Green Premium Myth:
A Case Study of the Financial Implication of Green Design on Shareholder Value
Article at a Glance
Premium - considering that at a 2% premium the saving to the property owner over the life of the property is in excess of R 122 million, of which 78 million or 64% relates to energy saving. This translates into an annual saving of over R6 million on operating expenditure of which R3.6 million is attributed to energy.
Further to this the study finds that the 2% capital cost premium of R 2,88 million can be offset by the saving on operating expenditure within the first year of operation. Therefore shareholder value increases from year one of operation. It is found that Return on Net Assets (RONA) is higher due to the impact on profit margin and when placed in a hypothetical simulation it is clear that the case study will enhance a property portfolio by offering a superior revenue stream whilst reducing the risk profile of the portfolio.
Hence, based on the findings of this study a capital cost premium is well worth the expenditure due to the long term sustainability of shareholder value created from a superior revenue stream influenced by lower operating expenditure.