Is LEED Certification Worth It? Understanding the Standards, Benefits, and Its Role in Corporate ESG
So what is LEED anyway?
Green building certification is not a new thing, and the Leadership in Energy and Environmental Design, or LEED for short, is one such rating system for certifying buildings. In fact, it is the most widely used rating system in the world, developed by the US Green Building Council, or USGBC, back in 1998 (USGBC, n.d.). The LEED certification process is overseen and verified by Green Business Certification Inc. or GBCI. As a rating tool, LEED offers a framework for ensuring buildings, or in market terms - real estate properties, are environmentally sustainable through a system of certification. The framework consists of a set of tasks called credits, spread throughout 8-9 categories such as a property’s site, water use, and energy consumption. In order to be LEED-certified, a real estate property must complete requirements from sufficient credits to gain enough points to be awarded the certification. The process itself is holistic, as USGBC-managed staff review the credit submittals and provide feedback to satisfy the attempted credits.
Any benefits to pursuing LEED?
Readers might be questioning whether this is merely a costly option of making a property ‘greener’ without any benefits. There is merit in questioning such endeavors. The requirements for LEED certification are strict enough that pursuing it might lead to a noticeable increase in capital costs. However, LEED was not created in a vacuum. In the making of current and upcoming versions of LEED, credits are derived from real environmental impacts, such as reversing contribution to climate change and protecting biodiversity and ecosystem services (LEED, n.d.). By designing properties that address these impacts, they stand to become cost-effective in the long run. Perhaps the simplest example of this is from observing energy and water bills. A LEED-certified property will have accounted for reducing water and energy consumption, such as through designing an energy-efficient envelope and regulating water flow rates. An office building in Poland was observed to reduce energy demand by 36% by way of using energy efficient lamps (Knapik, 2023).
Corporate-side benefits: LEED and ESG performance
Many credits are attempted by submitting tangible, quantifiable documentation, such as projected irrigation use, valuation of using EPD-certified materials, and waste diversion reporting. By pursuing LEED certification, a property’s sustainable aspects are able to be traced back and documented. This lends itself well to a major corporate-side benefit: ESG goals and performance. Outside of the tangible merits of pursuing LEED above, the documentation associated with LEED certification can become the basis for tracking progress towards a company’s ESG goals. Relevant LEED credits achieved by a company’s property may be translated into its environmental and human impacts, which adds to the company’s ESG portfolio. In fact, as of this article’s publication, a software exists that bridges LEED and ESG performance, developed by GBCI. This software, Arc, tracks and aggregates building performance data and develops it into analytics suited for both LEED scoring and ESG portfolio–specifically using the GRESB framework. By grouping performance data into energy, water, waste, transportation, and human experience, Arc demonstrates that LEED-eligible documentation can be translated into use for ESG performance.
The Key is in the Details
While Arc is one such option for streamlining the documentation for both LEED and ESG performances, it is not mandatory to use it to bridge between the two ratings. After all, LEED is already structured to assess a property’s environmental impact. Each credit comes with an exposition about the intent and reasoning behind its creation. A few examples:
Why would LEED reward properties for building near transit networks? Well, LEED acknowledges the impact of private transportation on carbon emissions. Globally, transportation accounts for 23% of CO2 emissions, with 70% of it sourced from road vehicles (IPCC, n.d.). Public transit emits less greenhouse gases due to the ability to transport large masses of people, reducing the associated emissions per individual. By advocating to build near transit networks, properties can reduce its associated emissions by providing public transit access to its occupants e.g., for an office, have employees commute by rail or bus. This reduction in associated emissions aligns with carbon emissions reporting within ESG frameworks.
Under the Indoor Environmental Quality category, LEED provides a framework for assessing occupant comfort through providing sufficient ventilation and daylight, controlling thermal and lighting systems, and minimizing noise. The credits under this category encourage companies to build and maintain healthier and more comfortable properties, aspects which have been linked to higher employee productivity (Kaushik et al., 2023; Soewardi, 2016)
Back to the Golden Question: Is it Worth It?
While the benefits are clear, is pursuing LEED worth the cost? Perhaps the simplest return-on-investment lies in the impact with the largest cost reduction component, namely on energy efficiency and reduction of greenhouse gas emissions. Looking at the spread of points, the current and upcoming versions of LEED put an emphasis on energy use, and later on, decarbonization. Other cost reduction components include water use reduction, which affects the property’s water bill. Miraj et al. (2021) showed how the average of several offices in Indonesia designed with green building practices could achieve water and energy savings of above 56% during their life cycle. Of course, where possible, it is recommended to aim higher, as the energy efficiency benefits may not be as significant with a lower-tier LEED certification i.e., Certified (Amiri et al., 2019).
References
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