Managing large commercial buildings has always been complex. But the need to comply with various government and industry sustainability standards adds an additional layer of complexity. Investors, fund managers, building owners, facilities managers and tenants all have a vested interest in ensuring compliance is achieved and maintained.
The challenge is that there’s no single set of standards that fulfils the needs of all stakeholders. Over the years, three key standards have emerged: NABERS, GRESB and Green Star. Although there are some common elements across all three, they each offer insights from a slightly different perspective.
What is NABERS?
NABERS (National Australian Built Environment Rating System) measures the energy efficiency, water usage, waste management and indoor environment quality of a building or tenancy and its impact on the environment. The rating is represented with a ‘star’ ranging from one to six for building efficiency across each of these areas, from ‘Making a start’ to ‘Market leading’.
NABERS enables building owners to understand their building’s performance compared to similar buildings. It is a national government program that is administered by the NSW Department of Planning, Industry and Environment. The ratings are valid for a year to give interested parties assurance that the rating is current and that the building owner or manager is working to maintain or improve standards.
NABERS has also partnered with Climate Active to provide a Carbon Neutral certification, as many buildings are now looking beyond NABERS Energy to full carbon neutrality.
You can find out more about NABERS in our blog here.
What is GRESB?
GRESB (Global Real Estate Sustainability Benchmark) provides assessments and benchmarks that can be used by businesses to compare their performance against their peers and find actionable advice on how they can improve their ESG (Environment, Social and Governance) performance.
The assessments tell building owners and their investors and other stakeholders how well they are performing across a variety of metrics. GRESB has also expanded its scope from the built environment to include roads, railways, electricity distribution and communication systems.
GRESB’s Real Estate Assessment evaluates management by looking at leadership, strategy, policies, risk management and stakeholder engagement. It measures ESG performance at the asset level and development activities such as design, construction and renovation of buildings and how ESG is addressed through these activities.
Assessments are conducted through surveys and the data is validated and used to create industry benchmarks that individual companies can compare themselves against. ESG is evaluated across three domains:
- Management: This set of measures looks at leadership, strategy, policies, risk management and stakeholder engagement
- Performance: Measures pertaining to ESG performance at the asset level are covered by these metrics
- Development: Recognising that buildings and infrastructure are not static, this set of metrics is concerned with the design, construction and renovation of buildings and how ESG is addressed through these activities
You can find out more about GRESB in our blog here.
What is Green Star?
Green Star is an internationally recognised rating system that was founded by the Green Building Council of Australia in 2003. There are four Green Star rating tools, providing a means of certification for building design and construction, operation, fitouts and communities.
- Green Star – Design & As Built: assesses the sustainability outcomes from the design and construction of new buildings or major refurbishments, across nine holistic impact categories
- Green Star – Interiors: rates the sustainable design and construction of any building fitout works
- Green Star – Performance: assesses the operational performance of existing buildings across nine impact categories
- Green Star – Communities: assesses the planning, design and construction of large scale development projects at a precinct, neighbourhood and/or community scale.
As an example, the nine categories assessed for Green Star – Performance ratings are management, indoor environment, energy, transport, water, materials, land use, emissions and innovation.
Four Star Green buildings meet industry best practice with five stars given to buildings that have achieved Australian excellence. A six Star rated building showcases world leadership - a highly efficient building fully powered by renewables, that addresses a significant number of environmental and social issues, and contributes to the community. Ratings from zero to three are also given with zero representing that a building has been assessed and three awarded for the achievement of ‘good practice’.
You can find out more about Green Star in our blog here.
The multi-standard compliance challenge
Each one of these standards offers valuable insights into the environmental footprint of a building or portfolio. As different stakeholders require different insights and information, it’s unlikely that any single set of data will satisfy such a diverse set of needs.
For example, Australian Government departments can only lease buildings with a NABERS rating of 4.5 or above. And when we look at the data required for reporting of Certified Climate Bonds and bonds seeking to be Green Bond Principle compliant, we see that Green Star or NABERS ratings are important. In fact, green finance provides perhaps the clearest example of how the three systems can work together. The diagram below shows how NABERS and Green Star ratings feed into GRESB Assessment results and can be leveraged by issuers and investors for green bonds (source: Sustainable Finance Industry Guide).
While Green Star and NABERS are heavily focussed on environmental measures such as greenhouse gas emissions and energy consumption, GRESB adds another dimension. The social and governance metrics captured within the GRESB framework help to complete the full picture of a building or portfolio’s sustainability performance.
The other good news is that when a building undergoes a Green Star assessment, if it has already achieved a NABERS rating, then that is recognised and vice versa. The NABERS and Green Star rating scales are different but have been designed to complement each other. If a building has obtained a NABERS rating for Energy, Water, Waste or Indoor Environment Quality, associated points can be claimed in a Green Star – Performance rating.
Ongoing measurement and improvement
While achieving an initial rating within any of these frameworks is important, ongoing assessment is crucial. That is why the ratings provided by each system are only applicable for a set timeframe.
Many investment bonds require ongoing measurement to ensure compliance for the duration of the bond. And boards are increasingly concerned with the long-timer viability of building assets. Likewise, many tenants will not enter into a leasing agreement with buildings that have not achieved a specific rating. But they may receive rebates or there may be penalties if compliance with the standards is not maintained.
Going beyond compliance
The problem with compliance is that it can become an onerous box-ticking exercise. But, for the built environment, complying with and improving these standards offers a market advantage.
Buildings with higher ratings across Green Star, NABERS and GRESB are able to attract investors, engage with higher value tenants and reduce their operating costs. Compliance isn’t about satisfying an anonymous regulator. Achieving, maintaining and improving against benchmarks and standards delivers a return on investment.
For example, Green Star-rated office buildings deliver a 4.3% ‘green premium’ at the time of sale, a 13% higher return, a 25% longer Weighted Average Lease Expiry as well as a 56% lower vacancy rate, a GBCA Report found. Similarly, historical data reveals that ESG performance rated by GRESB is positively correlated with fund performance. GRESB notes that fund performance improves by 0.852% for every 10-point increase in overall ESG score.
Taking a data-led approach to compliance ensures that there is an ongoing focus on energy efficiency, the benefits of which are clear. Moving to a higher NABERS rating, for example, means you are using less energy and emitting fewer greenhouse gases delivering an immediate cost saving and boost to the bottomline. A 6-star rated building has 50% of the greenhouse emissions of a 5 star building.
A recent report by the Victorian Government found that improving a NABERS rating by just 0.5 resulted in an 11% reduction in energy costs. In another building, an improvement of 2.5 delivered a massive 55% reduction. And there are also significant reductions in tenant and visitor complaints about comfort levels - even the number of sick days reported by building occupants was reduced by almost a quarter.
As an example, Kyko Group saw immediate benefits after improving the NABERS rating at a Brisbane office asset from zero to five. Bill Jenkings, Director said “the 5-Star rating has made us very attractive in terms of our sustainability credentials, which we have found are increasingly valued by tenants year on year.” The result came after CIM was engaged to provide analytics and systems monitoring at the site.
Ultimately, the higher the rating, the more attractive the building is to prospective tenants, the lower the running costs for the building owner and the better the outcome for the environment.
Taking a broad view of ESG through the lens of tools such as GRESB, NABERS and Green Star makes good business sense for all stakeholders engaged with the built environment. Investors can be confident that they are allocating funds to buildings that will remain attractive to their stakeholders. Building owners can reduce their costs and improve their marketability. And tenants can remain confident that they are occupying sustainable and resilient buildings.
See how CIM’s PEAK platform can continuously monitor multiple building data sources and generate actionable insights, safely and securely.