Income risk in energy efficient office buildings

This article examines the impact of improving energy efficiency of office buildings on their financial risk. While multiple studies report a sustainability premium little is known about the corresponding risk. This research reviews the financial benefits in the context of their impact on risk. After a theoretical analysis of the topic, it forms two hypotheses which are supported with empirical tests performed on a large panel dataset of US commercial office buildings. Changes in the magnitude of the green premium in rent and changes in rental volatility are used as indicators of financial risk associated with energy certification. The study concludes that acquiring an EnergyStar certificate is related to a structural change in statistical characteristics of rents which may be related to the level of energy efficiency. The average effect is positive but varies over time.