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GRESB: A Portfolio Standard Emerges for Sustainability

September 08, 2014

Mainstream acceptance of green buildings continues to grow and evolve. While the first wave focused primarily on the predicted environmental performance of new buildings and the second on existing buildings by emphasizing actual performance and operations, the emerging third wave involves benchmarking performance at the portfolio scale.


Rather than focusing on individual buildings in isolation, this new approach assesses and benchmarks the sustainability performance of real estate portfolios – public, private and direct – around the globe. Environmental performance is at the heart of this assessment, but it also includes social and governance issues.

The Global Real Estate Sustainability Benchmark (GRESB) Survey is the de facto standard institutional investors use to measure and benchmark the sustainability performance of their real estate portfolios.

Administered annually, the Survey collects and aggregates building information about commonly used environmental performance indicators such as energy, greenhouse gas (GHG) emissions, water and waste, as well as broader management issues, including sustainability risk assessments, performance improvement programs, and engagement with employees, tenants, suppliers and the community.

The annual GRESB Survey is divided into two dimensions:

  • Management & Policy: the means by which sustainability is managed within the organization, across the portfolio and among its stakeholders, as well as the principles of action adopted by the company or fund; and
  • Implementation & Measurement: the process of executing a decision or plan, or the act of measuring something related to the portfolio.

Participants receive a score for both dimensions, and together, the two demonstrate how well sustainability is integrated into an organization and within the portfolio. However, GRESB rewards actions more than policies. The score for Implementation & Measurement comprises two-thirds of the total. Results are plotted in GRESB’s Quadrant Model, and survey respondents receive one of four designations: Green Starter, Green Talk, Green Walk or Green Star.

Promoting Continuous Improvement

By participating in the GRESB Survey, portfolio investors and managers can identify areas where they are leading and areas for improvement across a range of environmental, social and governance (ESG) indicators. The results – expressed both in absolute terms and relative to peers – can be used to engage with internal and external stakeholders, including board members, property managers, tenants and suppliers.

Typically, management systems that influence behaviour lead to positive results. To that end, the critical pieces of a successful sustainability management process include:

  • Materiality analysis: establishing a process to identify the sustainability indicators that are most significant and relevant to both internal and external stakeholders
  • Target setting: setting performance aspirations and identifying milestones to achieve the most material indicators
  • Stakeholder engagement: collaborating with tenants, suppliers and service providers to reach a common goal
  • Performance measurement and tracking: tracking performance on an ongoing basis
  • Communication and disclosure: sharing results with stakeholders in a transparent way, either through a public sustainability report or other sustainability communication tool.

As co-founder and executive director of GRESB, Nils Kok has been watching the trends in sustainability performance benchmarking closely.

“There’s really been a huge increase in interest about ESG sustainability integration amongst investors” he says. “Sustainability is a moving target. The more forward-looking companies and funds are beginning to broaden their scope to include, for example, community and supplier engagement. Where it previously meant tracking energy performance, it’s now: ‘How can we influence stakeholders?’ ‘How can we engage with tenants to improve performance?’.”

Results from the 2013 GRESB Survey seem to support Kok’s assertion. Over the last two years, the Survey response rate has grown by 60%. There has been an increase in both the level of disclosure and sustainability performance of private and listed real estate portfolios.

Some of the more noteworthy results from the 2013 Survey include:

  • Respondents have demonstrated an increasing commitment to sustainability: 80% have policies for energy management; 74% for water management; 71% for waste; and 61% for carbon emissions. As well, 70% have an Environmental Management System (EMS) covering, on average, 77% of their portfolio.
  • Performance is improving: since the 2011-2012 reporting period, results have shown an overall reduction (based on like-for-like data) in energy consumption (4.8%), GHG emissions (2.5%) and water consumption (1.2%).
  • Green building certification, particularly under the LEED program, is becoming more common: 78% of North American respondents have certified office buildings and 26% have certified industrial buildings.
  • Green leases still appear to be in their infancy: only 29% of respondents have made use of green lease formats, covering an average of 40% of their leases.

Results & Opportunities

The global average GRESB score has continued to improve since 2011. Half of all participants are designated as Green Talk (up from 25 percent in 2011) and 22 percent are designated as Green Stars (up from 19 percent in 2011).The average overall score in North America is 39, a 12% improvement since 2012, with 40% designated as Green Starters and another 40% as Green Talk.

From a regulatory perspective, however, Kok posits Canada is lagging and has room to improve. Although more than a dozen U.S. cities and states – including Boston, Chicago, San Francisco, New York City, and all of California and Washington state – have adopted mandatory performance benchmarking and disclosure laws for large commercial buildings, no Canadian municipality has followed suit (although the City of Toronto recently announced it will be investigating the possibility of adopting such a scheme).

“Disclosure is important because it can help start the conversation between landlords and tenants,” Kok says. “It also starts to influence the REITs a bit more quickly.”

Disclosure is particularly important when considering that sustainability performance has been shown to positively correlate with financial performance. Kok and his peers at Maastricht University in the Netherlands investigated the effects of the energy efficiency and sustainability of commercial properties on the operating and stock performance of a sample of U.S. REITs. Their research, published in the Journal of International Money and Finance, demonstrates that a REIT’s sustainability performance is positively related to three measures of operating performance: return on assets; return on equity; and the ratio of funds from operations to total revenue.

GRESB has been effective for a number of reasons. Firstly, it provides a standardized method to measure and benchmark the sustainability performance of real estate portfolios.

Secondly, it now has the critical mass that’s needed to make a singular benchmarking scheme effective. In 2013, for example, the Survey was completed by more than 500 property companies and funds – including some of the world’s largest – in 46 countries. That represents nearly 50,000 properties and $1.6 trillion in assets under management.

In addition, the Survey is aligned with many of the largest international reporting frameworks such as the Global Reporting Initiative (GRI), the Principles for Responsible Investment (PRI) and the Dow Jones Sustainability Index (DJSI).

Ultimately, proponents maintain that GRESB can help asset managers better prepare for emerging risks and opportunities such as higher and more volatile energy prices, stricter legislation to combat climate change, increased demand for performance disclosure and transparency, and changing preferences amongst tenants and other stakeholders.

Based largely on the popularity of the LEED for New Construction green building rating system, the first wave of green buildings had a profound impact on the design and construction industry. However, its impact on the real estate sector as a whole was limited. The benchmarks and strategies couldn’t be adopted by existing buildings that make up the majority of building stock.

The subsequent focus on existing buildings delivered a much deeper impact for sustainability because it covers a wider range of buildings and encourages continuous improvement. It’s now common for many property managers to set performance targets and to use systems such as Energy Star, LEED for Existing Buildings: Operations & Management or BOMA BESt to implement operational sustainability policies, track environmental performance, and engage with their tenants.

As tools such as GRESB become more widely adopted, and as investors, tenants, building occupants, and regulators apply increasing pressure, portfolio-scale sustainability – the third wave of real estate sustainability – has potential to generate real momentum in improving the environmental, social and governance performance of the built environment.

The 2014 GRESB Survey results will be released in September 2014. With even more respondents expected to participate in this year’s Survey, it will certainly be interesting to see how the sector is progressing.



Mark Bessoudo
Mark Bessoudo Analyst
+1 416 644-1252, 348