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Barriers to Green Buildings in Emerging Markets: The Russia Case

Despite the growing interest and publicity about green buildings around the globe, the number of green buildings is disappointingly low except a few advanced construction markets, such as the US and UK. While there are several possible barriers to green buildings in emerging markets, such as absence of government incentives and inertia, a number of other obstacles, both at the project and industry levels, continue to prevent more green buildings from being built. This article discusses some of these obstacles, such as organizational adaptation needed to deliver green buildings in emerging markets and incompatibility between international green building standards, such as LEED and BREEAM, and local conditions. It also discusses challenges at the industry level based on the example of the current status of the green building segment of the Russian construction industry, the largest Eastern European construction industry with an emerging green building segment. The article points out the gaps in this emerging industry segment of Russia by comparing the distribution of USGBC members by organization type to that of Russian Green Building Council (RuGBC), the main platform of the green building movement in Russia. Based on this comparison, it points out that at the industry level the current green building contenders in Russia mainly cluster in specific service segments, while some other major players, such as contractors and builders that are the highest represented organization type on USGBC, are largely absent so far. The article also points out this gap by presenting the results of a survey conducted by Ernst & Young’s Russia office among contractor companies in this market, which reveal that the surveyed contractors are mostly unaware of the green building standards and have limited or no knowledge on sustainable construction practices. The target audience of the article is the engineers, contractors, designers, developers and project service providers planning to undertake international green building projects in emerging construction markets.

 

Barriers to Green Buildings in Emerging Markets: The Russia Case

(Original article published on www.GreenPro.com of CMC Media on 10 December 2010)

by

B. Kagan Ceylan

Despite the growing interest and publicity about green buildings, the number of green buildings in many emerging real estate markets is still trailing behind those of the US and Europe. Compared to the US, which currently has 5,646 LEED certified green buildings1,number of certified green buildings in most construction markets across the globe is still disappointingly small (Figure 1). For example, Russia, which is the leading Eastern European construction market, has still has very limited number of green buildings to date..  One reason for this is the relatively less public awareness and government support for green buildings. Particularly, government incentives for green buildings, such as tax breaks and cap-and-trade systems, provide significant stimulus green building developers, as is the case in the US. However, in the absence of government support, real estate industries have to create their green building segment and sustain its development based on solely the expected premiums.  

Number of certified buildings under LEED and BREEAM in selected emerging real estate markets – confidential BREEAM projects may not  appear in the chart (source: US Green Building Certification Institute and BREEAM databases1, 2)


 

In this article we look into the formation of green building segment of the construction industry in Russia, a market where there are currently no government incentives for green buildings and the green building development is almost entirely driven by the private sector. We analyze some of the potential barriers to the growth of green buildings, both at the project and industry levels, and identify some of the challenges and their potential implications.

Green building challenges in emerging markets at the project level: organizational and learning barriers

In any construction industry, incorporation of sustainability into the building’s design and construction process poses additional challenges because it increases the project complexity. Consequently, the amount of effort for planning, coordination, and management for all project stake holders significantly increases, often with higher indirect costs and longer construction schedules. However, in emerging markets these challenges are particularly exacerbated due to a number of reasons:

Organizational challenges: Green buildings require an alternative project delivery approach that emphasizes front-end planning and partnering among project stake holders (e.g., owner, designer, and contractor). This is because starting early in the design phase green building project teams should explore credit feasibility and compliance requirements under the selected green building standard, consider synergies among credits and encourage a team work to fulfill compliance requirements or exploit credit opportunities that are usually cross disciplinary. While these front-end preparations and the integrated project delivery approach also pose challenges for project teams in well developed construction industries, these challenges are exacerbated in emerging markets because industry practices and mindsets usually are not ready. Long front end project planning is typically perceived as a delay to the projects’ schedule. As a result, fast track project delivery is a norm rather than an option that should be selected depending on the project’s circumstances and requirements.

Learning barriers: The second major diffusion barrier to the green buildings is the absence of green building standards in most emerging markets that take into account the local conditions. This forces project teams to select a major international green building standard to certify their projects, such as LEED or BREEAM, that was developed for the specific conditions of another country (e.g., US) or market (e.g., Europe). Project teams that pursue certification under such international green building standards have to go the extra mile to understand the standards and compliance criteria that underlie these standards before they can demonstrate equivalence of the local standards and criteria to those referred to in these international standards. For example, in order for an international project to demonstrate compliance with LEED Site Selection Prerequisite 1 on the control of sedimentation and erosions during construction operations, the international project team should understand EPA’s National Pollution Discharge Elimination System (NPDES) that underlies Construction General Permit requirements that should be obtained from EPA as part of compliance with this prerequisite. International project teams should then demonstrate that the local practices implemented in the project are equivalent to these requirements before they can use LEED to certify their projects. At times, this is also exacerbated by the conflicts between green building standard requirements and the local norms and regulations.

Green building challenges in emerging markets at the industry level: incomplete industry structures

In addition to specific organizational arrangements and project delivery strategies needed at the project level, sustainable growth of green buildings at the industry level would also require significant structural changes. Sustaining green building development projects requires extensions to the existing industry services by new players and services (e.g., new service contractors, such as recycling companies or commissioning agency companies). Alternatively, it also requires significant learning and adaptation among the existing industry players, such as developers, contractors, insurance companies, attorneys and others, to expand into this new real estate segment with new services and meet its specific needs.

A brief comparison between a (relatively) mature (US) and emerging green building market (Russia) illustrates the need for new services that should support green development, as well as the need for learning and adaptation by the existing market players that should take place before an emerging green building market transitions into a mature one. Currently, Russian Green Building Council (RuGBC), is the driving force behind the green building movement in Russia despite its short history. The RuGBC is the major platform on which key industry players join forces to promote green buildings in Russia. Following its establishment in May 2009, it quickly embraced the great majority of the companies and organizations that are actively involved or interested in green buildings and it now has 94 members (69 corporate and 15 individual). However, a quick look at the distribution of RuGBC members as to the organization types in comparison to that of US Green Building Council (USGBC) reveals that currently the council’s members cluster in certain segments, while many other segments are either significantly underrepresented or do not exist yet (Figure 2).  

Distribution of USGBC and RuGBC members by organizations type

In Figure 2, product manufacturers, real estate developers and services companies and consultants constitute more than half of the corporate members of the RuGBC. They are followed by significant numbers of engineers, architects and architects/engineers, as well as some specialty contractors and designers. Compared to the members of USGBC, it is immediately noticeable that contractors and builders, who ultimately build green buildings, are significantly underrepresented. Another interesting difference is that educational institutions, government representatives, non-profit organizations, and professional trade organizations are largely absent. Finally, energy service companies, financial institutions, insurance companies and some others who are not directly involved in green building construction projects but play a vital role in bringing these projects into life also appear to be absent in the increasing green  building activities so far.

Absence of several players, such as financial institutions, insurance companies and commissioning providers and some others can be explained by the relatively short history of RuGBC and the green buildings market segment, which is likely to change as this segment picks up with more projects. However, absence of large contractors and builders points out a significant gap in the green building industry structure (e.g., currently no ENR Top International or large local general contractors on RuGBC). Indeed in a survey conducted among general contractors in Russia by Ernst & Young’s Transaction Real Estate Advisory Services in Moscow reveals that the great majority of the general contractors (none of them a member of RuGBC) indicated that they have little or no information about green buildings and sustainable construction practices. They were also unable to indicate any preference for the major green building standards, such as LEED and BREEAM, due to lack of knowledge on green building standards.

Contractors’ awareness on green buildings and their preferred green building standard in Russia



Conclusions

While the Russian green buildings construction industry segment does not have to follow the same patterns of that of the US and each market may develop its own structure and patterns, our analysis nevertheless highlights some of the challenges for international green construction projects and structural gaps in the early days of Russian green construction industry.

  • In emerging construction industries, a paradigm shift in the form of partnership among project stakeholders should be promoted in how projects are delivered in emerging construction markets, while green building development should be supported through institutional, organizational and legal arrangements and practices (e.g., increased awareness for organizational requirements, green construction contracts, and incentives for integrated project delivery methods).
  • Organizations that develop and maintain major international green building standards should intensify their efforts for adaptation of these standards to the local conditions while maintaining their essence in order to encourage diffusion of sustainability in emerging construction markets.
  • As for the Russian market, the interest among product and service providers for green buildings far exceeds that of contractors and builders. In a market, in which design-build project delivery is one of the most common practices, the current absence of contractors and builders involvement in the green building movement may become a significant obstacle in bringing green development projects to successful completion.
  • In the emerging Russian green building market (and possibly other similar emerging markets), the current players cluster in a few segments, while industry-wide green building support services are currently lacking. For example, there are few or no RuGBC member companies specializing in recycling, commissioning, water efficient irrigation systems, green roofs, and other specific services that typically play an important role in green building certification. This provides strategic opportunities for new or existing market players to provide this market segment with services that can fill these gaps.

 

 

About the Author
Kagan Ceylan is Manager with Ernst & Young in their Transaction Real Estate Advisory Services group in Moscow, Russia. Kagan holds a Master of Science degree in Civil Engineering from Texas A&M University with a focus in water resources and environmental engineering. Kagan also holds a Doctor of Engineering degree in Engineering, again from Texas A&M University. Kagan is a LEED Green Associate and BREEAM International Assessor. He is also a PMI Project Management Professional (PMP) and a Member of Royal Institution of Chartered Surveyors (MRICS) (U.K.). He can be reached at KaganCeylan@yahoo.com or at www.linkedin.com.  You can reach another article of the author on green buildings (“BREEAM and LEED: Which green building standard is more energy efficient?”) at http://www.amcham.ru/_images/upload/AmCham90.pdf.

 

References:

[1] US Green Building Certification Institute (GBCI) database as of 8 November 2010 (http://www.gbci.org)

[2] BREEAM database as of 9 November 2010 (www.breeam.org)

Figure 1. Numbers of BREEAM and LEED certified projects in selected emerging markets
Figure 2. Distribution of USGBC and RuGBC members by organization type
Figure 3a. Contractors' awareness on green building standards
Figure 3b.Contractors' preferred green building standard in Russia

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