In its 1987 report “Our Common Future,” the United Nations’ World Commission on Environment and Development identified sustainability as a key focus area. Within three years, the first concerted effort to assess sustainable real estate—the Building Research Establishment Environmental Assessment Method (BREEAM)—was rolled out in the United Kingdom. In 1993, American industry leaders formed the US Green Building Council and started developing the Leadership in Energy and Environmental Design (LEED) standards, which launched in 1998. By defining environmentally friendly practices in the design, construction, and operations of all structure types, the LEED standards have emerged as the foundation for sustainable real estate.
While building construction and operations still account for 36% of the world’s energy usage, carbon dioxide emission levels have plateaued since 2015. Here is a closer look at the field and its role in environmentally responsible investing strategies.
What Is Sustainable Real Estate?
Real estate consists of structures of steel, lumber, concrete, glass, and other materials that shelter residents and tenants who consume natural resources to heat, cool, and power these spaces. As such, establishing and achieving sustainable real estate goals can be a challenge.
In the commercial real estate industry, the sustainability push is driven by tenants, boards, shareholders, and progressive management teams, according to the National Association of Real Estate Investment Trusts (Nareit). For owners and managers at the forefront of the movement, that means adhering to LEED standards and establishing targets for energy usage, emissions, and water and waste systems in occupied buildings.
In residential real estate, the emphasis is on saving energy, largely through windows and appliances that receive high Energy STAR ratings, efficient lighting, and insulation that exceeds building codes. Almost half of homebuyers polled by the National Association of Home Builders said they were willing to invest up to $10,000 to save $1,000 a year on utility bills.
Investing in Sustainable Real Estate
Sustainability has become part of many real estate investment conversations, whether the transaction involves investing in a commercial office tower, acquiring a single-family rental property, or buying shares in a real estate investment trust (REIT).
Given the energy-intensive nature of the industry, many investors look at the United Nations Environmental Programme Finance Initiative for guidelines for working toward the goals of the Paris Agreement via sustainable real estate investment.
Benchmarks and certifications may also serve as baselines. Among REITs, environmental, social, and governance (ESG) reporting is measured against the Global Real Estate Sustainability Benchmark, which reflects the ESG efforts of 1,005 entities worldwide. In fact, 79% of REIT-owned facilities claimed LEED, Energy STAR, or some other certification in 2018, according to Nareit.