The GRESB Real Estate Standard Evolves in 2024

GRESB was established in 2009 as a partnership between institutional investors and academic researchers. The partnership provided a framework to systematically assess, benchmark, and communicate the sustainability practices and performance of property companies around the world.

Today, the GRESB Standards are governed by the GRESB Foundation. Foundation volunteers – selected to represent key stakeholder groups – establish the direction and rate of change for the Standards. The Foundation’s long-term goals for the Real Estate Standard include:

1. Raising the bar for sustainability practice and performance and increasing differentiation among participants

2. Transitioning to outcome-based scoring based on reliable and consistent data

3. Continuing to provide material, non-financial information to support constructive engagement between investors and managers

The 2024 Real Estate Standard included incremental changes supporting these goals. Key developments included:

1. Enhanced and streamlined reporting. The 2024 Standard provides more relevant information about physical climate risks and resilience, non-operational energy loads (e.g., EV charging), and ESG integration.

2. New building certification criteria. The 2024 Standard recognizes that building certifications provide valuable signals about asset quality and introduces an amortization schedule for building certifications to increase the scoring weight of more recent certifications.

3. New asset performance assessment. The 2024 Standard introduces new methods to evaluate asset performance data and compare it to more granular country-level benchmarks.

Implementing these new criteria required changes to supporting analytical methods, most importantly to strategies used to manage and benchmark asset-level data. The combination of changes in criteria and supporting methodology were analyzed individually and shown to have modest scoring impact. The preliminary results showed that the cumulative impact on certain groups of participants was greater than anticipated. GRESB listened to participant feedback and identified two specific opportunities to improve the scoring methodology and maintain the priorities established by the GRESB Foundation. This document describes these circumstances in more detail, to support the interpretation of final results.

Milestones for the 2024 Real Estate results include:

• October, 17, 2023: List of changes for the 2024 Real Estate Standard published.
• January, 25, 2024: Publication of the 2024 Real Estate Standard, Reference Guides, and associated scoring documents.
• September, 02, 2024: Preliminary results published. These results included scoring and display errors.
• September 16, 2024: Revised preliminary results published. These results addressed errors and focused participants on changes in criteria and supporting methodology.
• October 10, 2024: Final results published. These results incorporate participant corrections during the Review Period and adjustments to methodology to reduce unintentional impacts.
• October, 15, 2024: Global results presented online. Aggregated, industry-wide results shared with the community.

Score changes between September 2 and September 16 addressed and resolved specific errors in scoring and display. The following points describe GRESB’s response between revised preliminary results released on September 16 and final results released on October 10.

#1 GRESB retained the Foundation’s decisions on Standard changes and minimized year-over-year growth in scores

The 2024 final results retain all the key criteria established by the Foundation, including a shift to asset-level assessment for performance indicators and the new amortization schedule for building certifications. The result is a more rigorous and granular assessment of sustainability practices and performance. It also creates the analytical basis for the long-term shift from effort-based to outcome-based assessment.

#2 GRESB improved Like-for-Like scoring calculations

The 2024 final results include changes in rules around eligibility for Like-for-Like (LfL) scores. This applies to the assessment of energy, greenhouse gas emissions, and water.

The preliminary scoring method applied a rule that assets without two consecutive years of data were not eligible for a LfL score and, consequently, received a score of 0 for this indicator. The rule was intended to discourage entities from excluding assets with unfavorable performance. However, the rule did not differentiate between assets with no progress on LfL performance from those that could not generate a LfL score. This lack of differentiation was understandably frustrating for some participants, specifically those with new acquisitions/dispositions or value/opportunity strategies. GRESB addressed this limitation by adjusting the rule to exclude ineligible assets from the LfL calculation and scoring.

In other words, the rule used in the final scoring recognizes a new not applicable category that no longer creates a de facto penalty on assets without two years of data.

#3 GRESB improved Building Certification scoring calculations

The most complex issue GRESB addressed between the release of preliminary and final results was building certification scoring. The 2024 Real Estate Standard introduced several interrelated changes in the assessment methodology for this topic. The GRESB Foundation approved:

• A new building certification amortization rate (“Time Factor”)
• A shift from Regional to Country-level benchmarking

Implementing these changes required introducing asset-specific attributes into the scoring methodology. The methodology used for preliminary results was aligned with the approach applied to energy, greenhouse gas emissions, and water. However, the method resulted in unanticipated scoring impacts for a significant group of entities. More specifically, it negatively impacted relatively large, diverse portfolios in countries or sectors where building certification adoption is relatively low. Under these circumstances, the preliminary result method resulted in significant decreases in points.

This outcome resulted from an unanticipated interaction between the new criteria, new analytical methods, new data (e.g., certification age), and participant circumstances. These interactions were impossible to fully predict prior to analyzing new data provided in 2024. The magnitude of impacts on some participants was much larger than anticipated by the RESC when establishing the new criteria.

Participants provided extensive feedback during the Assessment Correction period. Consequently, GRESB took action to maintain Foundation-approved changes, while mitigating the unintended impact of the preliminary methodology. The final results reflect a more stable assessment of Building Certification performance that is better aligned with RESC expectations and more consistent across all participants. The method used for final results is also simpler to understand for participants familiar with previous assessments. The method used for final results can be generalized to the following five steps:

1. Building certification coverage is reported for each asset, including information about certification schemes, certification type (new construction or operational), and age.

2. Building certification coverage is reduced (amortized) based on certification age and the long-standing certification quality factor (a measure of scope and rigor). Assets with relatively recent, high-quality certifications receive full credit for their coverage.

3. Building certification coverage (floor area) is aggregated from assets to the portfolio entity for each property sub-type in each country.

4. The resulting entity-level information is benchmarked against country and sub-type peers (benchmarks for this indicator).

5. Entities with high coverage of more recent, high-quality certifications relative to their peers receive the greatest number of points.

This revised method recognizes that building certification coverage is best benchmarked at the entity level. This is different from the best approach for individual performance metrics (e.g., energy or water) where asset-level scoring is key to drive sustainability performance. The revised Building Certification method also addresses the on-the-ground reality that building certification coverage is uneven across regions and property types. These differences are exactly why benchmarks are useful, and this is reflected in the final results.

Once the preliminary data and results for 2024 were available, GRESB investigated the impacts of the adjustments between preliminary and final results. It was important that the revised methodology:

1. Maintains the priorities and direction of travel approved by the Foundation

2. Does not exhibit any unexpected behavior, such as uneven or unpredictable scoring

3. Removes unanticipated impacts on specific groups of participants

Evaluating these objectives required providing quantitative “before-and-after” information on scores for indicators, including Building Certification (BC1), Energy (EN1), GHG (GH1), Water (WT1) – as well as the topline GRESB Score. The quantitative analysis found:

• The revised LfL method resulted in small increases in one or more of the affected indicators (EN1, GH1, WT1) for approximately 1,300 entities. The increases ranged from 0 to 1.36 points, for an average gain of 0.25-0.35 points. No entity ended up with fewer points because of this change. The impacts are not uniform across all entities, because each had different proportions of ineligible assets in the underlying data.
• The revised Building Certification method resulted in an increase of points for almost all entities (approximately 1,250 entities saw increases and only 19 saw a decrease of 0.57 points or fewer). Heterogeneity in certification rates among entities, across regions, and within sub-property types means that the impact of this change is uneven. The revised method increased Building Certification scores by up to 4.7 points for some entities, while others saw no change. The analysis demonstrated that the revised indicator correlates positively with total certified fraction (more certifications generally mean more points) and year-on-year changes in certified fraction also correlate positively with changes in Building Certification scores. This means that the revised indicator is aligned with Foundation expectations and consistent with past benchmarking.
• These combined methodology adjustments between preliminary and final results (without including any manual corrections in data entry by participants during review) led the topline GRESB Score to increase between 0.03 and 5.6 points.

Overall, the scoring revisions mean that the statistical characteristics of the overall 2024 Real Estate benchmark are very similar to 2023 results, despite the evolution of the methodology. There is no significant change in means and variances (or medians and inter-quartile ranges) in scores across all participants, nor the shape of distributions.

The GRESB team appreciates that the preceding sections provide a lot of detail and may raise questions.

• GRESB is here to help and has updated the Supplemental Scoring Guidance document to describe recent score changes
• More information is published on our updated guidance on the use of investor tools
• GRESB will also share more information about score trend analysis during our upcoming Global Results event and Regional Insight events; we hope stakeholders will join us for these events to engage and learn more
• You can find additional insights on 2024 scores here.

The team is also available to answer questions and provide additional support. Please contact us by emailing [email protected].