Magazine article Real Estate Issues

Green Building Representations and the Emerging Potential for Securities Fraud Liability

Magazine article Real Estate Issues

Green Building Representations and the Emerging Potential for Securities Fraud Liability

Article excerpt


IN THE PAST TEN YEARS, THE NOTION OF "GREEN" or high-performance building has moved from an isolated concept discussed among small groups of idealists to become a key element of any credible discussion regarding public or private investment in the built world.

However, that growth has been accompanied by a penumbra of oft-repeated but misunderstood or exaggerated claims regarding green building practices and certification. Unfortunately, it appears that some of those claims are being made by public companies in their securities disclosures.

In order to understand how this has occurred, it is important to understand the fervent growth of green building as a kind of social "movement"(1) in the United States. In part due to the threat of global warming and the precipitous rise of fuel costs, the green building movement has gained considerable urgency and legions of committed followers.

While environmental concerns and energy costs both factor into the growth of green building, much of the credit is due to the United States Green Building Council (USGBC) and the development and marketing of its Leadership in Energy and Environmental Design (LEED [R]) green building certification products. Where similar movements to encourage environmental practices (i.e, organic foods) have been mired in competing and misunderstood definitions or certification regimes, LEED has managed to succeed. Although rating systems exist that are similar to LEED, the USGBC has virtually cornered the market on the rating of green commercial buildings.

USGBC's cornering of the market arose from four fundamental issues: 1) LEED provides a clear definition of green that references existing, third-party standards, codes and calculation methods; 2) LEED provides an easily understood points system that seems to appeal to the competitive nature in all of us; 3) the USGBC rolled out LEED by first getting a foothold of acceptance among key federal government agencies; and 4) increasing levels of LEED certification are awarded on an appealing, highly-marketable Olympic-medal-like recognition ranging from Certified to Silver, Gold, and finally, Platinum.

The success of the USGBC is reflected in the growth of its membership and in the number of buildings registered with the USGBC for potential LEED certification. Over the past five years, the non-profit USGBC has doubled its membership to more than 16,000. (2)' At about the same time, commercial LEED registered projects have grown from approximately 2,000 to now more than 13,000 nationwide. (3)

Just as astonishing is the success of the USGBC's annual Greenbuild conference (recently purchased by McGrawHill) where the number of attendees last year (22,835 (4)) was more than six times the number in attendance at the inaugural 2002 conference. (5) This year's Greenbuild, set for November 19 in Boston, will feature Nobel Peace laureate Archbishop Desmond Tutu as its keynote speaker.

LEED's popularity has not escaped the attention of lawmakers, who have written the LEED point system into various tax (6), building and zoning" codes, and even into settlement orders in environmental litigation at nearly every level of government. (9) Whether or not this was the design of LEED's progenitors, what started as an attempt to add a set of environmental options to a set of building practices and materials has become a national and international phenomenon. (10)

While its current LEED products have caught on around the world, the USGBC continues to make changes to them. At present, the USGBC offers nine LEED products. They are: New Construction & Major Renovations, Existing Buildings: Operations & Maintenance, Commercial Interiors, Core & Shell, Schools, Retail, Healthcare, Homes, and Neighborhood Development. (11)

In addition to developing LEED products, the USGBC sells educational materials and seminars, and until recently, administered an accreditation program for design professionals and others (including lawyers) interested in earning the LEED-Accredited Professional (LEED-AP) designation in the application of LEED standards. …

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