Creating Value and Impact with Sustainable Building Certifications

Through targeted building certifications, real estate developments can transform sustainability into a competitive advantage.

By: Peter Jonathan Jameson , Edoardo Geraci , Clara Weiss and David Applegarth

Real Estate’s Shift Towards Sustainable Building Certifications

The buildings and construction sector contributes significantly to global climate change. Buildings are responsible for nearly 40% of energy and process-related carbon dioxide emissions.[1] Additionally, buildings consume over 30% of global raw materials.[2] Given buildings' environmental impact and the increased focus on reducing their environmental footprint, sustainable building certifications are rapidly gaining recognition as valuable and critical components of sustainable development.

Awarded by external agencies, these certifications assess whether a building or development meets specific standards for environmental sustainability, such as energy efficiency and resource management. Certifications can also address social factors, such as community impact, as well as those related to well-being, including occupant health and comfort. While they primarily apply to new and existing buildings, this article focuses on greenfield projects.

The growing demand for certified sustainable buildings is reflected in how residents, tenants, and partners are willing to pay premiums for properties that meet high sustainability standards. A BCG study found that 25% of eco-conscious consumers are prepared to pay up to 20% more for certified green buildings.[3] Certified office spaces also command rental premiums of 10% and experience lower vacancy rates.[4]

Regulators and global organizations like the World Green Building Council (WGBC) increasingly emphasize sustainable practices. The WGBC has called for buildings to achieve net-zero operations and a 40% reduction in embodied carbon by 2030.[5] Investors are also tightening requirements with standards, such as those from Fannie Mae, which demand LEED certification or an equivalent to qualify for green bonds.[6]

The number of certification schemes has risen significantly, with hundreds of options available today. General certifications like LEED and BREEAM address multiple sustainability criteria, while specialized certifications like Fitwel and Passive House focus on specific aspects, such as health or energy efficiency. The sheer variety makes selecting the right certification challenging.

Proactively establishing a certification framework is an effective way to navigate this diverse and developing landscape. A thoughtfully crafted certification framework can transform the challenge of choosing among various schemes into a strategic advantage.

Key Considerations When Establishing a Certification Framework

1. Start Early

An ESG strategy should define the development's overall sustainability ambition before a sustainable building certification is selected. The certification framework can then align with the ESG strategy to reinforce goals, drive consistent decision-making, and maximize impact. Without an overarching ESG strategy, developments risk selecting certification schemes or levels that are either overly ambitious or insufficient.

Establishing an ESG strategy and sustainable building certification framework early in the planning process can also help optimize the costs to secure certification. Sustainable design can increase a building’s capital expenditure by up to 5% or more for ambitious certification tiers[7]. These costs though can be optimized if the decision to build sustainably is made proactively. Embedding the certification decision early into the development’s design process can help to avoid costly redesigns or retrofits.

2. Account for a Development’s Unique Characteristics

The framework should reflect the development’s characteristics and goals. A flexible approach suits large, multi-phase projects with diverse needs, while a standardized framework works best for more uniform developments where consistency and streamlined processes are key. A hybrid approach can also be effective in certain cases; for instance, a large development might employ a standardized framework for homogenous residential areas and a flexible approach in mixed-use areas.

3. Consider Benefits to Stakeholders

Evaluating the benefits of certification from the perspective of different stakeholders —investors, tenants, partners, and regulators —is crucial. For example, investors may prioritize certifications that future-proof investments, while tenants might value health and sustainability credentials. Developers should assess the value of certification through questions like:

• Are tenants willing to pay a premium for a certified asset?
• Do investors in this asset require certification?
• Will certification help reduce operational expenses?
• Is certification a prerequisite for partners?
• Would certification significantly influence the perception of partners or consumers?
• Does a certification strengthen the development’s ESG narrative?

Determining the Most Suitable Certification Framework

When defining a certification framework, developers typically choose between two main approaches:

1. Flexible, Bottom-up Certification Framework:

This approach allows individual asset teams to decide whether to pursue certification, select the certification scheme, and determine ambition levels. It is ideal for diverse developments with varying needs across phases and assets. For instance, a developer might employ WELL certification for office buildings due to its focus on occupant wellbeing, LEED for residential buildings because of its recognizability, and Green Key for hospitality assets, given its industry-specific relevance.

Advantages:

• Customizes certification decisions to fit each asset’s needs
• Cost efficiencies from focusing on high-impact certifications
• Flexible, allowing for adjustments as market conditions evolve

Drawbacks:

• Inconsistencies in certification decisions may lead to weaker brand positioning
• Inefficiencies arise from individual teams navigating certification independently
• More complex implementation requires clear guidelines

2. Standardized, Top-down Certification Framework:

This approach centralizes decisions about assets to certify, schemes to use, and desired ambitions. It suits homogenous developments where branding and consistency are key. For example, a developer may employ LEED or BREEAM for all buildings within a development because of their comprehensiveness and strong recognition.

Advantages:

• Ensures a consistent certification approach across the development, strengthening brand identity
• Streamlines planning, budgeting, and execution
• Simplifies the certification process with predefined decisions

Drawbacks:

• Less flexibility to adjust for unique asset needs
• Potentially higher costs for certifying assets that may not require it

Turning Certifications from Cost Centers to Value Drivers

Sustainable building certifications are becoming increasingly relevant. Failing to address certifications in a large-scale development or viewing certifications as a mere checkbox exercise can lead to significant risks, including missed opportunities for value creation and potential damage to the project's brand and market positioning. Without a strategic approach, developers may also face challenges in meeting stakeholder expectations, securing financing, or complying with evolving regulatory requirements.

Despite the complexities involved, sustainable building certifications can be powerful means for creating value and enhancing the impact of large-scale real estate developments. Their success hinges on selecting a certification approach aligned with the project’s ESG goals from the outset. By embedding certification decisions early in the planning process, developers can meet stakeholder expectations and ensure that certification is a value-creation lever.

[1] United Nations Environment Programme (2024). Global Status Report for Buildings and Construction: Beyond foundations: Mainstreaming sustainable solutions to cut emissions from the buildings sector.

[2] United Nations Environment Programme (2024): Global Resources Outlook 2024: Bend the Trend – Pathways to a liveable planet as resource use spikes. International Resource Panel.

[3] 2024 BCG Study on the Willingness-to-Pay for Green Buildings

[4] https://www.usgbc.org/leed

[5] https://worldgbc.org/advancing-net-zero/embodied-carbon/

[6] https://multifamily.fanniemae.com/media/11586/display

[7] BREEAM Briefing Paper. The value of BREEAM: A review of latest thinking in the commercial building sector.