish building company Skanska has been observing the transition to green
buildings and has chosen to classify buildings through different shades of green. The lightest
green simply meets government standards and doesn’t implement additional measures. The
slightly deeper green tackles standards for energy, water, material and carbon emission but

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from a wider perspective than what it is asked for, going the extra step to ensure its
sustainability. The darkest shade of green goes beyond the mentioned regulations and is
planned with the future in mind, as this type of building is the most “future-proof” type of
building, allowing for sustainable criteria such as : zero net consumption of primary energy,
zero level of construction waste, eco-friendly materials, minimizing the use of clean water
(Nousiainen 2011).

Due to the current economic and social unrest, growing concerns about rising energy prices,
and increased incentives by governments to build sustainably, the concept of “Net Zero
Energy Buildings” has seen a powerful increase over the last decade (Steven Winter
Associates, 2016). A 2017 study by the US Office of Energy Efficiency & Renewable
Energy has found that the biggest energy consumers are buildings. (US Office of Energy
Efficiency & Renewable Energy, 2017)

Net zero energy buildings are the answer of the real estate industry to the growing energy
prices and the sustainability movement & the public pressure it comes with. In short, a net
zero energy building is a building that has an energy utility bill of $0 over the course of a
year, however, other metrics such as net zero site energy or net zero source energy can come
into play.
These types of buildings are a first step towards next-generation green buildings. A net zero
building has a much lower environmental impact than traditional, “first-generation green
buildings” through the use of sustainable design and efficient building ways.

A radical green building does not only incorporate the ecological aspect but also the social
one. People have to want to work and occupy such a space and the synergy mentioned above
is crucial to this aspect. The key to creating a radical green building is to allow for a natural
inclusion of the social aspect while respecting the ecological one (Steven Winter Associates,
2016).

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2.2.7 The future of the sustainable values
In order to be able to understand where the future of sustainable values is heading we have to
look back on how sustainability has grown into the global trend that we are now so aware of
and why it has been such a defining movement for the last decades.

One defining decision that has helped contribute to the diffusion of the world “sustainable”
worldwide, has been the adoption of the UN’s sustainable development goals (Bastianoni et
al, 2019).

SDGs in their recent form are a universal set of goals, targets and indicators that UN member
states will use to frame their agendas and policies over the next 15 years. SDGs follow, and
expand on, the Millennium development goals (MDGs), which were agreed by governments
in 2000 (Hák et al, 2016).

These targets together with their promotion by widely known companies such as Coca-Cola,
GAP, GE, Nike, etc. are some of the most recognizable elements of the sustainability
movement and have been one of the main motors of the trend. (Nelson J, 2017)

One of the key questions that has arisen from the sustainability movement is how this trend
can affect business. Differing beliefs on this can sometimes conflict between members of
different organizations, however, a common ground was found in a survey in which 502
managers from nine different companies in five distinct sectors (FMCGs, chemicals,
telecommunications, aerospace, and electric utilities) took part, which was conducted
between 2007 and 2009. The question that was asked in the survey was “How would you say
most managers in your company think about sustainability and corporate social responsibility
(CSR)?” and the common ground that was found was that no single meaning of
CSR/sustainability predominates. (Laszlo, C. and Cooperrider, D.L., 2010)

In business, creating sustainable value is, for the purpose of this part, the dynamic state that
occurs when an organization creates value for both its stakeholders and shareholders.
(Freeman, 1984). Due to the situation of today’s marketplace, in which public expectation for
human health and health of the environment is at an all-time high (Huang et al, 2010)
companies which understand the value of creating sustainable value are seen as creating
competitive advantage. Those with the knowledge and competencies to create sustainable
value are finding more loyal customers, a greater ability to hire and retain talent (Glavas,
2009), better media coverage, stronger partnerships with nongovernmental organizations

20
(NGOs), and regulators who are more willing to collaborate in shaping industry standards
(Laszlo, 2008).

2.3 Green building

Before the global financial crisis in 2008, green building was a trend among companies; the
green building market increased but mainly because of the demand for "greenwashing"
among companies where companies exaggerated their environmental practices to gain profit
(Nelson, 2010). Due to the financial crisis and collapse in the economy, particularly in the
real estate market, the green movement among companies and investors dropped
dramatically. Christensen (2017) argued that the financial crisis in 2008 created an era in
which stakeholders saw sustainable practices with skepticism and forced companies to no
longer see sustainability as a social good. Instead, stakeholders expected companies to see
sustainability as a positive impact on their financial bottom-line. As recovery started, more
and more companies realized the importance of their environmental footprints in the market
and started to practice green activities in the market and saw the marketing opportunity from
the profitability point of view since the demand for the green building had raised (Nelson,
2010).

Since the market recovery, environmental and energy issues have received greater attention
from the public and society as urbanization has developed (Si, 2016; Zhang, 2017).
Accordingly, it is seen to promote buildings that are healthy, safe, comfortable, and
environmentally sustainable; the promotion and implementation of the green building concept
have become a primary theme of modern construction (Darko et al., 2016). Differences in
economic development, geographical surroundings, resource availability, and other factors
have made it difficult for academics to have a mutual definition of green buildings in the
literature (Hwang et al., 2012). Within the literature, “green building” & “sustainable
building” are distinguished based on the idea that “sustainable building” is a concept focusing
on higher urban planning and offering creative, functional technical quality (Schumann,
2010, according to Lutzendorf and Lorenz 2007/2008, p.60).

Green buildings are difficult to describe since the term is still evolving and a variety of
viewpoints exist. The World Green Building Council (WorldGBC) is a global network of

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green building councils with over 70 member countries. It claims that different countries and
regions have different characteristics, such as history, culture, traditions, diverse climate
conditions, various building styles and ages, and environmental, economic, and social
priorities, all of which influence GB methods (WGBC, 2018). Though the green building has,
in recent years, been better determined as a technology (Darko et al., 2016) and certificates
have been advancing the trend of green buildings, more and more developers have started
focusing on how to be able to create value for their customers.

A need for commonly recognized specific features of green buildings has arisen from the
globalization of the industry and the exponential growth of the sustainability movement; thus,
in 2008, Nelson gathered the main features of a green building, with the thoughts of
McCartney (2007). These main features are an attempt at creating a foundation of criteria that
can be commonly recognized globally and that can help classify a building as a “green
building.” It is important to note, however, that due to the unicity of the real estate market, it
is unlikely that two buildings will have the same features. This issue is tackled by certificates
such as LEED & BREEAM on which we are going to take a closer look at in the coming
chapters.

The main features recognized by Nelson (2008) are illustrated in the following table.

Table 1: own illustration from Nelson (2008) data

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2.3.1 Investing in Green Building

Environmental issues are becoming much more influential and critical to business strategies.
As a society, people expect businesses to take on more environmental and social
responsibility. Companies can produce economic returns or competitive advantages by taking
a few simple steps to protect the environment. However, only a few companies in each
industry can convert environmental investments into competitive advantages (Jørgensen S.,
2019).

For a long time, academics, managers, and the general public have been fascinated by the
possibility that businesses will benefit from environmental investments, or as Orsato, R. 2006
describes it, "the win-win hypothesis." Academics have been looking for correlations
between environmental investments and business variables like market share and stock prices
for a long time. They have also shown that there is a business case for sustainability.
Investing in green buildings benefits not only the environment but the stakeholders (Orsato,
R. 2006). According to Kolbe et al. (2013) and Geltner et al. (2006), the first step in this
process is to estimate future cash flows from the investment since the purpose of investment
is to profit from a real estate's ability to generate profits. Adjustment "for timing differences
among expected streams of benefits flowing from investment alternatives" is the next phase
they address (Kolbe et al., 2013:13). Investors place a higher value on assets that can generate
income sooner than other assets. The asset's level of risk is determined as the final major step
in the decision-making process. The lower the value of a property, the more alienated the
return on investment is from the investment decision as it becomes riskier. Since most
investors are risk-averse, they expect a higher final return on a riskier asset (Kolbe et al.,
2013; Geltner et al., 2006).

A growing number of companies are focusing on "green" real estate (Geiger et al., 2013,
Temmink, 2010, Nappi-Choulet and Decamps, 2013). There are a variety of opinions on this
investment behavior. According to Geiger et al. (2013: 75), these investments are the result of
investors seeking additional returns on their investments. They emphasize that while "ethical
consumerism has been a key driver of growth, with investors paying a premium for products
that align with their personal values" and that investors are interested in the "positive intrinsic
value of sustainable properties," it is a misconception that investors would give up a portion
of their money and future profits to invest in a green asset.

23
According to Martin and Gossett (2013), tenants profit more from green buildings than
owners. They use the example of an energy-efficient building, in which the owner is
responsible for energy efficiency upgrades, and occupants benefit in terms of energy and,
thus, money savings. Sustainable buildings typically have higher rents and occupancy, which
can be interesting for investors while also providing a noticeable interest for occupiers
(Martin and Gossett, 2013). Although "green" real estate has a higher rent premium, investors
must contend with the high value of such assets. Sustainable real estate is already a costly
asset, but due to a scarcity of private resources and limited access to leverage, it can be a
barrier for investors. Although the green building has been seen as a forward-looking
investment, the construction costs of a green building remain higher than a conventional
building. In socially responsible real estate investments, these considerations may serve as a
deterrent (Nappi-Choulet and Decamps, 2013 and Martin and Gossett, 2013).

"A blend of regulatory, financial, and voluntary interventions will address barriers that
prevent greater private investment in green buildings, including voluntary rating systems,
building codes, tailored financial incentives and greater action by utilities." (The World Bank,
2017). According to the International Finance Corporation (IFC) and the World Bank, the
historic Paris Agreement on Climate Change would continue to open up prospects for climate
investments. According to the report, green building investment accumulated 388 billion
dollars in 2015, and it will be worth at least 3.4 trillion dollars by 2025. Accordingly, the
World Bank predicts annual market growth of 1.2 percent and increased opportunities in the
sector (The World Bank, 2017).

2.3.2 Green Building Certification Market

A variety of environmental certification measures have been established around the world in
parallel with the global progress in sustainability awareness. Building environmental
certification systems, also referred to as green building certifications, have become common
in the real estate sector over the last decade, and many countries have developed domestic
assessment methods (Cole and Jose Valdebenito 2013). Despite the fact that domestic
methods have the advantage of promoting green building activities tailored to particular
climates and cultures, Cole and Jose Valdebenito (2013) recognize a growing aspiration in the
global market for standardized assessment methods.

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The most popular assessment methods are LEED and BREEAM, LEED being U.S. based and
BREEAM from the U.K. The German DGNB, Finnish Promise, French HQE, Italian
Protocolla Itaca, Portuguese Lider A, and Spanish VERDE are some of the other European
instruments. Although they are all labeled environmental or sustainability certifications, they
include different aspects of sustainability and have different points of emphasis. The Kyoto
Protocol and the U.N. Principles of Responsible Investment are two of the most relevant
international initiatives. Furthermore, most countries' national legislation focuses on energy
conservation in buildings, carbon emissions, waste management, and other issues. Both major
stakeholder groups are impacted by these regulatory mandates, which result in higher
business costs for investors (Falkenbach et al., 2010).

The request for standardization and brand recognition has aided in the increased global use of
the two most well-known building environmental certification systems, the Building
Research Establishment Environmental Assessment Process (BREEAM) and Leadership in
Energy and Environmental Design (LEED).

2.3.2.1 BREEAM

BREEAM is a British certification system administered by the Building Research

Establishment Global (BRE Global), launched in 1990 and has since expanded to become one
of the world's most influential green building market practices (BREEAM, 2021).
Professional BREEAM assessors process BREEAM certification; it is strongly advised that
an assessor be appointed early in the design process to assist and make suggestions to let the
project cost-effectively achieve the desired rating. If all criteria are met, and energy efficiency
is validated by computer modeling, the building receives a BREEAM certificate when it is
constructed.

BREEAM can certify almost any type of building and has a variety of assessment schemes to
do so. In countries such as the United Kingdom, Germany, the Netherlands, Norway, Spain,
Sweden, and Austria, BREEAM has local adaptations; countries without local adaptations
can use one of the four BREEAM International schemes mentioned in Table 2 (Olsson,
2013).

Table 2: List of BREEAM International schemes and descriptions. Own illustration.

25
Each of the four schemes has its own manual, which contains a range of technical
information and details on credit allocation and assessment. The technical details are divided
into ten categories (Table 3), with mandatory criteria for each category that must be met to
receive the final certification.

Table 3: area descriptions in BREEAM assessment. Own illustration.

BREEAM uses a point-based rating scale with a percentage weighting system; for example, if
a project receives 5 out of 10 points for energy, the energy category receives a 9.5 percent
score. Each category is calculated and accumulated, with 100 being the highest possible
score. BREEAM can adjust the requirements based on local priorities thanks to the weighting
system.

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Pass, Good, Very Good, Excellent, and Outstanding are the six levels of BREEAM
classification, as shown in Table 4. A project must be re-evaluated after a year to receive the
outstanding rating (BREEAM Manual, 2021).

Table 4: BREEAM classification levels (BREEAM, 2021). Own illustration.

BREEAM is the most used certificate in the European market, accounting for 80% of the
market share for sustainable building certifications (Doan et al., 2017).

2.3.2.2 LEED

The US Green Building Council (USGBC) established LEED in 2000 to provide a national
standard in the United States, and it has since grown in popularity around the world. Today,
LEED is one of the most widely used green building rating standards globally (LEED, 2021),
and local adaptations of LEED are available in several countries. As seen in Table 5, the most
recent version of LEED was published in 2013. Currently, the rating system has five main
groups, each of which contains ten rating schemes. These schemes can be used to certify
residential buildings, public buildings, significant renovations, and retrofitting of existing
buildings.

Table 5: LEED rating schemes in use. Own illustration (LEED, 2021)

27
Different green features of a building will earn different points under the LEED framework, a
point-based system. LEED projects gain points by obtaining prerequisites and credits for
building excellence in various areas, ranging from the integrative process to indoor
environmental quality. The LEED certification level of a project is determined by the number
of points it receives. A project receives one of four LEED rating levels based on the number
of credits it receives: Certified, Silver, Gold, or Platinum. If a building's LEED score is
between 40 and 49, it receives a basic LEED certification. The points necessary for LEED
Silver and Gold certifications are 50–59 and 60–79, respectively. LEED Platinum is the
highest level of LEED certification, given to buildings with 80 or more points (Doan et al.,
2017).

Projects must fulfill prerequisites and earn points in each of the LEED credit categories. The
following are the basic credit categories for LEED certification: Energy and Atmosphere,
Indoor Environmental Quality, Innovation in Design, Materials and Resources, Sustainable
Sites, Regional Priority, and Water Efficiency.

The rating is composed of minimum and maximum requirements for building design and life
cycle efficiency, with the aim of reducing the effect on the US Environmental Protection
Agency's regionally critical environmental categories (EPA). The rating is promoted for

28
prevalent use around the world, but it has been criticized for its lack of regional elasticity
(Suzer, 2015).

2.3.3 Green Leases and the trend in Europe

According to Kok et al. (2010), the European lease structure is a major problem that stymies
environmental performance initiatives. The most popular lease type in European commercial
property markets is a net lease contract, which makes the user responsible for the building's
energy costs. The use of a green lease is becoming increasingly important in any commercial
green building operation, as more real estate investors recognize the value of incorporating
sustainability into their investment strategy. The goals of the lease parties, their expectations
regarding certifications, running and maintaining the space, and their priorities regarding
increased costs associated with certain green leasing principles are all taken into account in
an effective green lease. Both the landlord and the tenant will benefit from improved
management and lower running costs if they both behave responsibly in terms of the most
effective use of materials and resources (Šindelárová, 2011)

According to Freeman Jr. (2008), core elements of green leases can be allocated and
prioritized differently depending on the lease parties' agreement. A green lease considers the
building's rules and regulations, such as how tenants can use the space and what duties each
party must complete. The lease also specifies how the building's recycling and waste disposal
will be managed and who is responsible for what. As a green lease allows for establishing
rules and regulations for tenant improvements, all parties are responsible for the building's
repair and maintenance. According to Freeman Jr., a green lease agreement provides a list of
how operating costs will be split between the tenant and the landlord in proportion to their
respective obligations in the building. A green lease considers a summary of the services
offered, such as cleaning and janitorial services, as well as who is responsible for organizing
and operating them. Based on their experience with a LEED-certified building in Finland,
Skanska, a Swedish commercial construction company, has stressed the importance of
calculating and setting goals to get tenants interested in the green lease (Nousiainen 2011).

Šindelárová (2011), in her paper, stresses that there is no standardized concept of what
constitutes a green lease. She explains how green leases can differ in color from light to dark.
The light green contains only statements of goal, the mid-green contains a schedule of

29
building management criteria, and the deep or dark green contains fines, financial sanctions,
or rent reductions. Šindelárová also reflects the advantages that green leases can obtain.
Compared to traditional commercial leases, the commercial green leases tend to have a more
positive impact on net operating income. Improvements save the tenant money and increase
the landlord's future investment value. The building would become more appealing to tenants
as a result.

2.3.4 Green Financing and Green Bonds

Green bonds, like conventional bonds, are a form of fixed-income debt instrument (Talbot,
2017). The main difference is that green bond issuers agree to use the proceeds of the bonds
to finance environment-conscious initiatives such as biodiversity conservation or climate
mitigation (OECD 2017b; UNDP 2016). In 2008, the World Bank, in conjunction with the
Swedish bank SEB, launched the first "green" bond. This bond set a precedent for potential
issuers and established the basis for market practice by establishing a framework defining
how qualified projects were selected and the conditions for the use of proceeds and getting it
reviewed by an external actor (SOU, 2017). For several years, multilateral development
banks made most issuance of the green bonds, the market remaining small (Talbot, 2017).
The market began taking off in 2013, when Vasakronan, a Swedish real estate company,
issued the first corporate green bond, and several US states and Canadian provinces joined
the green bond market (SOU, 2017).

Although the concept of green bonds is still relatively new and lacks a standardized certifying
entity, in academia, the definition of what forms a green bond is still somewhat indistinct
(Horsch 2017). Previous research has also sparked controversy about the concept's proper
labeling, with some proposing that the new asset class be named climate bonds rather than
green bonds (Mathews and Kidney 2010). Nonetheless, the following academic papers seem
to have settled the debate (Grene 2015; Read 2016; Horsch 2017) and issuers such as the
World Bank, which has been using the term "green bonds" since the first issue in 2008.

There is no agreed-upon concept of what it means to be "green in the green bond industry."
Market participants have established voluntary standards, guidelines, and certifications and
new and fragmented national regulations on green bond label standardization (Talbot, 2017).
While not being compulsory, the Green Bond Principles (GBP) has become standard practice

30
in the market (CBI, 2017a). Developed by 13 banks, the Green Bond Principles were
released by the International Capital Market Association (ICMA) in 2014 (SOU, 2017, 165).
The GBP has four key components. The first principle, the use of proceeds, states that funds
generated by green bonds should be used for initiatives that benefit the environment. The
GBP offers a taxonomy with an indicative but not comprehensive list of project categories
that could be funded with green bonds for this reason. Renewable energy, climate adaptation,
and energy-efficient buildings are representations of broad categories. Second, the framework
by which issuers select green projects should be clearly stated, along with the criteria that
define which projects are eligible. Third, to ensure transparency, the funds should be
monitored and managed separately. Fourth, the impact of projects should constantly be
monitored by the issuer, reporting the effects to investors. Furthermore, the green bond
framework, which outlines the above principles, ideally would be reviewed externally
(ICMA, 2017b).

Green bonds may provide financial benefits to issuers, such as attracting new investors and
offering a marginally lower interest rate (OECD, 2017b; SOU, 2017). Furthermore, there is
anecdotal evidence of organizational benefits such as improved cross-departmental
interactions and a greater emphasis on sustainability issues. However, there have been
concerns that the benefits are not tangible enough to generate environmental additionality
(Shishlov, Morel & Cochran, 2016). Additionally, the lack of standards could lead to the
financing of low-environmental-integrity projects through green bonds (De Nederlandsche
Bank, 2017; Shishlov, Morel & Cochran, 2016; HLEG, 2018). This is a particularly important
issue since states and supranational entities are increasingly looking to intervene in the green
bond market to accelerate its expansion (SOU, 2017) and create standard procedures and
definitions for green bonds (HLEG, 2018).

3. Research method
This segment introduces the study's research paradigm and methodology. Following the
overall research design identification, the section justifies an explanation of the data

31
collection and data analysis methods used. Following that, the study's sample is introduced.
Finally, ethical considerations for enhancing trustworthiness are shown.

3.1 Research methodology

3.1.1 Research Paradigm

When contemplating conducting a study, the researcher should establish the research's
fundamental starting point and raise various critical questions required for developing a
suitable research philosophy. According to Holden and Lynch (2004), the essential issue is
"Why research?" The author starts by stating that the researcher's scientific philosophy is
founded on his or her fundamental assumptions about science and existence. If these basic
understandings and acceptance of reality's stance are developed, a research model may take
shape (Lowndes et al., 2018). According to Kothari (2004), the object of science is to
discover answers to questions through the application of scientific methods. It is fair to
assume every analysis has a distinct objective, while the overarching goal of accurate science
is to ascertain the yet-to-be-discovered reality. Similarly, the fundamental motive for
undertaking research can vary and may include personal gain, a desire to confront an
obstacle, a desire to serve humanity, or a desire to gain academic pleasure (Kothari, 2004).

Collis & Hussey (2014) identify positivism and interpretivism as two major divisions within
the research framework. Implementing any of these paradigms necessitates the researcher
making fundamental assumptions about social realities, which serve as the foundation for the
research framework. Positivism asserts that existence exists independently of us and is
verifiable by observational evidence such as experiments. This type of study is typically
objective and does not require the researcher to make any subjective judgments about the
topic (Collis & Hussey, 2014). This perspective evolved from a skepticism founded on the
other model (interpretivism), which assumes that our investigation of social phenomena
affects them. As a result, it is contextual and influenced by individual values and experiences
(Collis & Hussey, 2014). In order to best serve this study, an interpretive approach will be
used, as the object of data collection and interpretation is to discover information that cannot
be evaluated under the premise that all participants will have identical responses.

32
3.1.2 Choice of methodology
There are three types of analysis approaches deductive, inductive, and abductive. An
inductive approach will be applied in this study. Dubois & Gadde (2002) state that the
inductive method begins with gathering relevant information, continues with data collection
and concludes with creating a hypothesis based on the collected evidence. Additionally,
Saunders et al. (2016) note that inference is a suitable technique where the analysis is new or
has not been progressed substantially and where researchers plan to use qualitative
approaches. Additionally, it would be possible to produce new data and information through
small samples, as inductive analysis emphasizes (Collis & Hussey, 2014). Thus, the critical
distinction between inductive and deductive approaches is that the inductive approach begins
with findings/observations and progresses to theory, while the deductive approach begins
with theory and progresses to findings/observations (Bryman, 2012). The study's objective is
to develop an interpretation of an individual's thoughts and emotions, and an inductive
approach enables an open mind and the generation of more nuanced responses (Azungah,
2018). Thus, the framework would be to formulate a research query within the given subject,
to gather the requisite information to conduct an interview, to observe the gathered data, and
finally, to make conclusions and recommendations for future research.

This study would apply the Falkenbach, Lindholm, and Schleich (2010) principle, in which
the authors classify main drivers into three categories (External, Corporate and property). The
study acknowledges that these three theories have an impact on decisions on sustainable real
estate investment. As a result, this hypothesis will not be tested; rather, it will serve as a
foundation for the architecture and investigation of the "how" and "what" facets of the market
that have had the most effects, with the goal of developing a more complete understanding of
sustainable real estate. With this in mind, an inductive approach would be used, with the aim
of gaining new knowledge in mind.

3.1.3 Qualitative Method

Since this study intends to understand the effect’s sustainability implementation and
sustainable real estate have on the European real estate sector; therefore, quantitative research
is not proffered because the intention is to deepen understanding around a phenomenon—this
study conducted in qualitative research. Qualitative research is more concerned with data that

33
cannot be measured, and it is used for exploring and understanding a particular situation,
where the researcher has to make interpretations of the meaning of the data. Mixed methods
research involves gathering quantitative and qualitative data using distinct designs (Creswell,
2014). Hoepfl (1997) stated that “qualitative research can also be used to gain new
perspectives on things about which much is already known, or to gain more in-depth
information that may be difficult to convey quantitatively” (p.49) According to Malhotra
(1996), the primary purpose of the qualitative research is to get an in-depth understanding of
people’s opinions, behaviours, and motivations around a phenomenon. Since the intention is
to understand people’s attitudes and perceptions around a phenomenon, data should be
gathered as non-numerical, so qualitative is a preferred method in these researches.
(Creswell, 2013)

3.2 Data collection

This article makes use of primary data. To collect the data this study conducted interviews
from seven experts in the real estate industry. Qualitative interviews (semi-structured
interviews) serve as the primary source of evidence. Primary data is material that has been
collected directly from the source. There are several methods for gathering this data.
Interviews, focus groups, polls, and studies are only a few examples (Collis & Hussey, 2014).
Concentrating on interviews may be done in person, over the internet, in groups, or by email.
By conducting interviews, the researcher can elicit historical data and control the questions
posed (Creswell, 2009). Structured, semi-structured, or unstructured interviews are all
possible (Saunders et al., 2012). A semi-structured interview would have some questions
written in advance, but additional questions will be created during the interview, making it a
very versatile choice (Collis & Hussey, 2014). Semi-structured interviews are used to elicit
information about "why," not just "what" and "how." As a result, semi-structured interviews
are ideal for exploratory research, as they offer valuable history and qualitative information
(Saunders et al., 2012). To delve further into the subject and examine the borrower's

34
motivations and causes and involve business experts, semi-structured interviews are chosen.
Thus, it enables a deeper examination of "why" real estate investors invest in green building
and the use of alternative interview questions for interviewees. Seven semi-structured
interviews were used to gather primary data.

3.2.1 Interview questions

It was discussed in the previous section that semi-structured interviews were chosen. The
semi-structured methodology falls between the structured and unstructured approaches in that
specific predetermined questions act as a jumping-off point. As a result, this solution seemed
to be the most fitting. The authors desired an open dialogue with the subject but needed some
prepared questions. By preparing several questions in advance, the writers may generate
additional ones that are more tailored to each interviewee (Saunders et al., 2009).
Additionally, the semi-structured technique is deemed necessary when conducting
interpretive analysis, so managers consulted may directly attribute meaning to particular
events. Interviewers should refrain from asking closed questions, as open questions
encourage interviewees to express their thoughts and views more fully. Thus, this interview
approach is suitable for this research because to understand strategic renewal from the
viewpoint of middle managers, it is essential to identify fundamental attitudes, traits, and
habits (Saunders et al., 2009; Yin, 2003). Table 6 shows the list of interviews and shows the
language and in which way the interviews were held. Due to the Pandemi, most of the
interviews were held online. Moreover, the list of questions attached to the end of this study
(See Appendix 1). The interviews were held in two countries, Finland and Sweden,
interviewing industry professionals in three different countries; Finland, Romania and
Sweden. The experts chosen for this research were selected based on their professional
qualifications and reputation in the real estate industry. The experts were contacted through
professional contacts.

Table 6: List of interviewees

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3.2.2 Data Analysis

The primary data in this research were analyzed using a thematic approach. Thematic
analysis is the method of identifying and interpreting trends in qualitative data in order to
identify recurrent themes (Braun & Clarke, 2006). The aim of conducting a thematic analysis
in this thesis was to produce a high-quality qualitative data analysis. To adhere to the
inductive analysis approach, the objective was to produce core codes and themes from the
interviews in order to later create and present a conceptual model (Erlingsson & Brysiewicz,
2017).

A thematic analysis was the most appropriate method for this study since the semi-structured
interviews inquired about people's perspectives and viewpoints on the chosen and
investigated subject (Braun & Clarke, 2006). A thematic analysis entails the generation of
codes and themes from interviews, primarily by defining the underlying system of definitions
(Taylor & Ussher, 2001). Additionally, the following sequential steps were used in the
thematic analysis:

The analysts familiarize themselves with the data in the first phase of the thematic research.
To do this, the writers listened to recorded interviews separately and then meticulously
transcribed each interview one at a time. The authors read and re-read the transcriptions of
the interviews after they were completed, as well as taking individual notes on the records.
The authors then performed a systematic coding of the results. This was accomplished by the

36
identification of overlapping themes in the transcribed data from the interviews. The third
stage included the writers developing themes based on the coding. Braun & Clarke (2006)
assert that the creation of coding and themes is often driven by the study's research issue.
However, the reviewers considered the themes' authenticity and durability. That is, the writers
skipped and edited the themes until they were pleased with each one. This was undertaken to
answer the study query and to collect the most relevant details for the results section (Braun
& Clarke, 2006). After considering the common themes in the data collected, generic names
for each were created. The topics in this analysis were classified into groups, which serve as
subheadings in the findings section below. Additionally, in the final phase of the thematic
study, the authors reported and identified the data gathered in a structured manner, following
the interview guide's structure and looking for comparisons, as well as doing an analysis of
previously collected data. This enables the authors to respond to the research question in a
formal and logical manner, allowing the reader to develop a deeper understanding of the
topic.

3.3 Reliability and Validity

Credibility in the research is all about confidence in the data collected and later in analyzing
the data. The first thing that researchers should consider regarding credibility starts with
decisions about the area of the study, literature review, interviews and the method to collect
data. Participants for the interviews chosen were diverse based on their experience, age, and
gender. According to Collis & Hussey (2014), researchers should ensure that all data is
described and explained accurately. To ensure the validity of data collection, researchers in
this study ensured that no irrelevant data are included in the analysis process and made sure
that the most relevant data are not excluded from the study.

3.4 Ethics
It is tremendously essential for researchers to make sure that the research is conducted
ethically and morally. To be ethical, we need to ask for permissions and inform interviewees
about the study's purpose and scope in advance. In this study, researchers contacted potential
participants through emails and social media such as LinkedIn. The first researcher
introduces her/himself, the purpose of the study and explains to the candidate why her/his

37
participation and their opinions would be necessary for researchers for this study.
Additionally, researchers were informed participants about the expected duration of the
meeting to manage their schedule. After they agreed to do the interview, a GDPR form was
sent to them to ensure that they were informed about their rights and know-how; we will
collect their data and conduct the interview. Due to the Covid-19 situation, all the interviews,
except one, were conducted online, and interviews were recorded. The recordings were used
only for this study, and it was not used for other purposes and shared with another party.
Some of the participants proffered to interview in their language, so to be transparent, in the
appendix section in this study, we included the translated version of the interview questions
and made sure that participants get a copy of the translated version of the interview.

4.Empirical Findings
In this study, the authors found three themes from the data collected. The first theme is
Investment Rational, which includes three categories: return on investment, government
subsidies, and location. The second theme identified as the green building, which identified
from two categories. These categories are reasons to invest and greening the brown. The last
theme identified in this study is measuring the greenness of a building which includes four
categories. The first category in this theme is green building characteristics. The second
category is certifications, and this list continues with brand image. The last category
identified in this theme is valuation. See table 7.

In this study, the authors first found similarities and codes from the data collected and
identified categories and finally identified themes at the end. Each category will be described
separately in the empirical findings below. Finally, in the analysis part, the authors discuss the
relationship between each theme with the previous findings in the literature review.

Table 7: Data analysis of practical methods of evaluation

Quote Category Theme

“if I invest, buy or build now, will I get my

money back in 20 or 30 years?”
Return on Investment
“Profits, improving returns, increasing revenues

38
and stable cash flow”

“tax relief and investment subsidies and more

Investment
can be obtained for that investment Profits,
improving returns, increasing revenues and Government Subsidies
Rationale
stable cash flow”

“Location matters for everything that is real

estate”

“This is the old truth, for decades, that the three Place or Location
most important things in a property are location,
location and location.”

“Through life cycle accounting, when you think

about the entire life cycle of a property, the
expected return (for a green building) over that
whole period is higher.”

“One aspect is that if I don’t make a green

building, then is there a risk that I won’t get my
investment back, let alone profit. So there are Reasons to invest
business reasons behind it, why we see that
investing in green building makes sense […] the
fact that economic benefits are sought, Green building
specifically in the long term - not in the short
term.”

“Old buildings can therefore be turned green by

improving their technical properties, but above
all by moving to zero-emission energy.”

“New construction will not solve this Greening the Brown

emission-free world of construction. Existing
buildings need to be changed and transformed
and they need to turn green.”-

“Sure, it can be green without a certificate, but

more challenging to prove. ”

“Certificate sums up all possible efforts and

work towards its green goal, so that the goals Green building
that have been taken into account in that characteristics
certificate have also been achieved. So it’s kind
of a simple way to express that this property is
green.”

39
“So far, the high cost may be a bit of a brake on
starting a project.”

“BREEAM is very popular in Europe, LEED is Certifications Measuring the

more of a US certificate“
Greenness of a
“The fact is that if the anticipated end result is Building
bad enough then it might be that you don’t go for
it at all. It is rather without a certificate than
that it is bad.”

“It is quite certain that there is a real green

building behind it, but of course it also has that Brand image
marketing side. It’s a bit of a coin with two sides
- they’re inseparable.”

“No, not yet. This might be in the future but so

far sustainability is not an aspect of property
valuation.“ Valuation
“There is still some room for training for the
valuators to take place”

4.1 Investment Rationale in Sustainable Real Estate

4.1.1. Return on Investment

The first category that was identified in relation to motives for investing in sustainable real
estate is return on investment. Most of the interviewees indicated that return on investment
and long-term view on investing in sustainable real estate is the primary motive for them. For
instant interviewee 2 stated that

“a private equity investor in the real estate industry has long-term investments when it
comes to my company for instance. So, not bought and sold for rapid development. Anyway,
here’s that long-term thinking. So, the question is, if I invest, buy or build now, will I get my

40
money back in 20 or 30 years? Is this real estate investment therefore profitable? And then
you have to evaluate what makes it profitable.”

Moreover interviewee 6 in answer to the question about the primary motive to invest in real
estate affirmed that

“Profits, improving returns, increasing revenues and stable cash flow”.

Although the return on investment was common among the interviewees as the primary
motive for investing in sustainable real estate, other motives such as demand from
consumers, government and regional legislations were mentioned by the interviewees.

4.1.2. Government subsidies

The second category which is identified as a motive for investment in sustainable real estate
is Government subsidies. Government subsidies are tax easements and supported policies
which motivate market players to consider investing in sustainable real estate. For example,
interviewee 2 stated that

“Of course, tax relief and investment subsidies and more can be obtained for that investment
and so on, which will help and guide even more this profitability. And in a way, the
profitability of green investment can be aided by support policies, it can be zoning, there can
be various measures that then guide the fact that in addition to the business fundamentals,
there are other criteria that guide it.”

additionally, interviewee 1 stated that

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“Yes, there are government subsidies. For example, for the energy consumption related
repairs and renovations”.

Adding to this, some of interviewees believed that these government subsidies may vary
based on the locations of the property and in which country/region that investment may take
place.

4.1.3. Place or Location

The third category that identified as a rational to invest in sustainable real estate is location of
the property. The location of the property identified an old truth regarding investing in real
estate. For instance, interviewee 7 stated that

“Location matters for everything that is real estate. In my opinion, location is more valued
than sustainability. For example, the price of a building in a city center will maintain its
price simply due to its location. In order for an investor to convert an old city center building,
incentives need to be offered either by local authorities or by central ones”

also interview 2 stated that:

“This is the old truth, for decades, that the three most important things in a property are
location, location and location. And this situation does not change the fact that in order for
us to have commercially viable properties, they must be located smartly. But what a smart
location is a bigger question”.

Although some of the interviewees consider the location of the property is important
regarding to invest in sustainable real estate, there is an interviewee 5 who believe that
location is not everything in the real estate anymore

42
“It’s more a quest for creating a sustainable portfolio just to show evidence that we are
actually working with these questions. And then you rather go for the properties that are easy
to convert into some sort of sustainable or green asset depending on where you are. Rather
than just being picky about where the property is found”.

4.2 Green Building

4.2.1 Reasons to invest

The first category identified within the green building theme was the “Reasons to invest”
category. From the results we gathered from our interviewees we identified the fact that a
“cocktail” of regulations, profit-maximizing returns and trend-following are fueling the green
building movement. The interviewees agreed that a constant growth could be observed within
the sector and that certain reasons have contributed to this growth. Securing the investment
long-term, energy-efficiency, marketing benefits, lower maintenance costs, getting in line
with current regulations and possible government subsidies are among some of the reasons
that the experts pointed out when referring to investing in sustainable buildings.

Within this plethora of reasons, the investment security rationale can be linked to the rest of
the reasons to invest and is the basis on what all the others (trend-following, regulations, etc)
stand.

As put by both interviewee 1 and interviewee 2:

“Through life cycle accounting, when you think about the entire life cycle of a property, the
expected return (for a green building) over that whole period is higher.” – Interviewee 1,
Technical Manager

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“One aspect is that if I don’t make a green building, then is there a risk that I won’t get my
investment back, let alone profit. So there are business reasons behind it, why we see that
investing in green building makes sense […] the fact that economic benefits are sought,
specifically in the long term - not in the short term.” – Interviewee 2, COO & Director of
CSR

It can thus be noted that, there is a general feeling within the real estate sector that green
building is not only a trend but is slowly becoming a requirement for investors.

“I think investors, either they have a general strategy that includes “greeningness” in a way
that makes it easy for them to invest in ready-made green or sustainable buildings or you just
need it anyway as part of your bigger duties and then you just go for it.” – Interviewee 5,
Project Manager Financing

4.2.3 Greening the brown

The second category identified within the “Green building” theme was the “Greening the
brown” category, the process of converting old, unsustainable buildings into more
sustainable, green and up-to-date properties.

A point of agreement between the experts that we interviewed is that, nowadays, if there is a
need for renovating an old building, this will be done in such a way that the building will
become more sustainable, more energy efficient, and in that way, have lower maintenance
costs.

“Over time, when renovations are made, efforts are made to take sustainable values into
account […] In other words, if the structure needs to be renewed anyway, then it will be
renewed in such a way that it meets, for example, the requirements for certification” -
Interviewee 1, Technical Manager

“New construction will not solve this emission-free world of construction. Existing buildings
need to be changed and transformed and they need to turn green.”- Interviewee 2, COO &
Director of CSR

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It thus becomes apparent that the trend of “greening the brown” is also fueled by renovations
and upgrades to existing buildings for cost-cutting purposes. This tendency has been incited
by the recent technological advancements made within the real estate sector as noted by
interviewee 3:

“Building technology applications give a pretty good impact. Direct payback periods have
been reduced by, for example, ventilation […] advantage of heat pump technology, as well as
heating and cooling with equipment that is really efficient. Building technology improvements
can have a big impact on that” – Interviewee 3, Asset Manager

Lowering life cycle costs is a by-product of turning an old unsustainable building into a green
building and the main way to do so is through energy efficiency. Energy efficiency
distinguished itself as a main component of a green building as the results of our research
point to the fact that this is the first area tackled when discussing how older buildings can be
utilized in more sustainable ways.

“It starts with the energy efficiency of properties. You need to invest in energy systems that
are fossil free and then make sure that the property’s energy consumption is low.” –
Interviewee 4, Senior Advisor

“Old buildings can therefore be turned green by improving their technical properties, but
above all by moving to zero-emission energy.”- Interviewee 2, COO & Director of CSR

“I see energy repairs as the most important and simplest way at the moment – to invest in
energy efficiency. It is the best option both financially and overall usability of the property.” -
Interviewee 1, Technical Manager

4.3 Measuring the greenness of a building

4.3.1 Green building characteristics

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The first category identified in measuring the greenness of a building theme is green building
characteristics. What makes building green is a puzzle formed by multitude of different
pieces, energy efficiency being one. Building certificates are used to measure and validate the
greenness of a building. Among the industry experts that were interviewed for this research,
the mutual consensus was that a building can be green without any certificate, though the lack
of certificate can make identifying more difficult.

“Sure, it can be green without a certificate, but more challenging to prove. It is quite the
same as whether there must be a quality system in order to produce a quality product - no -
that quality system only gives an outsider some kind of indication that the matter has been
looked at. Still can produce a bad product.” - Interviewee 4, Senior Advisor

It thus becomes apparent that even if the building can be green without the certificate,
proving the green characteristics of one’s buildings for the public is far more difficult.

“[…] certificate sums up all possible efforts and work towards its green goal, so that the
goals that have been taken into account in that certificate have also been achieved. So it’s
kind of a simple way to express that this property is green. And then the fact that they are
committed to following certain procedures in the future as well.” - Interviewee 3, Asset
Manager

Proving one’s level of greenness is eminent especially in the case of transactions. A building
that has been certified, makes the due diligence process easier, since the certificates are an easy way
to express outwards, concise it in a one word, that the building under evaluation for transaction, is
sustainable. While the non-certified requires longer due diligence processes. Other than that,
buildings can be green and follow the same “green” guidelines as the certified buildings,
while not just going through the rather costly certification process.

“ The certificate is nothing else than setting for instance an energy consumption level and
then following up the actual consumption.. and you can do it with or without a certificate.” -
Interviewee 5, Project Manager Financing

Characterizing green building, especially without a certificate, requires knowledge and work.
On the other hand, constructing green buildings vs. traditional buildings remains costlier.
46
Therefore, the high construction costs might be the one preventing the further expansion of
green buildings. There are still property owners that go for the cheapest alternative available.

“So far, the high cost may be a bit of a brake on starting a project.” -Interviewee 6, Head of
Real Estate Development

4.3.2 Certifications

The second category is certifications of green building’s. As the previous category discovers,
the certificates are useful tools to guarantee a certain quality for a tenant, buyer or any other
stakeholder involved with the property. Although there are a few established certification
schemes in the real estate market, BREEAM is found as the dominant certification system in
the European, especially in Finnish, market.

“[…] BREEAM is very popular in Europe, LEED is more of a US certificate […] they are
dealing with a little different issues. I understand that BREEAM is more dominant at the
moment in Finland. I can't think of any other certificates that would be used so commonly in
Finland.” - Interviewee 1, Technical Manager

“I would see that BREEAM has established some kind of legitimacy for itself in the Finnish
market.” - Interviewee 3, Asset Manager

“ In the case of my company, we look most of the time into the BREEAM certifications only. I
think BREEAM has proven to be the most relevant for us, for different reasons, in part
because it is international but also maybe because it goes best along with the type of assets
we have […] The choice of the certificate is partly technical as well. “ - Interviewee 5,
Project Manager Financing

Besides choosing the certificate, existence of different certification levels make the property
owners evaluate the overall investment and its possible gains. The process of obtaining a
certificate starts with a preliminary study, evaluating the stage that could be reached and
whether it is even worth starting the whole process.

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“[…] in BREEAM, the property owner starts by doing a preliminary study first, that is,
looking at and evaluating what stage it could be reached on - whether it is even worth
starting the whole process. Then if it seems that there is potential somewhere at the ‘Good’ or
‘Very good’ level, then after that we do the actual certification and pick up the raisins from
the bun, so to speak, i.e. if one little thing gets so many extra points and gets you on to the
next certification level, then that will obviously be done right away. And yes, these different
levels are important in the sense that what is being sought after - one must recognize that
these certificates and different levels are not all exactly comparable” - Interviewee 1,
Technical Manager

If the possibility of getting to level ‘Good’ or ‘Very Good’ is too far out of reach, the whole
certification process might not be worth starting even.

“The fact is that if the anticipated end result is bad enough then it might be that you don’t go
for it at all. It is rather without a certificate than that it is bad.” - Interviewee 3, Asset
Manager

The certificates are seen as crucial also for the company’s image, therefore there is a belief
that it might be better not to have certificates than have the buildings certified at the lowest
level - rather be without a certificate than that the certificate is ‘bad’. The lowest levels might
not meet the requirements of the market, therefore it is then seen better to remain quiet.

On the other hand, the difference between the Very Good and the next level, Excellent, is
quite high and therefore investments above the ‘Very Good’ level might not be made.

“I would be more critical of the fact that the difference between Very Good and the next level
seems to be pretty huge. The level Very Good can be reached quite easily, but the next level is
quite far out of reach. And I don’t even know what that next level would bring when it comes
around so when the monetary price is in mind - let alone as a valuation.” - Interviewee 6,
Head of Real Estate Development

One measure dictating the choice of certification level are financiers and their funding
requirements. When aiming for green financing for a green building project, a green finance
48
framework is expected to be in place, which will have a direct effect on the choice of a
certification level.

“I think that is simply, if you have a green finance framework, like my company has, in order
to issue a green bond, then you will qualify within the framework - what level is required. For
a property to form part of the pool of eligible assets that you need in order to back up the
bond issuers. So for my company, it would be 'BREEAM ‘in use, the level ‘Very good’ that we
need or equivalent level.”- Interviewee 5, Project Manager Financing

4.3.3 Brand image

Discovering whether the building certificates add real value to an investment in green
building, the third category; brand image was added to measuring the greenness of a building.
Although the certificates were agreed to be good measures of the building's greenness, having
real green building behind them, they are obtained for business reasons. Therefore concerns
of certificates sometimes being used as a marketing ploy were existent among the interview
answers.

“It is quite certain that there is a real green building behind it, but of course it also has that
marketing side. It’s a bit of a coin with two sides - they’re inseparable. You need a better
house so you can get that certificate and you can't get that certificate if you don't have that
good house. That both are at the same time, it is not either or.” - Interviewee 2, COO &
Director of CSR

Part of the brand image can be a differing strategy from the market average. Companies who
certify their buildings at the highest certification levels were found to have a business driven
strategy that they want to be pioneers in their industry.

“Maybe you want to be a pioneer and you want that property to remain in line with the
minimum standards well into the future.” - Interviewee 3, Asset Manager

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These companies potentially have a clientele who appreciates the certificates and are ready to
be involved in the green work. Buildings certified at the highest level will attract a customer
base that is mutually interested in environmental issues - for others it might not be at the
same level of importance, yet. Accordingly, if the highest level exceeds the current demand
and regulation in the market, the differing strategy from the majority is forward looking -
being hopeful that the property will remain with the minimum standards well into future.

4.3.4 Valuation

The fourth category for measuring the greenness of a building is property valuation. There
isn’t much of a difference between sustainable and conventional real estate valuation and how
the certificates taken into account in the valuation of the green building still has uncertainty.
When asked whether the certificates are taken into account in property valuation, the
interviewee 5’s response was the following:

“No, not yet. This might be in the future but so far sustainability is not an aspect of property
valuation.“ - Interviewee 5, Project Manager Financing

The investors are keen to know what the additional value gained from the certificates would
be, though it remains to be seen what the real monetary value of them will be.
The valuators are in need of training, when it comes to calculating the overall value the
certificates add on real estate valuation.

“But also valuation, how it behaves in the sense of valuation… I'm not always sure about
that, I don't always quite agree. There is still some room for training for the valuators to take
place, for what it really means in the long run when heating costs are constantly rising and
energy costs in general. And the earlier a significant energy investment is made, for a
property that has at least 15-20 year lifespan ahead of it, the more it will add value to it.”
-Interviewee 6, Head of Real Estate Development

However, it was discovered that if two buildings are compared, one with sustainable
certifications and features and the other does not, the sustainable building has a higher value.
This value may be higher due to fewer capital investments that may be made during the

50
company's building possession, as well as the amount of money expended on the certification
process and the use of higher-quality materials.

5. Analysis

5.1 Investment Rational in Sustainable Real Estate

The empirical finding in this study confirms previous studies’ (e.g., Orsato, R. 2006, Kolbe et
al., 2013, Geltner et al., 2006) conclusions which indicated that investing in sustainable real
estate not only benefits environment also there is a business case for companies. Kolbe et al.
(2013) And Geltner (2006) indicated that the first step in investing in sustainable real estate is
to estimate the cash flow from that investment from the long-term perspective. Authors'
findings also confirm that the estimation of the return on investment is one of the major
concerns that investors take it to consideration in their investment decisions around
sustainability. Author’s findings also add to previous studies which interviewees believe that
although it is important for them to consider sustainable practices in their investment, the
return on investment from a long-term perspective also plays a major role in their investment
decisions in the first place. In other words, making profits for investors in the real estate
industry plays a major role but empirical findings confirm that investors rather invest in
sustainable real estate since it helps them to improve their image among consumers. This
confirms previous literature where Falkenbach et al, (2010) claimed that sustainable practices
help companies in the real estate industry to increase their reputation and their image among
the consumers.

The empirical findings in this study also confirms previous studies related to governmental
subsidies (e.g., Nelson 2008, Falkenbach 2010, Nelson 2010, Duong and Tang 2019).
According to Nelson (2008), taxation and environmental regulations would increase the
attention of real estate players to consider more sustainable practices in their investment
decisions. Falkenbach (2010), also indicated that governments and international legislations
can also force companies to invest more in the sustainable practices in the real estate market.
Moreover, According to Duang and Trang (2019), identified that new government regulations
increase the contribution of companies to increase their green investments. Authors
founding’s in this study also confirms that governmental subsidies and regulations will

51
increase the investment in green activities among the real estate companies. On the other
hand, Nelson (2010), in his study mentioned that the lack of universal standards for green
buildings is limiting
the growth and fast adoption of green buildings among the real estate industry. The Author's
findings also confirm that it is hard to have a universal standard due to the climate difference
in different countries.

The authors of this study realized a major gap in the literature regarding the importance of
location of the property in relation to reasons to invest in sustainable practices among the real
estate companies. In the study conducted by Falkenbach (2010), identified three drivers in
relation to the property level where he discussed that decrease in property cost, increase in
rental cost and decrease in the risk are three major drivers to invest in green properties.
Author’s findings identified a gap in the literature regarding the importance of the location of
the property where interviewees state that the location of a property still plays a major role
for them in their investment decision process. Also, empirical findings indicate that although
the location matters for players in the real estate industry, investors take sustainable practices
in consideration in their investment decisions.

5.2 Green Building

The empirical data confirms previous studies within the “Green building” field (Geiger et al.,
2013, Temmink, 2010, Nappi-Choulet and Decamps, 2013) that the trend of Green Building
has been growing at a steady pace, in line with the current world trends of sustainability. The
data collected in this study, however, shows a more in-depth view of how investors and
experts in the real-estate industry perceive green building investments and is able to
single-out certain key advantages of this type of investment, in line with previous research
(Nelson, 2008; Huang et al, 2010) while also adding upon it.

The empirical data confirms the findings of Nelson, 2008 of the main advantages (features) a
green building brings/has, while also explaining indirect advantages such as tax benefits,
pertaining to recent regulation changes in line with more recent treaties such as the Paris
Agreement on Climate Change. A new approach has been identified, and the empirical data

52
confirms the relatively new found importance that the regulatory side brings to the table in
conformity with more recent reports such as The World Bank’s 2017 report that states that "A
blend of regulatory, financial, and voluntary interventions will address barriers that prevent
greater private investment in green buildings, including voluntary rating systems, building
codes, tailored financial incentives and greater action by utilities." (The World Bank, 2017)

As put by Orsato, R. 2006, investing in green buildings benefits not only the environment but
the stakeholders; this is also confirmed by our findings which show the increased potential of
green buildings and how investors foresee a higher return on investment for this type of
buildings, which is in line with what Kolbe et al., 2013; Geltner et al., 2006 highlight in their
studies, more specifically that “investors are risk-averse, they expect a higher final return on a
riskier asset”.

This study’s empirical findings corroborate Geiger et al. 2013 study in which the authors note
that green investments in real estate are the result of investors seeking additional returns on
their investments. Lower life cycle costs, future-proofing investments by following current
regulatory trends and marketing benefits are just a few of the additional returns that our
empirical findings identified.

Pushed forward by more recent technological advancements, our findings show a higher
interest in the conversion of older buildings into sustainable, green properties and display a
new side of green building investment, the market of converting “brown” buildings into
“green” ones. This type of investment is a more indirect result of the current regulatory trends
and a direct result of the aforementioned technological advancements that the real estate
market has been benefiting from in the recent years. Darko et al., 2016 study noted that green
building has been better determined as a technology while the findings in our study note that
the technology advancements of the last few years have allowed for “side industries” such as
the conversion sector.

Sustaining the green building sector in order to branch out into different areas of the overall
real estate industry has allowed for and has been one of the reasons that this sector has seen
the growth from which it benefitted for the last few years. This way of viewing the green
building investment industry has been emphasized by this study’s empirical findings and has
been overlooked in previous literature.

53
The potential seen in the old stock of buildings, which makes up for the vast majority of the
building inventory needs to seriously be taken into consideration when taking on the issue of
green building. Our findings point to a change in mentality among investors and experts in
the real estate industry and point to a potential increased importance of older buildings in the
wave of green building.

5.3 Measuring the greenness of a building

According to academics, the green buildings are difficult to describe since the term is
constantly evolving. Darko et. al (2016) have better determined the green building as a
technology while the certificates have also been advancing the trend of investing in green
buildings. Our empirical findings conclude this by acknowledging that though a building can
be green without a certificate, it is rather difficult to prove. Certificates have established
themselves as a tool to evaluate the properties. Though both the literature and empirical data
confirm that the building does not need to be certified to be green, the certifications have
become common tools to prove the level of greenness to one’s stakeholders.

Based on Doan et al. research in 2017, the vast majority of the European sustainable building
market share belongs to BREEAM; accounting for 80% in total. The findings of this previous
research were supported by our primary data - all of our interviewees stating the BREEAM
being dominant in the European property market. The empirical findings also had strong
evidence that the BREEAM in-use ‘Very Good’ is the most sought after. The US counterpart
for the UK based BREEAM was also existent in the primary data, confirming its US status.

In the empirical data, the relevance of the certificates was especially found in the financing
framework. Similar to green building, there is no agreed-upon concept for green financing
and what it means to be "green in the green bond industry." As Talbot discovered in his study
in 2017, market participants have established voluntary standards, guidelines, and
certifications and new and fragmented national regulations on green bond label
standardization. According to CBI (2017a), while not being compulsory, Green Bond
Principles (GBP), have become the standard practice in the market. Although our empirical

54
data did not confirm this previous finding of the principle, the empirical findings concluded
that one will qualify in one’s finance framework when issuing a green bond, the framework
dictating the level of certification needed.

The empirical data confirms the findings of Nappi-Choulet and Decamps, 2013 and Martin
and Gossett, 2013 where the construction costs of green building remain higher than a
conventional building. Though, the life cycle costs of a green building are lower, the higher
initial costs are still preventative for some investors. Even if sustainability is becoming a
hygiene factor, there are still investors that go for the cheapest alternative.

6. Conclusions
During the research, it was discovered that investors are interested in green buildings for a
variety of reasons, and their expectations for these investments differ. Despite the higher cost
of these types of buildings, a growing number of companies will become invested in them.

While the building's initial value and attractiveness are essential factors for companies when
deciding on a target investment, future benefits are also weighed. Green building will provide
owners with more stable and higher cash flow, as well as lower risk. Furthermore, the
durability of a building is an important aspect when evaluating possible investments. The
main premium the investors expect from green building investments is lower life cycle costs
and better returns on investment.

The certificates being a certain proof of sustainability in a building, the evaluation process in
transactions is cut shorter than it would be without the certificates. It is possible for a building
to be green without a certificate, though it is more demanding to prove. Property owners who
certify their buildings according to the highest certificate standards have a differing business
strategy from the market average. Current market average for industrial and warehouse
property class has been set to BREEAM ‘Very Good’.

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While certifying at the highest level would require a forward looking strategy, the lowest
level of certificates are seen as not worth making an investment. As certificates are found to
be part of the brand image, the property owners don’t want to send out a message that their
buildings are certified at the lowest standards.

7.Discussion ( Implications, Recommendations,

Critique of method)
This section presents implications from our research, as well as limitations encountered when
elaborating this thesis and recommendations for future studies.

7.1 Implications
Over the conducted research we have identified a need for greater overall government
incentives, since, regardless of the country, respondents noted government subsidies to be an
important factor for green building. Incentives make green building projects more desirable
and can sustain growth of the trend.

Another implication identified with the help of the conducted research would be slight
adaptations of the certificates in order to represent the different climates found around
Europe. The same standards for building materials cannot be equally applied for vastly
different climates. For example, different building materials would be used in Finland,
compared to Romania due to the climate. In turn, different evaluating factors should be used
within the widely recognized certificates (BREEAM, LEED). This is in line with what the
experts we have interviewed mentioned and can bring long-term benefits to the certified
properties due to the better classification resulting from the mentioned adaptability.

7.2 Limitations
The fact that qualitative research is highly dependent on individuals, both in terms of
respondents being biased by personal experience and knowledge and researchers approaching

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the study with conscious or unconscious prejudices, is perhaps the most significant limitation.
This, in addition to a number of psychological causes, can have an effect on the research
problem's findings and conclusions, impacting the research's outcome (Saunders et al. 2016).
The data collection in this research was based on a number of interviews with individuals,
correspondingly involving a risk of bias that may jeopardize the validity of the research.
Accordingly, the sampling being limited to a short timeframe the respondents, and therefore
the findings, are highly dependent on current market conditions and actors. Furthermore,
qualitative study is frequently regarded as non-generalizable - though it does not imply them
to be irrelevant. When a qualitative method is applied, more cautious analyses are needed in
order to apply the findings to other areas (Ahrne et al. 2011). As this research is delimited to
investing in green building in three European countries, Finland, Romania and Sweden, the
results are necessarily not applicable for other countries. Also, since the majority of the data
has been collected from the Finnish market, further interpretations of the results should be
made with caution when applying to other markets. Alongside with the majority of the data
being collected from Finnish market, a good proportion of the interviewees were working for
the same company.

7.3 Recommendations for future study

More research is needed better to understand the impact of sustainability on investment decisions. To
be able to translate the full impact of sustainability from a principle to a real added value of a
building, further observations and investigation would be needed. Property valuation methods should
be further studied from the certificate point of view. It would be interesting to know how the different
certifications add real monetary value in terms of valuation.

Companies that build according to the highest certificate standards were told to have a drastically
different strategy than their peers. Further study should be conducted about those strategies and why
these companies feel the need to certify above the industry standards (BREEAM in use Very Good).
Research, where the property owners with the highest level of certificates are interviewed would gain
a better understanding of the different certification levels.

In the middle of the pandemic, it is yet hard to say what type of long-term effect it will have on the
certification market in different property classes. Further research should be done about the
implications of this crisis and how it affected the certifications between different property classes also,
whether there were some winners and losers in this crisis when it comes to building certification and
investing in green building. For example, did the office owners put investments more on hold than the

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and green building.

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Appendices

APPENDIX 1: INTERVIEW QUESTIONS

Reasons to invest in sustainable buildings

1. Are the green and sustainable values taken into account when constructing the property portfolio
(in real estate transactions)?

2.What is the primary motivation for investing in green buildings

3.Do you know if there are beneficial motives for companies to invest in sustainable buildings - tax
easements, government subsidies?

4.How do you view green building - is it still a competitive advantage or is it now a requirement?

5.When it comes to investing in sustainable real estate, does the location matter? Are sustainable
buildings in the city centers or the suburbs more appealing to investors?

Green building

6. What is the main reason for investing in green buildings?

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7.Only a minority of green buildings and buildings in general are new. There is a lot of potential in
the existing stock of buildings. How do you think the “old” buildings can best be utilized for green
purposes and made more sustainable?

8.Do you think a green building is a competitive advantage in the leasing market or do you think it is
already a market average?

9.Are “green” and sustainable values taken into account when managing the day-to-day activities of
the properties?

10. Is there a constant effort to make the properties greener, despite the different certificates?

The Green Building Certification Market and its Future Prospects

11.Are companies interested in sustainable real estate only interested in a building's level of
sustainability, or are they particularly interested in buildings that have certifications?

12.How do you view the certifications of the buildings? Does a green building certificate (e.g. LEED
or BREEAM) raise the value of the investment (property)?

13.What are your views on green building certifications (such as LEED and BREEAM) ten years from
now? For example, if a building is LEED platinum certified today, what will its value be in ten years
as certification standards continue to tighten?

14.Has there been a growing trend among the property owners to acquire certifications for their
buildings? If so, do you see this trend to continue in the future?

15.What certifications are the most sought after? Is there a preference among investors when it comes
to real estate certifications? Are more investors looking for certifications like LEED, BREEAM, or
some other?

16.Do companies want to know how various sustainability certifications impact the value of their
investment?

17.What is the difference in value between different certifications for sustainable buildings? What
makes companies choose between different certification levels?

18.What do you think makes the company construct buildings with the highest degree of sustainability
(buildings that reach platinum levels of certification)?

19.Is a sustainable building required to have a certificate to be considered green?

20.One may argue the certificates are mainly acquired for marketing purposes. Do you think a
certificate is a proof of sustainability or is just a statement (marketing)?

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21.Is a common certification system needed for the European market? If so, would it be one of the
current ones or something entirely new?

22.Has the covid-19 has had an effect on the demand of certificates? Have investors put the
investments on hold?

APPENDIX 2: INTERVIEW CONSENT FORM

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