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Is Effective Governance Still Possible?

How LEED is maintaining its authority and influence in the market—for now.

December 2, 2013
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We often talk about LEED from a technical standpoint, but how is it actually impacting the market and individuals’ lives more broadly? Is LEED actually governing the building industry? If so, on whose authority?

LEED as a rating system sets policy, develops incentives, invites feedback before rolling out new standards and occasionally upsets folks in the process. It sounds a lot like a government entity, but of course, it’s not. That fact might be why LEED has been so effective in transforming the built environment during the past decade.

It is widely known that our traditional public institutions are fumbling and stumbling their way into the 21st century. Whether you think the government should be big or small, it matters greatly that what it does is value-adding and effective to those who depend on it. Many would argue that the government is neither of those things. In such a difficult governance environment, how has LEED been so transformative of an entire industry through a system of essentially self-regulation?

Ultimately, it comes down to who has legitimacy and authority to govern. Like the American Founding Fathers, a small group of determined individuals set out to design a system for green buildings that benefits people, planet and profit. The designers of LEED knew that to gain leverage and influence they needed the consent and support of the governed—in this case, those in the building industry. In exchange for that support and authority, LEED filled a “governance gap” that has helped an entire green building industry grow and prosper—a truly innovative mechanism for transforming the built environment.

The Legitimacy and Authority of LEED

The profit incentive is critical, even if it remains debatable to some. Companies and their stakeholders must have a clear financial incentive to go through more planning and more steps to get a return on investment beyond the “soft” benefits of a green building. Profit is a core incentive, but it is not enough to sustain widespread demand and preference for green buildings.

LEED has also benefited from a special set of economic and social conditions that have allowed it to thrive. First, the building industry is complex and diverse enough that green building appeals to a broad range of stakeholders for many different reasons. They have many different perspectives and needs—public officials, educational institutions, real estate companies and individuals themselves. As the USGBC lays out in its core documents, Foundations of LEED, LEED is a technical system and brand that links all of the stakeholders together; it is a language that everyone can speak to reach a set of both shared and divergent objectives.

Third, buildings themselves are a very unique product. They cannot easily be manufactured overseas and shipped here like many products. Buildings are capital-intensive, complex and designed to exacting specifications unique to their location, purpose and occupants. And people don’t just consume buildings, they live and work in them. Buildings thus have a universal appeal, and LEED offers a system—a language—for making buildings better for everyone. 

Because LEED is voluntary, however, there are some interesting side effects: The system can be more nimble, flexible and responsive to the needs of its stakeholders (at least, compared to public institutions). It is not usually entangled in the politics that have debilitated the government. Although lobbying for changes within LEED certainly takes place, it is not graced with the political malfeasance associated with traditional governance processes.

Indeed, LEED has thrived on a diverse set of supporters and volunteers who see its benefits differently, but see benefits nonetheless. They respect the LEED system for what it is, and as it becomes more ingrained in society—that is to say, more institutionalized—its benefits are likely to become even more widely recognized and accepted.

Landmines and Pitfalls to LEED’s Market Position

Neither the USGBC nor LEED is really permanent like the government—that is, they were not created by a law. For example, there is no inspector general and little enforcement capability. And the balance of power is not exactly equal between its major stakeholders. USGBC members have a good deal of influence, but it is limited in comparison to public institutions comprised of elected representatives, a judiciary and an executive department, all of which have fairly equal power.

Why does this matter? Institutional authority is much different than market-based authority. One day, another organization could muscle its way into the building industry and replace LEED altogether. Or, LEED could become a victim of its own success—a market so transformed that the benefits of ever-stricter or more innovative green building techniques fade. The government could even choose to develop its own evolving standards, like ENERGY STAR, supplanting LEED altogether (though unlikely). Worse, a mistake is made that sets off a chain reaction between stakeholders that unravels its authority and diminishes its reputation. That’s a sad idea, but not at all beyond the realm of possibility in our era of rapid social and industrial changes.

Relationships Remain Critical For LEED Success

Since LEED is not dependent on the law to exist or to be a regulatory “force,” a great number of relationships must be maintained to ensure its legitimacy and authority continues. These relationships span a wide range of stakeholders—the private sector, the public sector and the civil society/nonprofit sectors. LEED exists and governs at the intersection between these three broad groups. Each has an important stake in the future of green building standards, and sometimes they conflict with other stakeholders. How USGBC leadership and the LEED system respond to these conflicts is essential to maintaining a delicate equilibrium.

The conflict over certified wood that involved the state of Maine and Forest Stewardship Council (FSC) is one example. In this case, LEED required a very specific source of certified wood to achieve a credit, but it conflicted with powerful business interests, the political establishment, and a partner organization that also certifies a sustainable product because Maine had required new public buildings be built to achieve LEED certification. The government routinely shows preferences in the marketplace, but it’s different when you are not under public control. A misstep or over-reach of authority can have many unintended consequences when authority is based solely on popular demand.

This reality is illustrative of LEED’s status as a volunteer, quasi-regulatory framework that connects many different organizations (and their collective interests) together. There are enormous opportunities for such a unique position in the marketplace, but there are as many landmines and pitfalls present, especially as LEED evolves. For example, it remains dangerous to attempt to regulate or require specific attributes of certain products where LEED has very little leverage (i.e. authority and legitimacy) to impose requirements—especially compared to that of the federal government and members of Congress. We saw this play out over the presence of certain chemicals in roofing insulation last year with initial drafts of LEED v4.

With LEED v4 approved for implementation, there is an even greater opportunity to capitalize (in both senses) on what is a truly an innovative governance mechanism that has propelled green building across literally all sectors of the building industry. LEED currently has the strength to maintain its influence and authority—but as it matures and markets shift, the real test will be its endurance as it competes with other rating systems.

With its global reach, LEED is a bright spot in a complex network of governing frameworks and institutions, many of which are struggling under the pressures of a rapidly integrating and globalized world. It is an exciting time for green building, and it will be exciting to see what “market transformation” will look like in another 10 years.

 

This article is based on Jonathan Ludwig’s master’s thesis research, “The Basis of Leadership in Energy and Environmental Design (LEED) as a Model Environmental Governance Mechanism,” published June 2013, American University.


LEED and Environmental Governance Model

This model depicts relationships and linkages between world environmental governance sectors and systems as they relate to LEED. The proposed model is an extension of an adaptation to the environmental governance mechanisms model demonstrated by Delma and Young (2009) in Figure 1, which divides major governance mechanisms (in this model, described as “sectors”) by civil society, private sector and public sector. The model is divided into two types of environmental governance, organizational and systematic, illustrated on the far right side of the model. Systematic governance is an extension of organizational governance used as an environmental governance technical tool.

Organizational Governance refers to organizations that exert environmental governance from the three main sectors (civil society, private sector, and public sector), and a miscellaneous category shown in the first row. The sectors frequently overlap as sources of environmental governance, both sharing and competing for governance authority. In addition, each sector has the ability to exert environmental governance indirectly or directly. Finally, each sector contains organizations that focus and have influence from the global to local levels, and in some cases spanning the entire range.

For Civil Society an example would be the World Wildlife Fund (WWF), a global environmental nonprofit organization that exerts governance authority through its programs and influence at multiple levels. In contrast, Arlingtonians for a Clean Environmental (ACE), a local environmental nonprofit in Virginia, primarily exerts its authority and influence within a small geographic region. However, due to the interconnected nature of the environment, each organization actually exerts both direct and indirect authority. The USGBC falls into the Civil Society sector. In the Private Sector, multinational corporations, national companies and small businesses can also exert environmental governance authority, for example by committing to sustainable business practices and supply chains. In the Public Sector, organizations at all levels of government such as the United National Environment Programme (UNEP) and the United Kingdom Environment Agency, including state, provincial and local authorities, set and enforce policies concerning the environment—the traditional form of environmental governance.

Click the image to see the full size.

Systematic Governance, shown in the second two rows, refers to the global suite of technical systems that have been developed and deployed to either regulate a specific part of the environment, or a specific product or set of products. As this model is focused on LEED, the rating system appears alongside similar rating systems concerning the built environment. It should be reiterated that these are technical systems or tools used as extensions of governance from the organizations represented in the first row of organizational governance sectors. The USGBC, the developer and manager of LEED, remains as an organization in the top level Civil Society sector, part of organizational governance. Similarly, the Forest Stewardship Council (FSC) as an organization remains in the Civil Society sector, within organizational governance. However, the certification systems of both USGBC and FSC exist as technical governance systems shown below within systematic governance.

Since the model is focused around LEED, the third row illustrates a wide array of design and product standards that flow into its green building rating system. This high level, horizontal governance is referred to as macrogovernance. The individual subsystems, products and commodities that flow up to LEED, resulting in a fully constructed building, in some cases are governed individually by other technical systems or tools such as EPA’s WaterSense certification system or FSC’s wood certification system. This product or subsystem-specific, vertical governance is referred to as microgovernance. The final product, a LEED-certified building, is ultimately a product that flows to the organizational governance sectors.

Dynamic Forces in the model (green and red arrows) represent dynamic relationships between different sectors and systems.  Both the Organizational Governance and Systematic Governance mechanisms share interdependencies that effect how environment governance is exerted in the marketplace. These relationships also represent leverage points for increasing or decreasing influence between sectors and systems from the perspective of a particular organization or system (such as LEED). Lastly, the push-and-pull relationships between sectors and systems are illustrative of the forces of globalization that serve to simultaneously increase opportunities for collaboration and stronger relationships, but also represent risks and challenges to how environmental governance will been exerted in the marketplace as governance has become more complex, interconnected and multidimensional, especially as it relates to environmental issues. 

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