Beyond Compliance: Embedding Certification into Environmental Due Diligence

For real estate funds, sustainability can no longer be a tick-box exercise at acquisition. The bar has risen. Environmental due diligence (EDD) must now extend into fund strategy itself, embedding sustainability KPIs that are tied directly to returns, resilience, and exit liquidity.  Green building certifications — notably BREEAM New Construction and BREEAM In-Use — are no longer peripheral.  They are becoming the operational backbone of investment theses.

Why EDD Must Evolve

Traditional EDD focused narrowly on risks such as contamination, asbestos, or minimum EPC compliance. That framework is outdated. Investors today must also interrogate how assets will perform under tightening disclosure frameworks, shifting tenant demand, and GRESB scoring rules.

Without sustainability KPIs at the heart of due diligence, funds risk acquiring assets that will underperform — or worse, face obsolescence as certifications lapse and regulatory requirements harden.

KPIs That Matter

The strongest managers are building EDD processes that integrate sustainability KPIs as binding parts of their investment thesis. These include:

• Acquisition Baselines: Preference for assets already certified under New Construction schemes (e.g. BREEAM NC), which provide a foundation for future operational certification.

• Transition Triggers: Plans to convert New Construction certificates into operational equivalents (BREEAM In-Use) when weighting within GRESB falls below ~80%, preventing certificate decay in fund reporting.

• Advanced Energy Capabilities: Prioritising assets with demand-side management, grid balancing, and cogeneration capacity. BREEAM In-Use awards credits favourably for these features under ENE criteria.  Assets that can actively reduce peak demand or generate energy efficiently secure higher ratings — and are better insulated against energy cost volatility.

• Portfolio Coverage Targets: Sector-by-sector certification roadmaps, with clear expectations for high-impact asset classes like logistics and retail, which dominate by unit area.

The GRESB Expiry Paradigm

The importance of these KPIs is amplified by recent changes in GRESB methodology. Under older frameworks, certain certifications could retain value.  As of 2024, that is no longer the case.  GRESB now applies a time factor to certification scoring: the older a certificate, the less weight it carries.

This is particularly challenging for New Construction certifications, which depreciate over time.  Once weighting drops below 80%, funds can no longer rely on them for maximum scoring.  Transition to operational schemes such as BREEAM In-Use becomes essential.^[1]

In other words, the age of solely aligning certification goals with planning requirements has passed.  Certifications must now be managed actively, with EDD processes anticipating the lifecycle of every asset’s certification pathway.

Strategic Implications for Funds

1. Acquisition Screening

   Certification readiness should be a gating criterion in acquisitions. Assets with New Construction certification and built-in DSM or cogeneration infrastructure are stronger candidates.

2. CapEx Prioritisation

   Transition risk should drive retrofit planning. Funding should flow first to assets whose certificates are approaching expiry in GRESB terms, or which lack the operational systems that BiU awards credits for.

3. Portfolio Optimisation

   Certification roadmaps must be scaled portfolio-wide, creating consistency across geographies and asset classes. Partial or uneven adoption risks weakening reported ESG scores.

4. Exit Positioning

   Certified assets — particularly those with advanced energy capabilities — are more liquid in secondary markets. Buyers are increasingly discounting uncertified stock, while certified portfolios capture tighter yields.

As Peter Howle, Founder & CEO of Sustainalytica, notes:

"Funds must treat certification as part of the capital architecture of an asset. Sustainability KPIs — from certification roadmaps to energy resilience — belong at the heart of due diligence."

The Risk of Delay

For managers, the opportunity cost of delay is rising.  In portfolios dominated by logistics or industrial assets, where floor area concentration is high, failure to transition certifications undermines both asset-level returns and fund-level reporting.

Moreover, without attention to advanced energy KPIs — demand-side management, grid balancing, cogeneration — assets risk underperforming in certification pathways that increasingly reward operational excellence rather than design intent.

Conclusion

Environmental due diligence is no longer about avoiding downside. It is about embedding sustainability KPIs as a core pillar of fund strategy — from acquisition, through transformation, to long-term curation.

BREEAM New Construction and BREEAM In-Use provide the framework, but it is managerial execution — on certification transition, advanced energy systems, and GRESB-aligned scoring — that distinguishes resilient funds from vulnerable ones.

For funds, the message is clear: certification must be integrated into due diligence as a strategic instrument, not an afterthought.

"Environmental due diligence is no longer about avoiding downside. It is about embedding sustainability KPIs as a core pillar of fund strategy — from acquisition, through transformation, to long-term curation."

^[1] https://www.gresb.com/nl-en/building-certifications-how-to-impose-an-expiration-date/