Defined Benefit
Nonprofit

What You Need to Know About Green Building Certifications

What You Need to Know About Green Building Certifications like LEED
clock
3 min 59 sec

Buildings can play a large role in reducing the greenhouse gases that contribute to climate change, given the carbon emissions produced during all phases of their lifecycle, from construction to demolition. As asset owners assess the climate impacts of their investment decisions, their real estate investment managers will need to incorporate and report on sustainability initiatives for the properties they own and maintain.

One way that sustainability can be measured in commercial real estate is through “green certifications,” which seek to establish standards for sustainability and are used to assess the performance of a building or other commercial real estate project. Green building certifications vary significantly based on their objective, administrator, and prominence in the industry. In this blog post, we discuss six that may be of most interest to institutional investors.

Leadership in Energy & Environmental Design (LEED)

The LEED certification is the most widely used and best-recognized green building rating system in the world. The current version, LEED v4, evaluates 11 categories: “integrative thinking” (i.e., how the project integrates different building systems and processes), energy, water, waste, materials, location and transportation, sustainable sites, health and human experience, regional impacts, innovation, and use of regional and local standards as well as global ones. Based on a 110-point scale, certifications are awarded in four levels: Certified, Silver, Gold, and Platinum.

Building Research Establishment Environmental Assessment Method (BREEAM)

BREEAM was developed in 1990 in the United Kingdom and was the world’s first sustainability assessment method for buildings. The BREEAM certification measures sustainability in a series of categories including energy, health and well-being, innovation, land use, materials, management, pollution, transport, waste, and water. Each of these are scored and converted to a five-star rating system.

Energy Star

Most U.S. consumers are likely familiar with the Energy Star label for various household products. The Energy Star rating system for commercial real estate relies on a national survey conducted every four years, which collects data on building characteristics and energy use. A building earns the Energy Star certification when it ranks in the 75th percentile or higher, indicating that it performs better than 75% of similar buildings. According to the EPA, nearly 25% of U.S. commercial building space is benchmarked with Energy Star.

Green Globes

Green Globes evaluates seven categories including energy, indoor environment, site, water, resources, emissions, and project/environmental management. Based on a 1,000-point scale, a final certification may be awarded in four levels, from One to Four Green Globes, with Four the highest ranking.

A New Focus in a Post-COVID World

The definition of a green building has evolved and no longer refers solely to reducing greenhouse gas emissions and conserving energy and water. While traditional green building certifications focus on addressing these conventional environmental issues, a new category emphasizes the health and well-being of a building’s occupants. In a post-COVID world, building owners and occupants will be increasingly interested in aspects of commercial buildings that affect occupant health, such as indoor air quality and operable windows. WELL and Fitwel are the two most notable examples of this evolution.

The WELL Building Standard

The WELL Building Standard is a system for measuring, certifying, and monitoring features of the built environment that impact human health and well-being. WELL focuses on 10 concepts that are believed to create a more healthy and productive environment, including air, water, nourishment, light, movement, thermal comfort, sound, materials, mind, and community. The WELL Building Standard was designed to be a complement, rather than a competitor, to other sustainability-focused certifications discussed in this post.

Fitwel (Facility Innovations Toward Wellness Environment Leadership)

The goal of Fitwel may sound similar to WELL, but it focuses on wellness strategies and public health issues, while WELL is medically driven and focuses on specific wellness features. Fitwel includes more than 55 operational strategies across seven categories:

  • Impact on the surrounding community’s health
  • Reductions in morbidity and absenteeism
  • Support of social equality for vulnerable populations
  • Encouragement of feelings of well-being
  • Enhanced access to healthy foods
  • Promotion of occupant safety
  • Increase in physical activities

What’s Ahead

As the world transitions to a more sustainable economy, Callan anticipates a continued increase in the prominence of green building certifications in real estate. For context, the U.S. Green Building Adoption Index from CBRE and Maastricht University showed that in 2019 14% of all commercial office buildings across the 30 largest U.S. office markets were green certified, and 42% of total office space in those same markets was green certified (defined as holding the LEED certification, Energy Star certification, or both). These certifications increase the marketability of a property to potential tenants and buyers, and the improved environmental performance can lead to significant financial benefits for building owners and institutional investors.

However, a green building certification does not always mean that a building is as sustainable as it is marketed to be. Investors should be wary of greenwashing—defined as providing misleading information to make something appear more environmentally friendly than it actually is—and always conduct thorough due diligence. When evaluating green building certifications for a project or property, institutional investors should consider which green attributes a certification focuses on, what benefits that certification may have to investors, and how investment outcomes can be impacted.

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
Defined Benefit

The Technology Revolution Catches Up to Commercial Real Estate

Bernie Bazile
Bernie Bazile explains "proptech" and what institutional investors need to know about it.
Defined Benefit

Momentum Keeps Private Equity Aloft

Gary Robertson
Callan's Gary Robertson analyzes private equity activity during the quarter.
Nonprofit

The ‘Hows’ of Hiring Diverse Managers for Nonprofits

Brad Penter
When structuring a “prudent” portfolio nonprofit trustees can and should consider serving their mission by evaluating the benefits of hiring diver...
Defined Benefit

Pandemic Affects All Sectors of Real Estate and Real Assets

Munir Iman
Hotel and Retail are the most challenged sectors of private real estate, while Office faces uncertainty; Industrial remains the best performer.
Defined Benefit

Damn the Shorts and Margin Calls, Full Risk Ahead

Jim McKee
Emboldened by more injections of vaccines, central bank liquidity, and fiscal stimulus in 1Q21, investors’ risk appetites grew again.
Defined Benefit

The U.S. Economy, Now Open for Business

Jay Kloepfer
The U.S. economy may be on track for a truly eye-opening expansion, with initial projections pointing to growth rates of 9% or even higher for 2Q.
Defined Benefit

When the Passive Index Is an Active Decision

Weston Lewis
Because of differences in passive indices, investors should understand how the one they choose will affect benchmarking.
Defined Benefit

Capital Markets Assumptions and the Future

Greg Allen
CEO and Chief Research Officer Greg Allen analyzes how Callan's capital markets assumptions have compared to actual returns.
Defined Benefit

SEC Division of Examinations Issues ESG Risk Alert

Thomas Shingler
The Division issued the Risk Alert to 1) communicate its observations from past examinations and 2) address the Division’s areas of focus during upc...
Defined Benefit

Equities Off to a Strong Start; Inflation Fears Haunt Bonds

Kristin Bradbury
U.S. equities outpaced global stocks in 1Q21. The 10-year U.S. Treasury yield hit its highest intraday yield in 15 months during the quarter.