Green noise or green value? Measuring the effects of environmental certification on office values

This study investigates the price effects of environmental certification on commercial real estate assets. It is argued that there are likely to be three main drivers of price differences between certified and noncertified buildings. These are additional occupier benefits, lower holding costs for investors and a lower risk premium. Drawing upon the CoStar database of U.S. commercial real estate assets, hedonic regression analysis is used to measure the effect of certification on both rent and price. The results suggest that, compared to buildings in the same submarkets, eco-certified buildings have both a rental and sale price premium.

The value premium and time-varying volatility

Numerous studies have documented the failure of the static and conditional capital asset pricing models to explain the difference in returns between value and growth stocks. This paper examines the post-1963 value premium by employing a model that captures the time-varying total risk of the value-minus-growth portfolios. Our results show that the time-series of value premia is strongly and positively correlated with its volatility. This conclusion is robust to the criterion used to sort stocks into value and growth portfolios and to the country under review (the US and the UK). Our paper is consistent with evidence on the possible role of idiosyncratic risk in explaining equity returns, and also with a separate strand of literature concerning the relative lack of reversibility of value firms' investment decisions.

Does active management add any value?

The question as to whether active management adds any value above that of the funds investment policy is one of continual interest to investors. In order to investigate this issue in the UK real estate market we examine a number of related questions. First, how much return variability is explained by investment policy? Second, how similar are the policies across funds? Third, how much of a fund’s return is determined by investment policy? Finally, how was this added value achieved? Using data for 19 real estate funds we find that investment policy explains less than half of the variability in returns over time, nothing of the variation across funds and that more than 100% of a level of return is attributed to investment policy. The results also show UK real estate fund focus exclusively on trying to pick winners to add value and that in pursuit of active return fund mangers incur high tracking error risk, consequently, successful active management is very difficult to achieve. In addition, the results are dependent on the benchmark used to represent the investment policy of the fund. Nonetheless, active management can indeed add value to a real estate funds performance. This is the good news. The bad news is adding value is much more difficult to achieve than is generally accepted.

A note on estimating market–based minimum capital risk requirements: a multivariate GARCH approach

Internal risk management models of the kind popularized by J. P. Morgan are now used widely by the world’s most sophisticated financial institutions as a means of measuring risk. Using the returns on three of the most popular futures contracts on the London International Financial Futures Exchange, in this paper we investigate the possibility of using multivariate generalized autoregressive conditional heteroscedasticity (GARCH) models for the calculation of minimum capital risk requirements (MCRRs). We propose a method for the estimation of the value at risk of a portfolio based on a multivariate GARCH model. We find that the consideration of the correlation between the contracts can lead to more accurate, and therefore more appropriate, MCRRs compared with the values obtained from a univariate approach to the problem.

The first five years of the EU Impact Assessment system: a risk economics perspective on gaps between rationale and practice

In 2003 the European Commission started using Impact Assessment (IA) as the main empirical basis for its major policy proposals. The aim was to systematically assess ex ante the economic, social and environmental impacts of EU policy proposals. In parallel, research proliferated in search for theoretical grounds for IAs and in an attempt to evaluate empirically the performance of the first sets of IAs produced by the European Commission. This paper combines conceptual and evaluative studies carried out in the first five years of EU IAs. It concludes that the great discrepancy between rationale and practice calls for a different theoretical focus and a higher emphasis on evaluating empirically crucial risk economics aspects of IAs, such as the value of statistical life, price of carbon, the integration of macroeconomic modelling and scenario analysis.

Designing and implementing livestock value chain studies: a practical aid for Highly Pathogenic and Emerging Disease (HPED) control

Value chain studies, including production system and market chain studies, are essential to value chain analysis, which when coupled with disease risk analysis is a powerful tool to identify key constraints and opportunities for disease control based on risk management in a livestock production and marketing system. Several production system and market chain studies have been conducted to support disease control interventions in South East Asia. This practical aid summarizes experiences and lessons learned from the implementation of such value chain studies in South East Asia. Based on these experiences it prioritizes the required data for the respective purpose of a value chain study and recommends data collection as well as data analysis tools. This practical aid is intended as an adjunct to the FAO value chain approach and animal diseases risk management guidelines document. Further practical advice is provided for more effective use of value chain studies in South and South East Asia as part of animal health decision support.

A framework of brand value in B2B markets: the contributing role of functional and emotional components

The creation of value is admittedly a critical task for marketers regardless of industry. This paper focuses on a type of value that has traditionally been perceived as irrelevant to industrial markets and argues that brand value facilitates the progression from goods and services value to relationship value. To address the limited amount of research on B2B branding from the suppliers' point of view, we complement insights gained from a literature review with ten exploratory interviews with B2B supplier managers, and develop a framework of brand value applicable to industrial markets. This identifies both the functional (i.e., quality, technology, capacity, infrastructure, after sales service, capabilities, reliability, innovation) and emotional qualities (i.e., risk reduction, reassurance, trust) important for the development of industrial brand equity. Situational (e.g. nature of the purchase) and environmental factors (e.g. the economic situation) affecting suppliers' perceptions of the importance of brand in a B2B context and the role of functional versus emotional brand qualities are discussed. The value of the brand as a driver for the development of business to business relationships is also highlighted. The framework provides a basis for B2B practitioners to build their brands in such a way as to make a functional as well as an emotional connection with buyers that is more likely to lead to a supplier–buyer relationship.

Green noise or green value? Measuring the price effects of environmental certification in commercial buildings

This paper investigates the price effects of environmental certification on commercial real estate assets. It is argued that there are likely to be three main drivers of price differences between certified and non-certified buildings. First, certified buildings offer a bundle of benefits to occupiers relating to business productivity, image and occupancy costs. Second, due to these occupier benefits, certified buildings can result in higher rents and lower holding costs for investors. Third, certified buildings may require a lower risk premium. Drawing upon the CoStar database of US commercial real estate assets, hedonic regression analysis is used to measure the effect of certification on both rent and price. We first estimate the rental regression for a sample of 110 LEED and 433 Energy Star as well as several thousand benchmark buildings to compare the sample to. The results suggest that, compared to buildings in the same metropolitan region, certified buildings have a rental premium and that the more highly rated that buildings are in terms of their environmental impact, the greater the rental premium. Furthermore, based on a sample of transaction prices for 292 Energy Star and 30 LEED-certified buildings, we find price premia of 10% and 31% respectively compared to non-certified buildings in the same metropolitan area

The use of risk registers by project managers

The construction industry is widely recognised as being inherent with risk and uncertainty. This necessitates the need for effective project risk management to achieve the project objectives of time, cost and quality. A popular tool employed in projects to aid in the management of risk is a risk register. This tool documents the project risks and is often employed by the Project Manager (PM) to manage the associated risks on a project. This research aims to ascertain how widely risk registers are used by Project Managers as part of their risk management practices. To achieve this aim entailed interviewing ten PMs, to discuss their use of the risk register as a risk management tool. The results from these interviews indicated the prevalent use of this document and recognised its effectiveness in the management of project risks. The findings identified the front end and feasibility phases of a project as crucial stages for using risk registers, noting it as a vital ingredient in the risk response planning of the decision making process. Moreover, the composition of the risk register was also understood, with an insight into how PMs produce and develop this tool also ascertained. In conclusion, this research signifies the extensive use of the risk register by PMs. A majority of PMs were of the view that risk registers constitute an essential component of their project risk management practices. This suggests a need for further research on the extent to which risk registers actually help PMs to control the risks in a construction project, particularly residual risks, and how this can be improved to minimize deviations from expected outcomes.

The European Flood Alert System and the communication, perception, and use of ensemble predictions for operational flood risk management

Although ensemble prediction systems (EPS) are increasingly promoted as the scientific state-of-the-art for operational flood forecasting, the communication, perception, and use of the resulting alerts have received much less attention. Using a variety of qualitative research methods, including direct user feedback at training workshops, participant observation during site visits to 25 forecasting centres across Europe, and in-depth interviews with 69 forecasters, civil protection officials, and policy makers involved in operational flood risk management in 17 European countries, this article discusses the perception, communication, and use of European Flood Alert System (EFAS) alerts in operational flood management. In particular, this article describes how the design of EFAS alerts has evolved in response to user feedback and desires for a hydrographic-like way of visualizing EFAS outputs. It also documents a variety of forecaster perceptions about the value and skill of EFAS forecasts and the best way of using them to inform operational decision making. EFAS flood alerts were generally welcomed by flood forecasters as a sort of ‘pre-alert’ to spur greater internal vigilance. In most cases, however, they did not lead, by themselves, to further preparatory action or to earlier warnings to the public or emergency services. Their hesitancy to act in response to medium-term, probabilistic alerts highlights some wider institutional obstacles to the hopes in the research community that EPS will be readily embraced by operational forecasters and lead to immediate improvements in flood incident management. The EFAS experience offers lessons for other hydrological services seeking to implement EPS operationally for flood forecasting and warning. Copyright © 2012 John Wiley & Sons, Ltd.

Private climate change reporting: an emerging discourse of risk and opportunity?

Purpose – This paper aims to explore the nature of the emerging discourse of private climate change reporting, which takes place in one-on-one meetings between institutional investors and their investee companies. Design/methodology/approach – Semi-structured interviews were conducted with representatives from 20 UK investment institutions to derive data which was then coded and analysed, in order to derive a picture of the emerging discourse of private climate change reporting, using an interpretive methodological approach, in addition to explorative analysis using NVivo software. Findings – The authors find that private climate change reporting is dominated by a discourse of risk and risk management. This emerging risk discourse derives from institutional investors' belief that climate change represents a material risk, that it is the most salient sustainability issue, and that their clients require them to manage climate change-related risk within their portfolio investment. It is found that institutional investors are using the private reporting process to compensate for the acknowledged inadequacies of public climate change reporting. Contrary to evidence indicating corporate capture of public sustainability reporting, these findings suggest that the emerging private climate change reporting discourse is being captured by the institutional investment community. There is also evidence of an emerging discourse of opportunity in private climate change reporting as the institutional investors are increasingly aware of a range of ways in which climate change presents material opportunities for their investee companies to exploit. Lastly, the authors find an absence of any ethical discourse, such that private climate change reporting reinforces rather than challenges the “business case” status quo. Originality/value – Although there is a wealth of sustainability reporting research, there is no academic research on private climate change reporting. This paper attempts to fill this gap by providing rich interview evidence regarding the nature of the emerging private climate change reporting discourse.

Area-wide development viability appraisals: the concept of threshold land value within a UK planning context

Area-wide development viability appraisals are undertaken to determine the economic feasibility of policy targets in relation to planning obligations. Essentially, development viability appraisals consist of a series of residual valuations of hypothetical development sites across a local authority area at a particular point in time. The valuations incorporate the estimated financial implications of the proposed level of planning obligations. To determine viability the output land values are benchmarked against threshold land value and therefore the basis on which this threshold is established and the level at which it is set is critical to development viability appraisal at the policy-setting (area-wide) level. Essentially it is an estimate of the value at which a landowner would be prepared to sell. If the estimated site values are higher than the threshold land value the policy target is considered viable. This paper investigates the effectiveness of existing methods of determining threshold land value. They will be tested against the relationship between development value and costs. Modelling reveals that threshold land value that is not related to shifts in development value renders marginal sites unviable and fails to collect proportionate planning obligations from high value/low cost sites. Testing the model against national average house prices and build costs reveals the high degree of volatility in residual land values over time and underlines the importance of making threshold land value relative to the main driver of this volatility, namely development value.

Private climate change reporting: a discourse of risk and opportunity

Purpose – This paper aims to explore the nature of the emerging discourse of private climate change reporting, which takes place in one-on-one meetings between institutional investors and their investee companies. Design/methodology/approach – Semi-structured interviews were conducted with representatives from 20 UK investment institutions to derive data which was then coded and analysed, in order to derive a picture of the emerging discourse of private climate change reporting, using an interpretive methodological approach, in addition to explorative analysis using NVivo software. Findings – The authors find that private climate change reporting is dominated by a discourse of risk and risk management. This emerging risk discourse derives from institutional investors' belief that climate change represents a material risk, that it is the most salient sustainability issue, and that their clients require them to manage climate change-related risk within their portfolio investment. It is found that institutional investors are using the private reporting process to compensate for the acknowledged inadequacies of public climate change reporting. Contrary to evidence indicating corporate capture of public sustainability reporting, these findings suggest that the emerging private climate change reporting discourse is being captured by the institutional investment community. There is also evidence of an emerging discourse of opportunity in private climate change reporting as the institutional investors are increasingly aware of a range of ways in which climate change presents material opportunities for their investee companies to exploit. Lastly, the authors find an absence of any ethical discourse, such that private climate change reporting reinforces rather than challenges the “business case” status quo. Originality/value – Although there is a wealth of sustainability reporting research, there is no academic research on private climate change reporting. This paper attempts to fill this gap by providing rich interview evidence regarding the nature of the emerging private climate change reporting discourse.

Risk allocation in a public–private partnership: a case study of construction and operation of kindergartens in Kazakhstan

In Kazakhstan, a transitional nation in Central Asia, the development of public–private partnerships (PPPs) is at its early stage and increasingly of strategic importance. This case study investigates risk allocation in an ongoing project: the construction and operation of 11 kindergartens in the city of Karaganda in the concession form for 14 years. Drawing on a conceptual framework of effective risk allocation, the study identifies principal PPP risks, provides a critical assessment of how and in what way each partner bears a certain risk, highlights the reasons underpinning risk allocation decisions and delineates the lessons learned. The findings show that the government has effectively transferred most risks to the private sector partner, whilst both partners share the demand risk of childcare services and the project default risk. The strong elements of risk allocation include clear assignment of parties’ responsibilities, streamlined financing schemes and incentives to complete the main project phases on time. However, risk allocation has missed an opportunity to create incentives for service quality improvements and take advantage of economies of scale. The most controversial element of risk allocation, as the study finds, is a revenue stream that an operator is supposed to receive from the provision of services unrelated to childcare, as neither partner is able to mitigate this revenue risk. The article concludes that in the kindergartens’ PPP, the government has achieved almost complete transfer of risks to the private sector partner. However, the costs of transfer are extensive government financial outlays that seriously compromise the PPP value for money.

Assessing the value of imperfect biocontainment nationally: rapeseed in the United Kingdom as an exemplar

Paternal biocontainment methods (PBMs) act by preventing pollen-mediated transgene flow. They are compromised by transgene escape via the crop-maternal line. We therefore assess the efficacy of PBMs for transgenic rapeseed (Brassica napus) biocontainment across the United Kingdom by estimating crop-maternal hybridization with its two progenitor species. We used remote sensing, field surveys, agricultural statistics, and meta-analysis to determine the extent of sympatry between the crop and populations of riparian and weedy B. rapa and B. oleracea. We then estimated the incidence of crop-maternal hybridization across all settings to predict the efficacy of PBMs. Evidence of crop chloroplast capture by the progenitors was expanded to a national scale, revealing that crop-maternal gene flow occurs at widely variable rates and is dependent on both the recipient and setting. We use these data to explore the value that this kind of biocontainment can bring to genetic modification (GM) risk management in terms of reducing the impact that hybrids have on the environment rather than preventing or reducing hybrid abundance per se.