As part of RiskMetrics’ involvement with the COP15 climate conference in Copenhagen, I spoke on a United Nations Environment Program Finance Initiative (UNEP FI) panel called “Construction Counts for Climate.” I represented UNEP FI’s Property Working Group (on which RMG’s Mario Lopez-Alcala has served for two years), and was joined by the Finnish Minister of Housing and other UNEP representatives.

“Construction Counts,” as the built environment is responsible for at least 40% of global CO2 emissions, according to the Intergovernmental Panel on Climate Change. This actually represents a great opportunity for emissions reduction, as buildings’ emissions can be reduced drastically by making better use of existing technology. COP15 participant Jens Laustsen, senior energy policy analyst (buildings) at the International Energy Agency (IEA), estimates that 75% of the energy used in most buildings can be saved.

Today’s Investments Embedded in Long-lived Buildings

Unfortunately, energy efficiency is not always a top priority for property owners, and current construction can embed wasteful practices for decades.

The UNEP FI Property Working Group believes that the building sector will only embrace efficiency with steady guidance from investors and regulators. The Group includes around 20 of the world’s largest institutional real estate investors, including AXA, CalPERS, Sumitomo Trust, and UBS. In my presentation, I explained how more aggressive building codes, combined with investor interest due to global carbon pricing, would put needed pressure on property owners worldwide.

The Empire State Building: Once Again, the Latest Thing

Some governments have already acted, including New York City, which just passed one of the nation’s most stringent efficiency standards. The most prominent example of its potential is the skyline’s most famous landmark: the 78-year-old Empire State Building. Its recent $500 million renovation is a case study of how much can be achieved with current technology.

This renovation includes a package of 8 major programs including chiller replacement, tenant space redesign, new windows, and other projects. These investments resulted in a 38% reduction in CO2 emissions and a net present value savings of about $20 million over 15 years.

“Make No Little Plans”

These tangible, quantifiable returns are too big for investors to ignore. This explains why the 2009 Investor Statement on the Urgent Need for a Global Agreement on Climate Change has attracted support from 191 institutions representing $13 trillion in assets. The construction sector has also committed to efficiency through the World Business Council for Sustainable Development’s Energy Efficiency in Buildings program.

Architect Daniel Burnham, leader of the early 20th century “City Beautiful” movement, famously said, “Make no little plans – they have no magic to stir men’s’ blood.” If more governments follow New York’s lead, then the Empire State Building could inspire builders to think green, as well as big.

Hewson Baltzell heads ESG product development at RiskMetrics Group. He is a co-founder of Innovest and was president of the firm before it became part of RiskMetrics in 2009. Prior to Innovest, Mr. Baltzell was a commercial and investment banker specializing in corporate finance and real estate.