As Kermit the Frog famously said: “It’s not easy being green.”  When it comes to property insurance, Kermit is only partially correct.  Although green buildings and commercial construction projects pose unique risks that are likely not covered by traditional commercial property policies, the insurance industry has become increasingly responsive to this issue by creating and offering products specifically tailored for green risks.

Just What is Green Construction, Anyway?

Green construction (also known as a “green building” or a “sustainable building”) is an environmentally responsible and resource efficient structure and process.  In other words, it’s not just the building itself that’s “green” – it’s the entire construction and using process.

The objective of green construction is to reduce the overall impact of the built environment on human health and the natural environment.  To do so, there is an emphasis on, among other things:

• Energy efficiency – reducing operating energy use through high-performance windows, passive solar design, and on-site generation of renewable energy;
• Materials efficiency – utilizing recycled materials, rapidly renewable plant resources, and locally extracted and manufactured building materials to minimize energy expended their transport;
• Indoor environmental quality (“IEQ”) – reducing volatile organic compounds in the air, maintaining an efficient ventilation system, and controlling moisture accumulation; and
• Waste reduction – providing on-site compost bins to reduce the amount of occupant-generated matter which is hauled to a landfill, and innovative processes such as using “greywater” (water from, e.g., dishwashers and washing machines) or rainwater for subsurface irrigation and flushing toilets.

Why “Go Green”?

There are a variety of incentives for “going green.”  The environmental incentives are perhaps the most obvious: conserving natural resources, improving air and water quality, enhancing and protecting ecosystems and biodiversity, and reducing all the bad stuff (e.g., solid waste, greenhouse gas emissions, and the dreaded carbon footprint).  There are also social incentives, like increasing the respect and strength of a brand and positively impacting the health and social well-being of the building’s occupants.

Of course, when we’re dealing with commercial construction and property insurance, the most significant incentive for “going green” is probably economic.  Over time, green buildings can reduce operating costs, improve employee productivity and satisfaction (a happy employee is a productive employee!), enhance asset value and profits, generate a better return on the owner’s investment (e.g., higher rents, sales prices and occupancy rates), reduce liability risks, and optimize the performance of a building during its life-cycle.  There are also federal, state or local tax incentives for certain types of green construction.

There can be a conflict between the “up-front” cost and the “life-cycle” cost, as green buildings can be more expensive to construct due to, for example, the novelty of the construction process or the use of certain less common materials.  In time, the “up-front” outlay is likely to be outweighed by the building’s “life-cycle” cost.  Take-away: green construction will likely generate a greater investment return than traditional construction. Read more ›