Strategic building design decisions informed by a comprehensive life cycle impact assessment hold substantial potential in addressing global energy consumption and carbon emissions, with buildings accounting for 40% of energy consumption and 37% of emissions. While building operational energy (OE) has traditionally received greater attention, the dynamic trade-offs between OE and embodied energy (EE) in building design are often overlooked. Design decisions, such material selection and building shape, can present conflicting considerations between OE and EE. Addressing these impacts in isolation may fail to achieve comprehensive reductions in energy consumption and carbon emissions. This study highlights the necessity of a holistic approach to design decisions such as building shape and material selection, emphasizing the importance of considering both OE and EE simultaneously. Our literature review confirms a gap in studies that consider these factors together in the context of building shape optimization. To analyze the interconnectivity of building shape design, material choice, and the trade-offs between OE and EE, we devised two parametric test cases with identical features but using two different insulation materials: hemp-based and glass wool. The analysis allows us to (1) evaluate the impact of integrating total lifecycle impact on building shape design optimization, in comparison to designs that focus solely on OE; (2) assess how the selection of materials, specifically hemp-based versus glass wool insulation, influences optimized building shape and carbon emissions reduction; and explore the benefits of bio-based materials by analyzing performance variations in the two insulations case studies. Our findings reveal that although OE typically has a larger impact over a building’s lifetime, the optimal building shape can still vary significantly based on the EE contribution. The benefit of bio-based material is context-dependent, varying with factors such as the building shape discussed in this paper, as well as other factors such as climate. In our test cases, we observed that shape variations resulted in up to a 17.9% change in OE due to different building shapes, and a 60.7% variation in the envelope’s surface area, while the building area remained unchanged. This expanded understanding will facilitate more informed and sustainable decision-making in the construction and design industries, addressing the often-overlooked interconnectivity of OE and EE.