Almost eight years into the program, the IREM Certified Sustainable Property (CSP) continues to be a meaningful path to recognition for existing office, medical office, industrial, multifamily, senior housing, and retail properties that demonstrate sustainable operations and performance.
ESG is in demand. Real estate managers increasingly get questions from owners, tenants, residents, and other stakeholders about their sustainability practices. The CSP program was established to give real estate managers a way to answer these questions. The certification requirements are an approachable set of best practices and targets that establish the foundation of a property’s sustainability program and set it up for continuous improvement. The questionnaires, templates, walk-through checklists, and other implementation tools included with the program facilitate learning and engagement and extend the benefits of the program beyond the certification.
With over 1,400 properties certified by IREM so far, owners and management companies have embraced the CSP program as part of their portfolio certification strategies to enhance ESG reporting, engage tenants and residents, and give teams a common set of sustainability best practices.
Real estate investors have driven wider adoption of ESG principles among ownership groups and investment management firms. They want to see the results of their practices in the form of reduced energy and water consumption and lower carbon emissions, and they want operations that support resilience in the face of climate change’s effects and promote healthy indoor environments for tenants and residents.
Property certifications are a way to communicate to investors that a portfolio’s asset and property managers are pursuing performance targets and management best practices that help meet these goals. And because the IREM CSP program allows applicants to use energy and water performance data for only those areas of the property under their control, more property types—including multifamily, retail, and industrial—can achieve certification.
Consequently, more companies have added the IREM CSP to their portfolio certification strategies. By doing so, they can achieve higher percentages of certified properties within their portfolios. This enhances the companies’ external ESG reporting through GRESB, the S&P Global Corporate Sustainability Assessment (CSA), CDP, ESG reports aligned with the Global Reporting Initiative (GRI), and other frameworks.
The affordability of the CSP compared to other green building certifications also makes the IREM program a popular choice. While motivated by the opportunity to increase certifications and enhance ESG reporting, these companies appreciate the approachable requirements and materials and use them extensively to engage their management teams in their ESG efforts.
Participants in the CSP program are also driven by tenants and residents whose expectations have shifted from a desire for safe, well-run homes, workplaces, shopping centers, and medical facilities to a demand for active engagement in the property and its amenities.
During the COVID-19 pandemic, real estate managers needed to reassure tenants, residents, and guests that a property was well-managed and employed practices to support health and wellness. Property certifications fulfilled this need.
With requirements focused on healthy operations, such as IAQ testing, onsite wellness amenities, and outreach to tenants and residents, the CSP allows managers to demonstrate that the property goes beyond sanitation practices to proactive health and wellness measures. These requirements, along with the comprehensive nature of the certification program, have led management companies to seek out the CSP as a way to welcome tenants back to their properties, resulting in a 50% increase in new CSPs from 2020 to 2021 and a 43% increase from 2021 to 2022.
The sustainability aspects of the CSP also help with tenant and resident engagement, especially with the rising importance of Millennial and Gen Z populations in the market. According to First Insight and the Baker Retailing Center at The Wharton School of the University of Pennsylvania, three-quarters of Gen Z consumers state that sustainability is more important to them than brand names. And according to Nielsen, 75% of Millennials are eco-conscious to the point of changing their buying habits to favor environmentally-friendly products.
Even if other factors like cost and location ultimately drive leasing decisions, tenants and residents increasingly factor in sustainability and appreciate eco-conscious properties and management companies. And when all else is equal, sustainability can be a deciding factor in a competitive market. This dynamic may even affect rental rates. This has resulted in the “brown discount” in some locations, where nonsustainable properties command lower rents than sustainable properties.
Team engagement and training
Companies with CSP properties use the program to engage their management teams in sustainable operations. The approachability of the instructions and materials allows owners to underscore their ESG priorities and goals with their property management teams, while management firms participating in the program find that approachability useful in engaging their site teams and service providers. These teams learn about sustainable operations through the CSP application process as they implement policies, gather information and data, and roll out new programs and improvements. The achievability of the requirements gives all stakeholders a consistent benchmark and positions their properties for long-term sustainability performance.
IREM has advanced best practices in real estate management since its formation in 1933, and the IREM CSP program continues to build on this legacy. The program allows real estate managers to act on the expectations of investors and owners around ESG, keeping their properties competitive and mitigating climate change-related risks.