Environmental Benchmarking in Commercial Real Estate

In any walk of life, comparison between similar entities is inevitable. Elite universities compete for places in national and global rankings. Sports teams trade league positions over the course of a season. When it comes to commercial real estate (CRE), it’s no different.

We know that investors heavily prioritize organizations with a proven sustainability track record. Businesses that can prove to the investment community that they can meet their environmental, social, and corporate governance (ESG) goals are more likely to be trusted by fund managers.

This is one of the reasons why environmental benchmarking is so important. As global legislation adapts to meet the need for action in the climate crisis, benchmarking must evolve to set the ‘gold standard’ for ESG compliance.

Still not sure what it means for your CRE organization? This article will explain how environmental benchmarking impacts the industry today.

Definition and scope of environmental benchmarking in CRE

In 2018, BlackRock CEO Larry Fink predicted that “we are going to see evidence over the long term that sustainable investing is going to be at least equivalent to core investments.”

Environmental benchmarking has become a vital mechanism for assessing commercial performance in this context. According to the Corporate Governance Institute, ESG benchmarking is defined as the “practice of comparing a company’s ESG performance against peers within its industry.”

The CRE sector needs benchmarks so that individual organizations can assess how they perform against key criteria relative to their competitors, and that key stakeholders are aware of progress against key performance indicators.

Key performance indicators (KPIs) for benchmarking

So what does this look like in practice? Naturally, greenhouse gas (GHG) emissions are the starting point for any organization’s sustainability track record. This is generally measured in three separate scopes: direct emissions (Scope 1), indirect output through energy consumption (Scope 2), and emissions within its supply chain (Scope 3).

The Greenhouse Gas Protocol is the most widely used accounting standard for emissions benchmarking, with 92% of Fortune 500 companies adopting its procedures. However, the European Union takes this a step further, clear benchmarking frameworks and labels have been set that directly tie into the Corporate Sustainability Reporting Directive (CSRD).

But there’s more to benchmarking than GHG emissions. Energy Use Intensity (EUI) and Water Use Intensity (WUI) are two widely used metrics in CRE. They are calculated by dividing a building’s total energy or water consumption in one year by its gross floor area.

CRE organizations can also be benchmarked against their receipt of key sustainability certifications, which will be discussed later in this article.

Benefits of benchmarking in CRE

Benchmarking may be seen by some as a ‘box-ticking’ exercise for investors, but this overlooks the wider benefits of measuring performance against competitors. With accurate and up-to-date ESG data at your disposal, your organization has a competitive advantage against rivals in the space.

A data-driven decision-making process backed by benchmarks gives senior management the space to identify new commercial opportunities that potentially meet sustainability benchmarks, as well as aspects of a CRE portfolio where cost savings and efficiency gains can be made.

Benchmarking also creates a more transparent culture within CRE, driving organizations to improve their reputation and brand image through improved performance against key industry benchmarks. We know that high-polluters are less likely to attract sustainable investment, and as the race to ‘net-zero’ hots up across the sector, businesses need to be accountable to their ESG goals.

Industry standards for environmental performance

The major challenge of environmental benchmarking isn’t in convincing businesses to improve their sustainability record. Without a universal ‘gold standard’ for performance, it can be difficult to know which metrics to be defined by as an organization. Within CRE, there are three key industry benchmarks you should be aware of:

1. BREEAM (Building Research Establishment Assessment Method)

With more than 535,000 certified buildings in 74 countries, the BREEAM certification is the industry’s most widely recognized and longest-standing metric. Their ratings range from outstanding (85+) to unclassified (-30) and can apply to new builds, refurbishments/fit-outs, and BREEAM in-use, for operational assets. It benefits from a strong science-baked approach and widespread market recognition.

2. LEED (Leadership in Energy and Environmental Design)

If your organization operates in the U.S., you will be familiar with LEED. Created by the Green Building Council, the LEED certificate has gained traction worldwide as a measurement for sustainable and high-quality design and build. Applications for LEED certificates center around seven key category requirements, and certificates have four levels of award, ranging from basic certification to platinum.

3. GRESB (Global Real Estate Sustainability Benchmark)

GRESB is an investor-led certification backed by more than 3,000 organizations in the sector. It is set apart from its competitors by focusing on sustainability benchmarking for real estate and infrastructure funds. The GRESB Real Estate and Development benchmarks analyze an organization’s ESG performance across its portfolio, converting data into a quintile ranking to determine the performance of businesses that report through its benchmark.

How CRE professionals can stay ahead of the curve

A 2021 survey conducted by the bank Barclays, found that 61% of businesses now say that sustainability is ‘extremely’ important to their organization, yet almost three-quarters (73%) feel less prepared for the changes to environmental regulations.

With the EU’s CSRD on the horizon for European businesses, sustainability reporting is now more important than ever. For CRE organizations, benchmarking yourself against competitors is vital to understanding building performance, keeping investors happy, and staying ahead of the curve.

How ProptechOS can support environmental benchmark

So how do CRE organizations work smarter, not harder, to identify and improve their performance against ESG benchmarks? ProptechOS has created Certify – an automated compliance engine that supports LEED certification of buildings and other real estate benchmarks such as BREEAM and GRESB.

Certify connects building data from various sources, from sensors to digital twins, to aid sustainability benchmarking and support industry certification while supporting daily top-down management of building portfolios.

Your CRE business can sign up for a free trial today.