In this interview from February 12, Kimberly Miller interviews Mike Italiano, who will be speaking at the Green Cities Conference taking place May 19-21 in Orlando, FL. His presentation, entitled  “Capital Market Partnerships; Green Building Underwriting Standards” is slated for the May 20th session of the conference. In this podcast, Mike Italiano discusses his work in the US government, founding the US Green Building Council and the future of green building and sustainable products.  This is the first in a series of interviews with Green Cities speakers. Subscribe to our podcast and make sure not to miss the rest of the interview series.

“Buildings are very important. They are the world’s largest industry. When you include the products in it and cover the supply chain, which our standards do, it covers about 80 percent of all global economic activity. So it’s a very powerful engine to promote global sustainable improvement and economic improvement and the cities are the leaders.” – Mike Italiano

 

 Green Cities Podcast: - Mike Italiano Interview [19:49m]: Play Now | Play in Popup

Transcript of Interview
February 12, 2009

I’m going to be covering our capital markets partnership sustainable investment initiative, which covers several things. Green building underwriting standards, and their use in the market, our capital markets briefing paper which concludes after 4 years of Wall Street due diligence that green buildings certified sustainable products, smart certified, which is consensus standard are more profitable, less risky and preferred by investors without exception in a survey that we initiated with standard of porous governments covering over 3.2 trillion dollars in assets. Part of that will include green building financing programs that we have ongoing pursuant to those activities including a $500 million dollar sustainable building security. That is a bond backed by 100 percent green buildings. Also what we are doing in California with EBA11, which is California statute providing green building financing through local governments and financial institutions, which is taking off and moving throughout the country.

So what interests you about speaking at Green Cities?
Well Green Cities is important because the cities are early adaptators in sustainability. They are farthest along compared to other governments and corporations, so they are the leaders and this is where you know we’re making the most of the progress. This is true both in green buildings and certified sustainable products and other activities.  The cities are the leaders in climate change. This is really where the action is, it’s where things get done. We have a resolution of support by the US Conference of Mayors that’s very much in line with the activity of the Green Cities program.

I was looking into your background a little bit and I saw that you had worked with the White House Science Office. Do you want to talk a little about what was that like and the kind of work you were doing there?
Yeah, I worked there both during the Carter and Reagan administrations, so it was few years ago. What we were doing was placing a priority for, in the federal budget, for eliminating hazardous waste generation, number one, and improving clean air and clean water. So we had a specific relationship with local governments on those activities and improving the priority of science within all government. So those were the primary activities at that time.

So it sounds like you were laying the groundwork there for the environmental initiatives that are happening now in some way with the work that you were doing then.
Yeah, very much so and also other work that we did on standards that the market place has adapted including standards for environmental cleanup, which we worked at and got approved, national consensus standards, as well as standards for dealing with commercial real-estate including the green building standards, the LEED standards. We set up the US Green Building Council. I’m the founder, back in 1992, and put together a few years later the LEED standard. We also put together our sustainable product standard, the SMART standard, which has now been incorporated into the LEED. Sustainable products are a lot more complex than green building, if you can believe it, because you have to cover the entire global supply chain of manufactures so those standards were actually a 20 year process.

That is a lot of time.
That is a lot of time. That is a lot of work, it was very controversial. But it adds enormous value. The leading manufactures certified, that are smart certified, are climate neutral at their manufacturing facilities, and that’s a huge benefit to society.

Could you talk some about founding the Green Building Council?
Yeah, it evolved out of our efforts through a national committee that I chaired on consensus standards. We developed consensus standards for environmental cleanup and commercial real estate. We tried to develop green building standards but the industry trade associations blocked it so we couldn’t make any progress. So we had to create a new organization and set up our own consensus process and have rules for industry trade association participation and the federal government. So that allowed us to developed the standards to get them out in the market, to get substantial traction and success which would not have happened if we did not create a whole new organization. So we also launched it with some funding that we got through our lobbyist from the federal government, it was about 10 million for green buildings, so both those activities really helped. Although it was a long, hard, arduous process because even though we set up our special rules the industry trade association then dominated. The building industry is the worlds biggest and has the most players and still is most controversial. Although now both with certified sustainable products and certified green buildings, the LEED and the Smart standards, they are both motherhood and apple-pie because people have seen the value and our underwriting standards and our briefing paper with Wall Street to show that these are more valuable and that people prefer them.

So what initially got you involved in doing this kind of work? What was the pivotal moment, if there was one?
Yeah the pivotal moment was when I was in high school and a neighbor of ours taught civil engineering at Syracuse University and was working on cleaning up the most polluted lake in North America, which has gotten much cleaner now, Onondaga Lake, because its major industry polluters have closed down. Their manufacturing facilities have shut down. He invited me to one of his classes and I just became fascinated with it and it was the reason I got into both environmental law and environmental science, both professionally and academically.

Speaking of the current economic climate, in a way, what are your thoughts with what’s going on with the economy and how that’s going to affect green building that’s happening?
Well green building is still fairly strong, it slowed down definitely because the economy. Getting the capital market to move forward with green building certified sustainable products can literally get us out of this recession, prevent a depression. And we’re working to make sure that all the ground work is laid and top management can understand that we can get the financial institutions and governments to realize it and move forward in a united front to commercialize both of these activities, which is over an $800 billion market. That’s just in the U.S. We think it will happen globally, the Capital Markets Partnership, which is another organization I run, has four countries as members, the U.S., Canada, U.K., and Australia. We see that this will happen simultaneously. We did this in the past where we commercialize standards in the entire building industry and it generated huge risk reduction and value creation and enormous profits by Wall Street. The investment bank partners that we have now that is working on the sustainable building security believe, as we do, that this will do the same and can get us out of this depression. So there is a lot of money to be made in green buildings and certified sustainable products. We need to launch them, commercialize them to get us out of this recession, and also prevent eminent irreversible dangerous climate change. One of the reports that we put together, with the state of California and also the NASA and the IPCC scientists, calculates how much climate pollution we need to reduce by 2015 to prevent dangerous climate change from going irreversible. We’ve put that into a report and it was peer reviewed by the capital market partnership and was adopted by the US Conference of Mayors as a resolution and specifies that we need 2.8 million green and climate neutral buildings and 2.1 million sustainable certified products by 2015 to stop dangerous climate change from going irreversible. That includes 60 percent margin of safety in using the worse case climate pollution projection of IPCC. So that’s an important milestones that we still have to be very mindful of and try to reach because there is no climate change legislation, and it’s uncertain that we’ll get some soon, and even if we do its uncertain it will move fast enough.

So do you think with the new administration, do you think there will be new climate change initiatives?
There already has been. One of the first things that the president did was to direct transportation to move forward on the fuel efficiency standards, I think by 2010. That was a very important component. The Department of Energy obligated $80 billion for federal green building and the stimulus bill $20 billion more and there is substantial funding for renewable energy financing, which the new administration supports. But there is no climate change legislation to deal with the irreversibility problem, and that’s because the stimulus is taking priority, but he has done some things that will deal with that.

So what do you think is the role of cities in building in the environmental movement? I have spoken with some people who think that buildings specifically are the cornerstone upon which we should be building the environmental movement.
Buildings are very important. They are the world’s largest industry. When you include the products in it and cover the supply chain, which our standards do, it covers about 80 percent of all global economic activity. So it’s a very powerful engine to promote global sustainable improvement and economic improvement and the cities are the leaders. They really control where the buildings are. They’ve taken that lead. They have adopted more green building programs both for their own buildings and the private sector, more than any other entities and also taken the lead on sustainable products and purchasing. So the cities are really critical to the progress we have made and future progress.

So what cities do you know that are on the fore front of green building?
Well, San Francisco is one of the leaders. Mayor Newsom, of San Francisco, is Chairman of the Capital Market Partnership representing the US Conference of Mayors. They have adopted green buildings for their city buildings and also for the private sector. Los Angeles has done the same, Washington DC; I think there might be 10 programs where they mandated green buildings for the private sector. There’s probably over 100 local government programs for green building programs in one way or another.

In these cities, what do you think they do well, and what could they do to make these programs better?
Well I think on the financing side, which is really critical, the cities have moved forward and have the framework in place.  We have partnerships with the state of California and San Francisco and other cities, Santa Monica, but also with the council of development financing agencies. There are 250 local governments that fund private sector activities in the public interest. There is a need to educate the cities on proper underwriting using green building underwriting standards, and consensus certification so that the financing of green homes and green buildings is done in a way that we know will reduce climate change, pollution, reduce conventional energy, and therefore add value. Our underwriting standard documents for commercial buildings on a one to 1000 score for all properties and portfolios. What activities increase cash flow and reduce expenses. That’s how the markets value buildings. For homes it’s what reduces expenses and increases value and our standards cover both of that. Again for all homes and portfolios. So understand this for private sector buildings because the cities now have a very important role with financing, is really critical so that the money that is being spent through California statute and these federal legislation proposed is going to be money that is well spent, is actually reducing conventional energy. Therefore the financial institutions will embrace it and put a lot of capital into it. Without good underwriting everybody will lose because we know from sub prime that we cannot afford to do that in the future.

Do you have any projects that you have on the horizon that you are excited about that you would like to share?
We are very excited about the 500 million sustainable building security because we think that this is going to be copied and can really get securitization going. The securitization market is 40 percent of our economy and essentially dead now and there is no money to be lent so we think this is a way of using good underwriting, having higher valued collateral, in other words these buildings are worth more, generating a lot of improvement to the buildings stock while also making money for people and adding almost a trillion dollars a year to the economy. We have monetized that based on actual green buildings. So that’s very important and we are using the underwriting standards in that. I think the 2nd thing that is very exciting is the opportunity with the local governments and the state governments to move forward on green building financing and sustainable product purchasing.

In your field, in general, what is a hot topic or project going on in the field that is something that is interesting to be aware of?
Well we have one green building financing pilot we are working on which is a billion dollar green building. We are working on creating the financing and also getting the financing at more favorable terms. So what we have done is scored the proposed public. It’s a public/private building with the underwriting standard. It scored an 87 it is at a platinum green building level, LEED certified, and included that in a report that Ernst & Young is recommending including our capital markets briefing paper for financing feasibility. We’re working on a proforma that will show increased cash flow and reduced expenses that will be in a report to the city where this is to recommend the first $500 million in bonds and then we plan on including that proforma also in the official bond statements, so the investors know in this added value and then working with the LEED banks, JP Morgan, Chase, Bank of America, on cheaper cost of capital for the private sector funding the 2nd 500 million.

Wow that does sound pretty exciting. Sounds like a big project.
It’s a big project; it is very exciting because these are all things where we can actually get the financing to work and to have a cheaper cost of capital incentives. This could include actually higher ratings for the $500 million bonds that are issued.

Okay so last question, on a more personal level. Aside from green building and law what else do you like to do?
Well, I do spend a lot of time of this because we are at the threshold of the meeting together of speak, greet, and sustainability which I think will solve a lot of problems, but I also do enjoy a lot of hiking, golf, rollerblading, you know aerobic activity like that, it keeps me occupied.

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Mike Italiano is President & Chief Executive Officer for Market Transformation to Sustainability (MTS) and Capital Markets Partnership. He founded the Capital Markets Partnership, MTS, U.S. Green Building Council (USGBC), Risk-Based Corrective Action (RBCA) Leadership Council, and American Society of Testing & Materials (ASTM) Committee E50 on Environmental Assessment. He is a Director of MTS, USGBC, USGBC CEO Board, Sustainable Furniture Council, and former Director of ASTM and Chairman of ASTM E50. Mike has been responsible at over 200 waste sites for expert testimony, litigation, cleanup, settlement, and scientific and technical analysis.

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