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JCRE
17,1
26
Received 16 May 2014
Revised 11 August 2014
31 October 2014
15 December 2014
Accepted 15 January 2015
Journal of Corporate Real Estate
Vol. 17 No. 1, 2015
pp. 26-45
© Emerald Group Publishing Limited
1463-001X
DOI 10.1108/JCRE-05-2014-0013
Breaking the circle of blame for
sustainable buildings – evidence
from Nordic countries
Mia Andelin
Department of Real Estate, Planning and Geoinformatics,
Aalto University School of Engineering, Espoo, Finland
Anna-Liisa Sarasoja
Newsec Asset Management Oy, Helsinki, Finland
Tomi Ventovuori
Corporate Solutions Department, Newsec Asset Management Oy,
Helsinki, Finland, and
Seppo Junnila
Department of Real Estate, Planning and Geoinformatics,
Aalto University School of Engineering, Espoo, Finland
Abstract
Purpose – The study aims to examine how the vicious circle of blame for sustainable buildings can be
turned into virtuous loops of adaptation when considering sustainable buildings and what are the
drivers for tenants and investors regarding sustainable buildings and gaining insights of investors’ and
tenants’ corporate responsibility (CR) actions.
Design/methodology/approach – The paper consists of a literature review and two surveys. The
literature review concentrates on exploring investors’ and tenants’ CR and sustainability drivers.
Empirical evidence was gathered via two specific surveys. The first survey targeted investors, and the
second survey targeted tenants to determine the focus areas of sustainability.
Findings – The findings of this study indicate that the vicious circle of blame can be turned into
one of cooperation with respect to sustainable buildings if the mutual drivers for improving
sustainability are linked with investor–tenant collaboration. Based on the survey, the tenants
claim that productivity, corporate culture and image are the primary drivers for sustainable
buildings, whereas the investors claim that corporate culture and image, tenant demand and
marketability are the primary drivers. Both parties mentioned the same sustainability drivers:
corporate culture and image and lower operating costs. However, it was found that investors are
not communicating their CR actions to public or promoting image and productivity benefits of
green buildings to potential tenants.
Research limitations/implications – The limitation of this study is the sampling of Nordic
countries, as there are indications of different situation in other markets such as the USA.
Originality/value – Improving sustainability in the real estate industry is linked to investor–
tenant collaboration. In addition to common drivers, both investors and tenants have their own list
of benefits and drivers for sustainable buildings. These drivers are linked to each other. Making
progress with respect to sustainability in the built environment depends on people in the industry
being aware of the importance of and possibilities offered by sustainable buildings, as well as being
able and willing to act on this knowledge. Only through partnership can the full potential of the
built environment be realised and help deliver an economically, environmentally and socially The circle of
sustainable future.
blame for
Keywords Sustainability, Tenant, Corporate real estate, Drivers, Investor, Sustainable buildings
sustainable
Paper type Research paper
buildings

1. Introduction 27
There has been an active debate in recent years on the issue of why sustainability has
not yet reached the mainstream in the field of real estate. Sustainable buildings have
undeniable benefits when it comes to constructing sustainable environments, but the
numbers that are being built remains low. It has been proposed that this is the result of
a “vicious circle of blame” (Keeping, 2000), one which takes into account the attitudes of
real estate market players towards sustainable development. For example, real estate
investors might think that even if they wanted to invest in sustainable buildings,
tenants would not want to lease them. In contrast, tenants might think that even if they
wanted to live in a sustainable building, there is only a limited supply of them on the
market. In addition, the opinion of developers is that investors are not interested in
sustainability, and because developers do not ask for sustainable buildings,
constructors are not willing to build them. This mental climate creates an endless circle,
one which may force sustainability into the slow lane within the real estate industry.
The vicious circle of blame could be resolved without difficulty if all market players
would simultaneously change their views from negative to positive.
Corporate real estate (CRE) and corporate responsibility (CR) have a strong
relationship when it comes to sustainability because CRE represents a large segment of
corporate expenses, and a service-oriented business like real estate this has a notable
effect on a company’s environmental impact (Laposa and Villupuram, 2010; Junnila,
2004a). According to Cajias et al. (2012), corporate sustainable real estate is the
development and integration of programmes, activities and indicators into the business
strategy to measure the firm-specific performance with respect to social, environmental
and economic activities for internal and external target groups. It is important to map
and measure companies’ CR actions and whether or not investors are implementing
responsible property investment (RPI) principles to enhance their sustainability.
This study examines how the vicious circle of blame could be reversed and made into
a virtuous circle of sustainability adaptation. The focus of the study is on the investor–
tenant relationship because they are the end-clients in the real estate supply chain, and
simultaneously, the majority of environmental impacts and emissions are caused during
the use phase of a building. Therefore, the investor–tenant relationship will play a key
role in reversing the cycle of blame. Hence, the objective is to identify the investor and
tenant drivers for creating sustainable real estate and to discover the possible mutual
interests that would provide the impetus to reverse the circle of blame with respect to
sustainable buildings. Willingness to pay for sustainability has been studied in field of
sustainable buildings, for example, by Eichholtz et al. (2012) and Wiencke (2012).
However, it still remains unclear whether green buildings have a cost premium and
whether tenants are willing to pay premiums for leasing sustainable building or
demanding discounts for brown buildings. Yet, this study does not seek to find
empirical evidence of willingness to pay. This study focusses on finding common value
drivers for investors and tenants to solve the mind set of sustainability adaptation.
JCRE The paper consists of literature review and empirical research. The literature review
17,1 concentrates on exploring recent academic studies, publications and articles describing
CR and sustainability driver issues in the field of real estate. Empirical evidence was
gathered using two specific surveys to better understand the current status of the
market and gain insights from real estate investors and tenants. At the end, the findings
from the literature review and empirical evidence are compared, and we present our
28 conclusions on the current state of the real estate market, i.e. the arguments and drivers
for maintaining or breaking the vicious circle of blame in sustainable buildings
(Figure 1).

2. Sustainability drivers
The past decade has seen a significant increase in global awareness regarding
sustainability and CR. In the past, many business executives only voiced support for the
idea that a business should be run exclusively with a view to maximising profits or
shareholder returns (Kolstad, 2006). CR can be defined as situations where the firm goes
beyond compliance and engages in actions that appear to further some social good,
beyond the interests of the firm or what is required by law (McWilliams et al., 2006). As
the importance of sustainability has grown, companies have been increasingly
recognising the risks and opportunities associated with CR in terms of their reputation,
and many large corporations have begun making significant investments in policies,
practices, management and reporting systems to ensure that their corporate behaviour
is responsible in the eyes of their stakeholders (Dawkins, 2005). In this study, CR is
defined as actions addressing the environmental, social and economic impacts of a
company, such as management systems, sustainability reporting and RPIs.
Global warming, climate change and mass urbanisation have resulted in several
important international treaties (e.g. the United Nations’ [UN] Framework Convention
on Climate Change and the Kyoto protocol) that set binding obligations for
industrialised countries to reduce their greenhouse gas emissions and take
sustainability actions. This has also commenced in the form of regional initiatives. For

Focus of this study

Investors Occupiers
“We would fund “We would like to have
sustainable buildings, sustainable buildings,
but there is no but there are very few
demand for them available.”

The vicious
circle of blame

Developers Constructors
“We would ask for “We would build
sustainable buildings, sustainable buildings,
but investors won’t but developers don’t
pay for them ask for them.”
Figure 1.
Focus of the study on
the circle of blame Source: Adapted from Keeping, 2000
example, the European Union’s (EU) Climate and Energy package obligates its member The circle of
countries to decrease their energy consumption and greenhouse gas emissions, which blame for
drives not only the energy industry but also the real estate industry to make
improvements. There are also national standards and regulations for mitigating climate
sustainable
change and boosting sustainability. The “big picture” benefits – such as climate change buildings
mitigation, energy security and resource conservation, job creation, improved occupant
health, productivity and economic activity, long-term resilience and quality of life – are 29
priority issues for governments around the world, and they are increasingly drivers for
both public and private green building programmes (WGBC, 2013).
As every business needs a premise from which to operate and the work done in a
post-industrial society includes a great deal of knowledge and service work, the effect of
the premises and energy use are growing in importance, when sustainability issues are
considered. The importance of buildings and their energy use should be acknowledged
because the real estate and building sector represents one of the world’s largest
industries and is responsible for a large part of the environmental impacts caused by
human activities (UNEP, 2011; Junnila, 2004b). Compared with other industries, the
construction industry and real estate sector also represent an unusual case in that
the results of their work are long lasting. Structures in developed countries have an
average lifespan of 80-100 years, meaning that the design of an office building will have
long-term repercussions on a structure’s environmental performance (Sev, 2009). Facing
the fact that sustainability plays an important role in the real estate sector, because of
the impact to future generations, it is essential to identify the key elements of sustainable
activities, along with their economic benefits. (Cajias and Bienert, 2011). As a response to
this, the real estate sector has been engaging increasingly with concepts such as
environmental, social and governance (ESG), corporate social responsibility (CSR) and
RPI (Cajias et al., 2014).
The World Green Building Council (WGBC, 2013) recently recognised several drivers
and mutual benefits for developers, investors and users of buildings. It should still be
noted that each region has different drivers and priorities, even though common generic
drivers can be found. Falkenbach et al. (2010) and Lehtonen et al. (2009) summarised
previous research related to environmental sustainability in the field of real estate
investing. The study by Falkenbach et al. states that the drivers for environmental
sustainability can be divided into three categories: external, corporate- and
property-level drivers. External drivers include financial and government incentives
and national standards. These drivers can be considered external drivers because they
do not control the company and instead occur outside of the company. Property-level
drivers come from such factors as increased rental income, enhanced property value and
reduced risk. Lehtonen et al. (2009) found that tenants wish to occupy sustainable
buildings, but that the supply is lacking. They also found that from an investor’s point
of view, a sustainable solution will most likely have a positive impact on property values
in the future because premises are easier to let, and the net income should be greater due
to lower operational costs and higher rent levels.

2.1 Investors’ sustainability drivers

In this study, the term “investors” refers to listed and non-listed real estate companies,
real estate funds and institutional investors concentrating on long-term property
investing and ownership. Real estate investing includes actions such as purchase,
JCRE ownership, management, leasing and divestment. The real estate investor business
17,1 aims to earn a return through rental income, divestment or by a combination of the two.
The challenge for investors is to respond to the more tightening regulations and tenant
requirements. Falkenbach et al. (2010) discovered that three different level drivers
(external, corporate- and property-level drivers) of sustainability can be found based on
the literature (Figure 2).
30 2.1.1 External drivers. External drivers can be defined as drivers that are set to a
company or to a business by external party such as EU, government, trade unions.
During recent decades, an increasing amount of sustainability-related legislation
affecting all major shareholder groups within the property industry has come into effect
and is expected to continue growing in the future as well. For example, having
recognised the advantages of sustainable buildings, national governments and the EU
have mandated higher efficiency standards for new construction and renovations
through the EU Energy Performance of Buildings Directive of 2002 (EPBD, 2002; Nelson
et al., 2010). As a result, there might be challenges in terms of how to address
sustainability issues because governmental control plays a significantly stronger role in
the innovation process within the construction and real estate sector than in most other
sectors (García, 2005). Legislation can be considered an external or top-down driver; on
the other hand, it can be a market-led corporate or bottom-up driver because companies
may seek opportunities to mitigate the down-side risks related to changing legislation in
the future (Sayce et al., 2007). However, if legislation is considered a principal driver, the
regulations themselves often vary by country, and therefore, the role of international
organisations in regulating international law will become increasingly important in the
future to provide an equal operational environment for companies regardless of the
country within which they operate (Carroll, 2004).
Still, the business case for investing in sustainable property currently rests on risk
reduction, and not on the proven return advantage (Sayce et al., 2007). These external
drivers are probably not the best way to advance sustainability. Yet, it is possible for
investors to gain a competitive advantage if they react proactively to coming regulatory

External drivers
Government
incenves Corporate level
Finance
drivers
incenves Property level drivers
Image
Customer’s benefits Decreased Decreased
strategic risks property costs
decision
Corporate Increased Increased
Environmental strategy rental income property values
& energy
cerficates

Naonal
standards
Figure 2.
Drivers for real
estate investors Source: Adapted from Falkenbach et al., 2010
changes. To gain the maximum advantage, decisions and actions should address the The circle of
demands of future legislation and customer needs. Therefore, the internal drivers blame for
enhancing business should be acknowledged, as well as investors’ strategies and sustainable
objectives should be better understood.
2.1.2 Corporate-level drivers. As an external driver, the regulatory incentives and
buildings
mandates continue to pressure real estate owners and managers to enhance the
sustainability of their portfolios. On the other hand, the prospect of future and more 31
onerous legislation regarding building design has led some developers and property
investors to adopt a “beyond compliance” culture either to achieve higher returns or to
reduce downside risk (Sayce et al., 2006). These proactive actions can be seen as an
approach of gaining a competitive advantage, for example, in terms of differentiating
oneself from his or her competitors.
The development of information technology, along with evolving stakeholder
expectations towards CR, has significantly affected the environment in which all
companies operate. Information on irresponsible actions and abuses can spread rapidly,
and therefore, companies can no longer take the risk of compromising their reputation
(Niskala et al., 2009). Corporate image reflects the values a company represents, and it
defines the attractiveness of the company and its products from the perspective of
stakeholders. One of the tools for communicating CR actions is CR reporting. The Global
Reporting Initiative (GRI) guidelines are the most widely known and used sustainability
guidelines. The guidelines require standard contents for sustainability reporting
regarding an organisation’s profile, governance structures and processes; and the
management practices for sustainability issues include goals and environmental, social
and economic performance indicators. The GRI is a network-based organisation,
established in 1998, and a partner of the UN Environment Programme, which has
developed a framework for sustainability reporting and promotes the use of this
common framework across companies and industries. The aim is that the reports
generated by the different companies can be compared (Thopmson and Ke, 2012; Brown
et al., 2009). Newell (2008) explored Australian-listed property trusts and discovered that
CR provides an opportunity for property companies to point out their commitment to
sustainability, and thereby gain good publicity and strengthen stakeholder trust.
Falkenbach et al. (2010) also noted that sustainability initiatives enable property
companies to document their leadership role in advocating a sustainability agenda.
Researchers also detected that the leading property companies actively promote their
good environmental performance and are able to gain considerable media exposure,
resulting in notable branding and differentiation opportunities (Newell, 2008;
Falkenbach et al., 2010).
Yet, the global and multinational real estate investors are proactively affecting the
supply of sustainable buildings. These global real estate players raise sustainability
levels by sharing their best practices from around the world as they expand the
geographic reach of their businesses. Fully integrated firms are finding it easier and
more fruitful to set global operating standards based on their best practices. The
cumulative impacts of these major players will likely force the adoption of greener
market standards (Nelson et al., 2010). Larsen (2010) found that a recurring theme
among tenants was interest in sustainability certification, which challenges investors to
meet this interest. Often environmental certification systems play a significant role in
JCRE defining the features of a property, and the certification systems can be seen as a
17,1 guarantee of quality.
The LEED (Leadership for Energy and Environmental Design) Green Building
Rating System, developed by the US Green Building Council, consists of a set of
standards for the assessment of environmentally sustainable construction focussing on
the sustainability of location, water efficiency, energy and atmosphere, materials and
32 resources, indoor environmental quality and innovation and design process (Fuerst and
McAllister, 2011; USGBC, 2014). Building Research Establishment’s Environmental
Assessment Method (BREEAM) is another similar tool developed in UK (Schweber and
Haroglu, 2014; BREEAM, 2014). The exponential growth of certified buildings over the
past decade signals an enhanced willingness to pay for sustainable attributes and
energy use reduction (Cajias and Piazolo, 2013).
If investors’ business logic is considered, it is clear that financial aspects, such as
investment returns and rental yields, are critical because they constitute the main source
of income. Investors are primarily interested in the future income stream generated by
the investment and the risk-adjusted return achieved during the period in which it is
held (WBCSD, 2009; WGBC, 2013) For example, sustainable office buildings in the USA
have been found to generate higher sales prices, this increase in value is largely driven
by higher rental rates, lower operating costs, higher occupancy rates and lower yields
(Eichholtz et al., 2010).
The challenge for green building investor is to balance the need to consider
sustainable solutions (e.g. reduce energy consumption) of commercial building with the
need for a financial return on that investment (Baker and Chinloy, 2014). Collett et al.
(2003) suggest that the median holding period of commercial properties has varied over
time, and they found that the median holding period of UK properties generally fell from
around 12 years in the early 1980s to less than 8 years in the late 1990s. Most investors
would only consider investments with payback periods considerably shorter than the
intended (remaining) holding period, in part because of investor pressures and financial
incentives to raise shorter-term returns (Nelson et al., 2010). Investors have different
strategies: some investors have only a short-term interest in a property, which they
intend to quickly sell to another investor. Nevertheless, investors’ concerns in general
have to do with the attractiveness of the property to potential buyers and occupiers.
When buyers are considered, this inevitably results in a short-term focus on a building’s
value, with the value being dominated by estimates of potential rental income. When
considering the sustainability features, only if, for example, energy efficiency was a
significant factor in the buying decision would it also concern the seller (WBCSD, 2009).
2.1.3 Property-level drivers. The demand and willingness of clients eventually
determine the development of sustainable buildings. Demand is closely related to issues
such as supply, knowledge, methods and costs and value. Different kinds of clients can
exert different kinds of influence. Governmental and local organisations that own and
develop public buildings may significantly affect the development of sustainable
buildings if they decide to adopt sustainability methodologies and metrics (Häkkinen
and Belloni, 2011). Authorities are expected to be the forerunners in sustainability;
however, private companies have and still are increasingly valuing and requiring
sustainability in their everyday business operations as well.
The behaviour of corporate tenants can have important implications for the shift to a
more sustainable built environment, as changes in demand force real estate investors to
adapt to the environmental expectations of tenants. Companies have proclaimed their The circle of
intentions to go green, but have found it difficult to do so. These expectations translate blame for
into financial incentives for the property investment industry, as the shifting
preferences of tenants affect the rental rates for commercial buildings and the volatility
sustainable
of the flows of rental income arising from changes in occupancy. If tenants increasingly buildings
prefer to lease green space rather than conventional office space, then a differential in
rental rates between green and conventional buildings is inevitable. Moreover, it is 33
possible that the non-green commercial properties will depreciate faster and that
occupancy rates might be lower (Eichholtz et al., 2009; Miller et al., 2008; Larsen, 2010).
From the standpoint of society and the tenants, the benefits of sustainable buildings are
beyond dispute. Sustainable buildings provide distinct benefits through higher energy
efficiency and reduced environmental impacts.
From the investor point of view, incorporating sustainability in real estate
investment decisions seems to pay off (Eichholtz et al., 2010). Developers and owners
define value as the potential market value of their property, which is, in turn, influenced
by the attractiveness of the property to potential occupiers. A property’s market value is
thus directly linked to the rental rate and occupancy rate (WGBC, 2013). Eichholtz et al.
(2010) provided evidence that rents and transaction prices in green office buildings
exceed those paid for conventional office buildings, while, at the same time, allowing for
quality and location-specific characteristics. It is estimated that effective rents for
sustainable buildings are about 6 per cent above the rents for conventional office
buildings, whereas transaction prices are 16 per cent higher. Studies have shown a
pattern of sustainable buildings being able to more easily attract tenants and to
command higher rents and sale prices. Känkänen et al. (2012) found that green funds
benefitted especially from stable cash flows, lower vacancy rates and security against
obsolescence.
In markets where green standards have become more common, there are indications
of emerging “brown discounts”, where buildings that are not green may rent or sell for
less. Sustainability risk factors can significantly affect the rental income and the future
value of real estate assets, in turn, affecting their return on investment. Properties that
do not meet sustainability criteria will increasingly be subject to increased rates of
obsolescence and value depreciation (Sayce et al., 2006; WGBC, 2013). There is an
expectation that as tenants become more informed, their demands towards space that
meets their revised corporate objectives, including those of sustainability, will change as
well (Sayce et al., 2007). A bigger change will happen when sustainability becomes
integrated with all funds. The emerging green practices will gradually begin to green
the massive brown building stock (Känkänen et al., 2012).

2.2 Tenants’ sustainability drivers

All businesses need a location from which to operate – whether that business is a
manufacturing company requiring extensive land, a plant or other facilities, or a retailer
selling coffee from a “cart” on the street. However, neither the construction nor real
estate sector is responsible for all of the resulting environmental effects, as building’s
users make their own decisions and their operations have an impact on how the building
is utilised. In this study, tenants are defined as the occupiers of a building or a premise.
2.2.1 External drivers. Green building regulations that take into account tenant or
user activities are not common at moment. Nevertheless, it should be noted that even
JCRE though the investor owns the real estate through the lease agreement, investors give up
17,1 most of the control during the lease period over how the property is used and managed
(Pivo, 2010). Hence, the changing regulations can also be seen as a primary driver for
tenants. Makower (1994) also detected that companies with the best environmental
records not only have a higher standing with the public, they also develop more positive
relationships with regulators, who are more likely to leave them alone if they proactively
34 comply with the law.
2.2.2 Corporate-level drivers. Another issue for companies with respect to their
reputation is the growing need to report on their social achievements, including those
pertaining to the environment. Barely a decade since the concept was first conceived,
corporate sustainability reporting has been adopted by most of the world’s major
corporations. CR activities have led to a situation in which tenants are increasingly
searching for environmentally efficient buildings as a means of reducing both their
occupancy costs and environmental impact. Larsen (2010) found that tenants are
particularly interested in green certifications as they seek to meet their own
sustainability goals. Yet, sustainable buildings do not only aid users to meet their goals
and reduce their cost streams, they also help them to create healthier and more
productive working environments and better indoor environmental quality (Falkenbach
et al., 2010). Research shows that the green design attributes of buildings and indoor
environments can improve worker productivity and occupant health and well-being,
which results in greater bottom line benefits for businesses (WGBC, 2013). Previous
studies suggest a positive correlation between a building’s internal environment (e.g.
indoor air quality) and employee health and productivity (Edwards and Naboni, 2013;
Heerwagen, 2000; Linn and Quintal, 2011). The potential gains of reduced sick leave and
productivity gains are substantial, and it has been asserted that these benefits exceed
costs by a wide margin (Apte et al., 2000; Seppänen et al., 2006).
As personnel expenses are one of the most significant factors in a company’s
operational costs, companies see their real estate holdings, corporate identity and values
as critically important in attracting and retaining the labour that drives their businesses.
The young knowledge worker talent, which is in short supply, is particularly keen on
environmental issues and CSR (Jones Lang LaSalle, 2008; Nelson et al., 2010). Employee
turnover is costly for any company, but especially in terms of knowledge where the
“product” is human brainpower, which goes with the worker when he/she leaves
(Heerwagen, 2000).
The building itself is a symbol of the corporation’s environmental and social
performance, and it may be a powerful source of attraction for potential employees.
There is a growing recognition that sustainable buildings may play a significant role in
promoting the organisation as a whole (Heerwagen, 2000). Sustainable buildings may
become more important for companies when they have committed themselves to CSR
and reporting. Leasing space in a green building may reify the environmental and social
awareness of a firm and may signal the superior social responsibility of the tenants who
relocate there (Eichholtz et al., 2009). As sustainability matters to customers, companies
see sustainability as an important product differentiator in the marketplace, and greener
policies reflect well on the image of the firm and create goodwill among clients and
customers (Nelson et al., 2010; Nousiainen and Junnila, 2008). Another example is that
retailers regard environmental responsibility as a competitive issue. Leading actors
have extended their consideration of environmental aspects to take into account the
life-cycle performance of retail buildings, and this has affected their behaviour as the The circle of
users and owners of buildings (Häkkinen and Belloni, 2011). blame for
2.2.3 Property-level drivers. Tenants are increasingly demanding environmentally
efficient buildings to reduce both their occupancy costs and environmental impact. A
sustainable
major part of the environmental impacts of a building have to do with the way in which buildings
the building is used. For example, in commercial buildings, energy – an important
component of sustainability – accounts for a substantial amount of the environmental 35
impact and cost of a building’s operations. Energy costs in general account for nearly 10
per cent of rents in commercial buildings. These costs can be decreased through energy
efficiency measures that are often integral to green building design (UNEP, 2012;
Eichholtz et al., 2009). Cajias and Piazolo (2013) stated that energy savings may be
motivated by diminished operational costs affecting the property value positively for
the investors. With the likelihood that energy prices will continue to increase around the
world, together with growing water scarcity and rising costs for resources and
transportation, tenants will most likely continue to exercise their preference for
occupying greener properties. For the occupier, the business case turns on greater
operational efficiency and cost control as well as the corporate strategy for building
selection (Sayce et al., 2007). There is also growing evidence that buildings are being
used strategically as a sales and marketing tool of the company (Heerwagen, 2000).

3. Research approach
The study uses qualitative analysis to gain insights of investors’ and tenants’ CR and
sustainability drivers. The empirical research aims to base a theory and test the findings
of the literature review. It was conducted as a structured web-based survey, and the
survey questions are comprised by the findings from the literature. Survey method was
found to be the best solution for conducting the empirical research, as it enables to
“generalise from a sample to a population, so that inferences can be made about some
characteristics, attitude or behaviour of this population” (Creswell, 2009). The
web-based survey tool enables efficient data collection and reaching a large number of
respondents simultaneously. When analysing the survey results, the drivers were
ranked by calculating the sum of responses to scale values “relatively influential” and
“very influential”. In this approach, the most important driver was the one, which
produced the highest sum of responses to these two alternatives.

3.1 Data collection

3.1.1 Survey 1: sustainability drivers for investors. The objective of this survey was to
expand knowledge on this topic and to investigate the implementation of CR by real
estate investors in Finland, Sweden, Norway and Denmark. The survey concentrated on
understanding how real estate investors are currently implementing CR in their
activities, what are the CR drivers for investors and how do they see the future of
responsible investments and CR activities among real estate investors.
Because the Nordic countries have been acknowledged as leaders in sustainability in
general (Gjølberg, 2009), the survey was conducted among the largest real estate
investors and owners operating in the Nordic countries. To identify these investors and
owners, several recent market reports and listings by the most significant investors
were reviewed (e.g. KTI, 2012; Invest Sweden, 2012; Sadolin Albaek, 2012). This resulted
in 171 different companies that were contacted.
JCRE The survey was conducted as a web survey, and the questionnaire was constructed
17,1 based on the findings from the literature review. The questions focussed on forming an
overall picture of real estate investors’ CR implementation in the Nordic countries, and it
consisted of three main parts. The first part of the survey aimed to identify the
approaches in which real estate investors operating in the Nordic countries are currently
engaged in CR and RPI activities. RPI in its simplest form is the integration of ESG
36 issues into investors’ decisions regarding real estate (UNEP, 2012).
The second part of the survey concentrated on the CR drivers identified in the
literature review beforehand. Altogether, ten external, seven corporate-level and five
property-level drivers identified in the literature were assessed as part of the survey.
Respondents were asked to assess the significance of these 22 drivers. The third part of
the survey consisted of statements concerning the current state and future of RPI and
CR. The questions in the second and third parts were based on the 4-point Likert scale.
The 4-point scale was used instead of the more traditional 5-point scale to force
respondents to make a statement and not direct their answer towards the mid-point
choice, thereby indicating a neutral opinion. Respondents were asked to assess the
importance of the drivers on a scale ranging from “not at all influential” to “very
influential” or from “strongly disagree” to “strongly agree”.
3.1.2 Survey 2: sustainability drivers for tenants. The aim of the second survey was
to explore the extent of CR reporting and environmental management in large- and
medium-sized companies in the Nordic and Baltic countries. The focus of the survey was
on corporate premises and their effect on sustainability. To examine the role of real
estate in CR, a survey was selected as the appropriate data collection method. The
questionnaire was developed by a group of researchers in cooperation with industrial
specialists. During the summer of 2011, the researchers and industry specialists had
various brainstorming sessions to define the aim of the questionnaire and to construct
the questionnaire based on previous studies and their own expertise. The questionnaire
was then tested among researchers and industry people who had not been acquainted
with the survey beforehand. Based on their feedback, the questionnaire took its final
form.
The survey was also conducted as a web survey. The questionnaire was divided into
three sections. In the first section, the respondents were asked background questions.
The second part focussed on CR questions about the current situation in the companies,
whereas the third section focussed on questions about the companies’ real estate
properties, in which the respondents were asked to evaluate different arguments about
the buildings’ environmental effects. The questions were either closed or multiple choice
questions, or else the answers were measured using a Likert scale. In several questions,
the respondents were also asked to give estimates in percentages regarding
sustainability or to describe the current situation in their company.

4. Survey results
4.1 Survey 1 results: sustainability drivers for investors
We conducted the survey during the spring of 2012. We sent it to 171 company
representatives. Altogether, 42 replies were received, resulting in response rate of 26 per
cent. When the responses are analysed by investor type, approximately one-third of the
responses were from both listed and non-listed real estate companies. The third largest
group of respondents was real estate funds (21 per cent). Slightly more than 10 per cent
of all respondents were institutional investors. By country, the majority of responses The circle of
(52 per cent) were from Finland, followed by Swedish respondents with a 17 per cent blame for
share of all responses. Ten per cent of respondents were Norwegian, and only two per
cent were Danish. The remaining 19 per cent of the responses were from companies
sustainable
originating in the USA or other European countries operating in the Nordic countries, buildings
such as Germany, France and the UK.
4.1.1 External drivers. The investor survey suggests that property investors see CR 37
as a value adding element, as 81 per cent of the respondents agreed or tended to agree
with this statement. This is in line with Vimpari and Junnila’s (2014) study on the
value-influencing mechanism in real estate. Also, 79 per cent of the respondents
answered that their organisation goes beyond the legal requirements when addressing
environmental or social issues. Approximately 41 per cent of the organisations reported
that they publish a CR report on an annual basis. Slightly more than half do not publish
a CR report annually, and 7 per cent of the respondents were not sure whether their
organisation publishes a report or not. Implementation of the GRI framework is quite
common among the reporting companies, as 81 per cent of the organisations reported
that they apply it to their annual CR report. More than two-third of the organisations
reported that they are committed to at least one of the initiatives or programmes, such as
the Carbon Disclosure Project, the UN’s Principles for Responsible Investment, the UN
Global Compact or the ISO 14,001 Standard.
The respondents also reported that they measure broadly the impacts of their
operations; only 5 per cent of companies reported that they do not measure the impacts
of any of the sustainability options provided in the survey. Most commonly, they
measure energy consumption and water consumption. Furthermore, it is quite common
to measure tenant and employee satisfaction.
These findings suggest that CR is seen as value adding element; however, it is not
seen that important to communicate CR issues via reporting to public. It seems that
investors do take actions through initiatives, programmes and by measuring tenant or
employee satisfaction, but do not utilise these in their public relations or image.
4.1.2 Corporate- and property-level drivers. The relevance of sustainable buildings in
real estate investment will continue to grow in the future. Investors see environmental
rating systems, such as LEED or BREEAM, as the first steps towards sustainability, but
not as the final solution. The survey results indicate that sustainable buildings are
increasingly gaining ground as a new standard when choosing investment targets.
Fifty-five per cent of respondents reported that they currently have at least one certified
building in their portfolio, and 50 per cent indicated that they will prefer sustainable
buildings in the future when making investment decisions. The respondents did not feel
that government incentives and improved access to capital are influential drivers
(Figure 3).
According to the survey results, investors strongly believe that CR adds value to the
business. The most significant driver for CR has to do with improving the corporate
image or reputation, as 93 per cent of the respondents considered this a somewhat
influential or very influential driver for CR implementation. Furthermore, the
respondents considered tenant demand to be the second most important driver (88 per
cent). Moreover, property-level factors, such as increased market value, decreased costs
and opportunities related to marketing and branding, are considered important CR
drivers.
JCRE Improving corporate image or
17,1 reputaon
07 64 29

Tenant demand, sasfacon 0 12 57 31

38 Improving marketability of properes or

0 14 45 41
branding

Business advantage 0 15 52 33

Decreased property costs 5 10 33 52

Figure 3. Our values & corporate culture 2 15 52 31

Most significant
sustainability drivers 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
for investors Not influental sligtly influental relavely influental very influental

There is an interesting contradiction among these and former chapter’s results, as

findings indicate that image and tenant demand are the most important drivers for CR,
but still more than half of the companies are not communicating their actions to public,
for example, via CR reporting.

4.2 Survey 2 results: sustainability drivers for tenants

Survey 2 was carried out during the fall of 2011. The questionnaire was sent to 153
companies. A total of 45 companies completed and returned the questionnaire, resulting in
response rate of 29 per cent. The target group of the survey was persons responsible for CR
issues in Nordic and/or the Baltic countries in companies with large premises. We selected
the companies by reviewing the largest companies operating in the target countries. Most of
the companies operated in either the industrial (22 per cent), consumer discretionary (20 per
cent) or information technology business (16 per cent). Most of the companies had operations
in Finland (93 per cent), in Sweden (80 per cent) and in Norway (80 per cent). The companies
also had operations in the Baltic countries (76 per cent), other parts of Europe (76 per cent),
Russia (71 per cent), Asia (62 per cent), South America (42 per cent) or Africa (38 per cent).
Only a few of the companies had operations in Oceania.
4.2.1 External drivers. An environmental management system was in place in 69 per
cent of the companies, and 93 per cent of the respondents reported that CR matters to their
stakeholders. Eighty-three per cent of respondents reported that they use the GRI reporting
guidelines. It is an interesting finding that more companies are reporting than having
management system in place. This indicates that the companies acknowledge the
importance to communicate their CR actions to public, but there might be defective processes
in their business operations. When we asked whether an evaluation of a premise’s
environmental effects should be an important part of a company’s CR reporting, 47 per cent
of respondents agreed, 22 per cent disagreed and 31 per cent stated that they did not know.
Even though most of the companies reported that they measure the environmental effects of
their premises, they are not sure whether it is important to include that information in CR The circle of
reporting. More than 60 per cent of respondents believe that quality systems and ecological blame for
values have increased the demand for environmentally efficient premises. These findings
suggest that benchmarking information and external programmes or standards bring
sustainable
forward companies CR actions. buildings
4.2.2 Corporate-level drivers. Many of the companies (45 per cent) reported that they
have already adopted environmental certifications for their premises, but nearly as 39
many of the companies (44 per cent) stated that they have not done so. Eleven per cent of
companies reported that they do know whether or not they have an environmental
certification for their premises. All of the respondents stated that they are familiar with
the environmental certifications. The majority of the companies think that
environmentally efficient premises have a positive effect on the company’s image. A
large percentage (82 per cent) of the companies agreed that environmentally efficient
premises improve the image of the company, whereas only a small percentage of the
companies disagreed (7 per cent). Increasing awareness of sustainability has also helped
promote knowledge about environmental certifications. Nevertheless, it is not known
how thoroughly the companies understand the different certification systems and what
the systems include.
4.2.3 Property-level drivers. The questionnaire focussed on forming a picture of CR
implementation and sustainability drivers from the perspective of a tenant and how the
corporate premises’ effect on sustainability is acknowledged and experienced by
various tenants. According to the results, tenants considered the most significant
impact in the building’s environmental aspect (56 per cent), followed by its social aspect
(42 per cent) and finally economic aspect (40 per cent). For each of these aspects, 20-29
per cent of respondents reported that they do not know whether or not the premises had
an impact on any particular aspect. In general, the survey showed that companies are
aware of real estate’s environmental impact. Awareness of real estate’s social and
economic impact is also increasing, but these aspects are not linked to real estate
operations to the same extent as environmental impacts. Most of the companies (73 per
cent) stated that they are measuring the environmental impacts of their premises. Five
per cent reported that they do not know whether the impacts are being measured. The
questionnaire did not specify what the impacts are or how frequently they are being
assessed (Figure 4).
The questionnaire also included an open question where the respondents could
describe how the premises affect different aspects of sustainability. Respondents stated
that the tenant operations affect sustainability; functional and sound premises have an
effect on productivity and energy; and water consumption and waste production have
both environmental and economic impacts. It was also recognised that hot-desking can

Improving corporate image or reputaon 2 4 11 60 22

Our values & corporate culture 2 11 22 53 11

Environmental impacts of premises is

important part of sustainability
4 18 31 29 18 Figure 4.
Most significant
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% sustainability drivers
Not influental Slightly influental Neutral Relavely influental Very influental for tenants
JCRE reduce the need for office space which also affects the consumption. Some of the tenants
17,1 acknowledged that their business operations (e.g. transportation or manufacturing) had
a greater impact on sustainability than their property.
We also asked respondents about their willingness to pay higher rent for
environmentally efficient premises. Only 2 per cent of the companies totally agreed that
they would be willing to pay higher rent for environmentally efficient premises, whereas
40 38 per cent somewhat agreed. On the other hand, only 2 per cent of the companies totally
disagreed that they would be willing to pay higher rent, whereas 25 per cent somewhat
disagreed. One-third (33 per cent) of the companies did not know whether they were
willing to pay higher rent or not.

4.3 Survey results: mutual sustainability drivers for investors and tenants
The results indicate that investors and tenants have implemented CR actions in their
operations, and triple bottom line of sustainability is acknowledged. Tenants are more
active in CR reporting and communicating their sustainability actions to public than
investors. Based on the extant literature and surveys, we found that there are common
drivers for investors and tenant. These similar drivers support the idea of sustainable
buildings but do not necessarily turn the vicious circle into circle of adaptation, but the
found interlinked drivers are the actual change makers in the circle of adaptation.
The results of investor and tenant survey results were compared to find differences
and similarities in found drivers. In both surveys, driver-related questions were
measured using Likert scale. As mentioned before, in both surveys, the answers were
ranked by calculating the sum of responses scaling values “relatively influential” and
“very influential”. The most important driver was the one, which produced the highest
sum of responses to these two alternatives. With this approach, the study identified that
investors and tenants share the same top driver: corporate image. Other mutual drivers
found were compliance with CR strategy and decreasing property costs. Corporate
image and compliance with CR strategy are both corporate-level drivers, and property
cost is a property-level driver. External drivers did not rise to high ranking. This is due
to expectation that legislation and regulations are lagging in nature (Figure 5).
The most remarkable driver for both investors and tenants was company image.
Both investors and tenants are affected by their customers, and therefore, company
image and reputation has a notable role. Effective reputation management, i.e. corporate
image, was considered essential to maintain favourable operating conditions, and at the
same time, a good reputation also provided other noticeable benefits, such as enhanced
customer loyalty or faster lease-up periods. Image factors have become one of the most
important factors when choosing facilities, as the building can reflect the company
values. Image is linked to corporate culture and strategy and how it is demonstrated and
communicated outside the company. Company image is also linked with how the public,
including future employees and customers, perceive the company. Thus, it is

Figure 5. Investor Common Tenant

Cross-analysis of the
- Tenant demand - Corporate image - Producvity
primary drivers for
- Marketability of - Corporate
sustainable buildings buildings culture
identified in the - Business - Lower costs
surveys advantage
understandable that companies wish to be located at environmentally certified The circle of
properties because a company’s property portfolio or premises strongly affect its triple blame for
bottom line. Third-party verification of environmental efficiency enables companies to
benefit from the various forms of certification by using them in internal and external
sustainable
communication. buildings
Reduced property costs were the third common driver for investors and tenants. An
investor at all times focusses on maximising the capital value of the building, which is 41
achieved by increasing income, decreasing costs or decreasing the capitalisation rate
(Reed and Wilkinson, 2005). Several studies have indicated that sustainable buildings
may have lower operating and maintenance costs than conventional buildings
(Eichholtz et al., 2010; Miller et al., 2008). This is in line with Cajias and Piazolo’s (2013)
finding that the debate on global warming and the responsibilities of various parts of the
society to save energy makes it likely that in the near future, energy-wasting buildings
will be avoided by tenants and investors. Given this situation energy-efficient buildings
are likely to gain in value relative to inefficient ones. Low-cost and efficient building can
be, therefore, linked with tenant demand. Moreover, lease agreements have a significant
impact on how operating expenses are distributed between the tenant and the landlord.
The building owner may not be interested in operating costs if they are included in the
tenant’s responsibilities, and the tenant may not be interested in energy consumption if
they pay a fixed rent regardless of how much energy they consume. As a response to this
potential problem, green lease contracts have been developed to encourage both the
landlord and tenant to cooperate more and strive for eco-efficiency. Yet, it needs to be
acknowledged that depending on lease structure, a landlord may have limited ability to
oblige tenant participation (Larsen, 2010).
The fact that parties have mutual drivers seems to be evident. But to understand the circle
of blame, it is just as important to understand the reverse drivers and acknowledge that these
drivers may actually be interlinked with one another. The results of the survey showed that
investors are looking to secure their rental income and achieve better returns on their
investments. Investors prefer sustainable buildings in decision-making because they may
provide lower property costs, increased rental income and opportunities for marketing and
branding. Users are looking for premises that support their business and day-to-day
operations, for example, not only by cutting costs but also by increasing productivity. Yet,
another requirement seems to be that the premises meet the CR strategy of the company.
Evolving green preferences of both users as well as tenants may have the potential to drive
real estate investors towards sustainability.

5. Conclusions
The purpose of this study was to examine how the vicious circle of blame can be turned into
virtuous loops of adaptation when considering sustainable buildings. The focus was limited
to finding drivers for investors and tenants. Furthermore, the aim was also to understand
how these drivers or demands are interconnected with each other to suggest solutions to
solve the issue. This research did not focus on finding evidence to highlight whether there is
a green premium for sustainable buildings or brown discount for non-green buildings. The
findings represent the situation Nordic countries, yet there are indications that the situation
is different in other markets such as in USA or in Central Europe.
The results indicate that there are common drivers such as corporate image,
compliance with CR strategy and decreased property costs. In addition to common
JCRE drivers the parties have their own drivers. Based on the existing literature and results of
17,1 the investor survey, tenant demand is one of the most important drivers for investors.
Although the most remarkable sustainability driver for tenants based on the survey and
literature, it seems to be corporate image and productivity.
Heerwagen stated already in 2000 that the benefits of green buildings are more likely
to occur when the building and organisation are treated as an integrated system from
42 the start. Achieving sustainability involves successful engagement of investor and
tenant to meet their own and common goals. Yet, achieving that might require education
and open dialog between both parties, as both have their own expertise. Another
problem is that in usual situation, the tenant is not aware of what their premises
consume and how do their operations affect consumption. It would be beneficial to come
up with solutions that promote tenant awareness of their own actions effects, for
example, on energy consumption. The effect and linkage of tenant operations and
actions to rent and property costs should be brought up, and changes are needed in
current structure of leases where the situation is such that neither party has a financial
incentive to reduce, for example, energy consumption (Hinnells et al., 2008). Discovering
the benefits may require instruction from landlord side. One solution is to implement
common incentives such as green lease agreements with common goals.
As tenants become more aware of their own impact and discover the other benefits of
sustainable buildings (lower operating costs, productivity and image) and demand more
sustainable buildings, this will presumably result in turning the circle of blame into loops of
adaptation as investors respond to tenant demand and discover the benefits of
marketability, risk reduction, lower operation costs and increased property values (Figure 6)
The findings of this research indicate that the vicious circle of blame can be turned
into virtuous circle of sustainability adaptation and present a case for sustainable
buildings in Nordic countries. It seems that the demand and willingness of clients
eventually determine the development of sustainable buildings. The investor should
concentrate on providing such facilities that the tenants search for.
This study underlines the need of larger sample in future research. It can be assumed that
a larger data would prove the indications of this study to be also statistically valid. Another
interesting subject for further studies would be to study the different situation in other

“We want to invest in

sustainable buildings because
that is what tenants Investors
demand, they have beer
image, and reduced costs.”

“We want to occupy

sustainable buildings as they
increase our producvity and
Figure 6. Tenants
well-being, meet our CR
Virtuous loop of strategy, reduce costs and
adaptation improve image.”
markets, such as other parts of Europe and the USA, and what has been the driver in those The circle of
markets for sustainable buildings. By gaining understanding of other markets and blame for
statistical validity, a stronger case for sustainable buildings can be developed.
sustainable
buildings
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Corresponding author
Mia Andelin can be contacted at: mia.andelin@aalto.fi

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