In the light of impending annual ESG reporting, the challenges in the dimensions of sustainability cannot be fully met by the existing certificates. The requirements of the EU taxonomy and the growing demand on the real estate market for climate-friendly buildings require uniform assessment criteria and thus indirectly a harmonization of assessment systems.
Sustainability in the construction industry is nothing new: In the early 1990’s many countries developed green building certification systems. However, due to the EU Taxonomy Regulation and the Paris Climate Agreement, among other things, this topic is now more relevant than ever. The burning question is are these systems robust enough to stand up to the rigors of today’s ESG reporting or do we need to standardise the plethora of global certification systems up to date?
A brief overview of the current state of play globally
Before we begin to answer these questions let’s take a brief look at the current green building certification market:
LEED (Leadership in Energy and Environment) is by far the most dominant of all the systems. It is prevalent in approximately 170 countries worldwide, including the USA which also uses GPR (Global Property Research) and EDGE (Excellence in Design For Greater Efficiencies).
The oldest, most renowned, and most widely used label in Europe is BREEAM (Building Research Establishment Environmental Assessment Method). It is used in almost 80 European countries and 65 percent of certified buildings within the European Union carry a BREEAM label. In addition to BREEAM, the broader LEED (Leadership in Energy and Environmental Design) has a market share of just over 5% in Europe and EDGE is used in almost 30 countries. It is followed by DGNB (German Sustainable Building Council) which is used in 25 countries.
In addition, China has more than five labels which are identified by building type whilst Australia and New Zealand have their own “Green Star” rating systems.
As you can see there are a vast array of systems globally – this isn’t the half of them! – and with so many different versions it is wise to question their viability and value at a time when the world is focusing on ESG reporting. Does the construction industry still need that number of building certification systems? Do they still hold their value at a time investors are focusing on ESG performance and reporting or do intended user of these certificates lose the overview and is a comparability of real estate no longer given?
Why are sustainable certification systems important?
To find the answers to these questions we need to look at why we implemented green building certificates in the first place. Historically uniform standards and certification systems were intended to make construction plannable, assessable, and measurable. Investments in green buildings were, and still are, designed to ensure that properties on the market are recognised as sustainable financing instruments. In layman’s terms, sustainable construction means using sustainable, reusable building materials and minimising energy consumption and land sealing to protect the environment. The differing endorsement systems provide a guarantee that the building in question has met these requirements. Essentially, these stamps of approval are seen as a good thing for the industry but with over 50 certification systems worldwide already, how do we know all buildings are meeting the same sustainability standards?
The simple answer is, we don’t know! The diversity of these systems results from their limited applicability due to country and asset class-specific profiles, which makes widespread or global application difficult. Another problem is the limited comparability of the certificates due to different assessment criteria and weightings of economic, environmental, and social aspects.
Has the value of green construction certification deteriorated?
In the light of impending annual ESG reporting, the challenges in the dimensions of sustainability cannot be fully met by the existing certificates. The requirements of the EU taxonomy and the growing demand on the real estate market for climate-friendly buildings require uniform assessment criteria and thus indirectly a harmonization of assessment systems. Although sustainability certificates are a reliable signpost for ESG and sustainability, the search for answers is not exclusively limited to them but also includes ESG strategies and new standards across the entire lifecycle of a building. In an ideal world, a consolidation of certification systems is necessary to ensure better comparability and applicability.
Whether this is just a pipe dream remains to be seen as does which standards will prevail as ESG comes fully into play in 2025. Whatever the outcome, it is clear a high level of compatibility and connectivity with defined business processes are crucial for long-term success in the industry and for green building certificates to retain their value.
Paul Johannes Spittau
Head of Group Carrier Relations & Insurance Mediation
T +43 664 537 17 42
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