Building certifications: How to impose an expiration date - GRESB (2024)

Alodie McLaren

Senior Associate, Real Estate

In the dynamic landscape of real estate, green building certifications act as useful proxies for assessing sustainable design and operational performance of real estate assets. However, navigating the complex terrain of building certifications presents challenges. With numerous certification schemes available globally, each with its distinct criteria, standards, and processes, discerning the differences among them can be daunting. The transparency levels of these schemes also vary, making it difficult for investors to access reliable information and for fund and asset managers to select the most suitable program to align with their objectives. Moreover, obtaining certifications is a significant financial investment.

Recognizing the importance of navigating this complexity, the GRESB Foundation prioritized building certifications as a focus area during the standards development process in 2023, resulting in significant changes for 2024 and beyond.

A paradigm shift in the evaluation of building certifications

Up until 2023, the GRESB Real Estate Standard rewarded any building certification valid at the time of reporting. Moreover, the GRESB Assessment did not account for the age of building certifications, resulting in both older and recent certifications being awarded points under the same criteria.

As we look to the future of sustainable buildings, the longevity of building certifications has become a pressing question. For instance, can a certification awarded 15 years ago for the design of a new building still provide current investors or tenants with pertinent information, especially compared to a building certification received just two years ago? In essence: When does a building certification become irrelevant?

Recognizing the significance of this issue within the GRESB Real Estate Standard, the Real Estate Standards Committee (RESC) deemed it a priority, with changes implemented in the 2024 Standard.

A distinction has been drawn between the scope of building certifications and their enduring relevance. While both aspects hold equal importance, they are now being addressed separately. A fundamental concept introduced as part of this approach is the definition of relevance for building certifications, which pertains to the continued accuracy and applicability of the information contained within the certification over time.

Setting the stage

As a first step in addressing the complex landscape of building certifications, GRESB undertook a comprehensive research effort. The findings shed light on a critical consideration: While certifiers may establish terms related to expiration dates, these are not deemed a sufficient proxy for informing the relevance of building certifications for GRESB stakeholders. This is because:

• Most operational schemes are deemed valid for a period of three years, after which they become invalid. It could be argued that a certification obtained three and a half years ago still carries some valuable information today.
• Most design/construction schemes do not expire. It could be argued that an old design/construction scheme (e.g., 25 years old) carries less relevant information than one obtained recently.
• A significant number of design and construction schemes lack expiration dates, or certifiers inconsistently disclose them without providing substantial evidence to justify the relevance of such timeframes.

Therefore, recognizing the need for a different approach, the GRESB Foundation initiated a re-evaluation process.

Developing the methodology

Ensuring the continued relevance of building certifications was paramount in developing the approach. From an investor’s perspective, the accuracy and pertinence of the information within a building certification is the cornerstone upon which these certifications can be trusted to inform and support financial decisions.

Categorizing building certifications

Up until 2023, the GRESB Standard categorized building certifications into two distinct types: design/construction and operational certifications. However, a new classification scheme has been introduced in 2024, differentiating among three types of building certifications: design/construction, operational and interior. The decision to isolate interior certifications from the design/construction category stems from their distinct focus on a specific section of the building and their dependency on a unique set of factors.

A specific approach for each type of building certifications

To effectively assess the expiration profile of building certifications within the GRESB Standard, it is essential to adopt tailored approaches for design/construction, operational, and interior design certifications, reflecting their unique characteristics and impacts, such as:

• Diverse coverage:Each certification type encompasses different elements and phases of a building’s lifecycle.
• Frequency of certification:Design/construction certifications represent a one-time event, in contrast to operational certifications, which can undergo periodic re-evaluations and renewals over time.
• Interior focus:Interior design certifications predominantly pertain to tenant spaces, with limited influence over the overall building operations and susceptibility to tenant turnover.

A lifecycle approach to building certifications

The approach then further considered the timeline and phases of a building’s lifecycle, aligning them systematically with various building certification types.

For example, design/construction certifications evaluate decisions made during the initial planning phase through to the completion and commissioning stages. To effectively capture the complexity of these certifications and increase the granularity level of the analysis, they have been further divided into their three respective phases:

• Planning: Includes critical elements such as site selection, transportation, land use, and design and layout considerations. It also includes resource planning, encompassing energy and materials usage.
• Construction: Focuses on evaluating resource consumption, waste generation, and construction practices.
• Commissioning: Involves assessing system performance and efficient operation through testing and balancing.

Given the distinct nature of these three phases and their unique contributions to the development of an asset, they are acknowledged for having distinctive characteristics. The relevance of each component is considered to vary independently over time and therefore analyzed separately. To ensure a comprehensive assessment of design/construction building certifications, these three components are then aggregated and weighted to account for both the duration and impact of each phase on the overall environmental, as well as the social impact of the building.

In contrast, operational certifications focus exclusively on the building’s operational stage. Since interior fit-outs follow their own project timeline, the timeframe for these certifications is contingent upon the tenant cycle. Both these building certification types are therefore analyzed through a single corresponding phase, and not subdivided into components as in the case of design/construction certifications.

To assess the evolution of each certification type and its corresponding components, the analysis was supported by industry practices, data from research papers and industry studies, and practical considerations. A standardized approach was developed to determine key parameters of a building certification’s relevance over time, encompassing its long-term value, initial plateau, and time of inflection.

Key assumptions shaping building certification relevance

In considering the relevance of building certifications over time, several key assumptions come into play which clarify their enduring impact.

Operational certifications: The assumption is that the validity of the information they contain extends beyond the common three-year validity period. This perspective is substantiated by market research, which consistently reveals that the industry typically attributes value to operational certifications within a time frame spanning from three to seven years. The premise behind this assumption is that these certifications do not suddenly lose relevance, rather their relevance diminishes gradually starting from the third year, eventually stabilizing at their ultimate value by the five-year mark.

Indeed, most certifiers delivering operational certifications propose a re-certification time frame of three years. This also reflects practical considerations involved in data collection, analysis, and third-party review. Ultimately, the information they contain is assumed to not be relevant anymore, as operational certifications cover ongoing operations, maintenance practices, and occupant behaviors of an asset, and these elements are, by nature, changing over long periods.

Design/Construction certifications: Decisions made during the planning phase maintain enduring influence. Elements such as site selection and building layout, determined during this phase, exert a lasting impact on the sustainability and ESG performance of the building. These decisions are considered foundational and continue to shape the building’s environmental footprint over time, and as such their influence should be reflected in the long-term relevance of design/construction certifications.

The planning component has a very long-term impact as this phase sets the foundation for sustainable design and operations while demonstrating the building’s historical commitment to sustainability. Some elements such as the site, orientation or shape of a building are permanent, and it is assumed that this component has a residual long-term value of 20 percent.

Moreover, the planning component is considered to have a stable contribution during the first five years because architectural and engineering practices continually evolve; for instance, a brand-new designed building would be considered best practice during the first few years after its completion. It will lose most of its relevance after a 10-year period since a building designed today would likely not fully meet the legislative and/or certifications requirements a decade later, given that expectations evolve over time.

The construction component is considered to have a stable relevance for the first 10 years in accordance with the construction practices evolution rate. Moreover, the information contained in the construction component is assumed to not be relevant anymore by the time the first major renovation or retrofit of the building takes place (15 years).

The commissioning component can be assumed to behave similarly to the elements covered by operational building certifications, retaining its value for at least the first three years post-completion and then reaching its end value by the fifth year, where the information pertained are considered no longer relevant. This is because commissioning is a continuous process generally throughout the first year(s) of the building operations, in order to maximize performance.

The planning and construction phases both carry a significantly greater weight than commissioning, as they have a more substantial direct impact on the building in terms of both duration and scale. The following weight is assumed as an appropriate proxy during aggregation: 40 percent for both the planning and construction components and 20 percent for the commissioning component.

Interior design certifications: The relevance of these certifications diminishes much more rapidly than design/construction certifications, as the information they are based on is closely tied to tenant fit-outs and is directly influenced both by modifications in the premises and the potential lapse in maintenance or necessary monitoring for optimal usage. This leads to the assumption that interior certifications start losing value after two years. Additionally, with tenant turnover, the assumption is that over time interior certifications lose their value entirely (based on an average lease duration assumption of five years).

Relevance of building certifications over time

The relevance of building certifications over time is introduced in the 2024 Standard by the application of the time factor. The following information illustrates the time factor values displayed in the 2024 Real Estate Scoring document under indicators BC1.1 and BC1.2:

Figure 1 shows the trend in the evolution of relevance and accuracy in design/construction, operational, and interior certifications. A common pattern emerges across all three categories, characterized by an initial plateau lasting between two to five years. During this period, the information provided by these certifications remains consistently 100 percent accurate. However, notable distinctions arise in their long-term trajectories. design/construction certifications exhibit a unique attribute, maintaining a residual value attributed to timeless elements from the planning phase that continue to influence the building’s sustainability.

On the contrary, operational and interior certifications follow a linear trajectory following their initial plateau period, culminating in an expiration date set at five years. This gradual decline aligns with industry standards, reflecting the evolving landscape of operational practices and interior fit-outs.

2024 changes

Based on the findings outlined in this article, the GRESB Real Estate Standard has already undergone importance updates in 2024, and this year participants have been notified with notable changes affecting reporting and Benchmark Reports:

1. Certification year: Participants will now be required to report the certification year for each certification they hold. The certification year is defined per the performance period if applicable, or the point in time when all documentation has been submitted to the certifier for final review (if the certification do not present a performance period).
2. Performance component impact: A scoring example can be found in the Scoring document under BC1.1 and BC1.2. The age of the building certifications is defined as the difference between the reporting year and the certification year, in terms of calendar years in all cases.
3. Timing of building certification and validity: Possibility to report a certification awarded after the end of the reporting year under certain conditions, please refer to BC1.1 and BC1.2 in the 2024 Reference Guide.

Investors will notice a significant change in the scoring system, particularly in how it accounts for the age of building certifications, depending on their type. This adjustment aims to provide greater transparency regarding how entities utilize green building certifications for various building processes such as design, construction, renovation, and interior fit-out. It also enhances the accuracy of ESG performance indicators for investors by factoring in the age of certification in indicators BC1.1 and BC1.2.

The future of building certifications

This initial, but important amendment to the GRESB Real Estate Standard will be further complemented in the future by an updated list of criteria upon which building certifications are evaluated. The GRESB Foundation recently launched a public consultation calling for stakeholder feedback to develop new building certification evaluation criteria that will:

• Elevate best-in-class schemes, encouraging broader adoption within the industry.
• Refine the list of accepted schemes, recognizing those with the greatest credibility and impact.
• Enhance transparency on key evaluation metrics, informing investment decision-making.

These significant developments demonstrate the GRESB Foundation’s commitment to advancing sustainable building practices and certifications. By meticulously evaluating and adapting assessment criteria within the GRESB framework, the Foundation not only responds to evolving industry standards, but also actively shapes the trajectory of best-in-class building certifications.