Are we measuring sustainable buildings or sustainable investment?

There is a difference between owning sustainable assets and making assets more sustainable and I’m not sure our industry always gives enough weight to the difference.

I’ve been thinking about this in the context of value-add real estate funds, particularly residential strategies managing hundreds, sometimes thousands, of individual homes.

Imagine a fund acquires 2,000 older, inefficient homes.

Over several years, it invests systematically across the portfolio: improving insulation and windows, replacing inefficient heating systems, upgrading roofs and building fabric, improving energy performance and making homes more comfortable and resilient for the people living in them.

At the end of that process, those homes may still not look as impressive on paper as a portfolio of recently constructed, highly efficient buildings.

But which investment strategy has created more change?That, to me, is the interesting question.

GRESB already captures elements of improvement within its assessment, and its evolution towards more sector-specific approaches, including the Residential Component, is welcome.

More broadly, GRESB is now actively considering how the Real Estate Standard should evolve towards greater emphasis on performance. Its recent Road to Performance consultation explored how the Standard could better recognise both absolute performance and meaningful improvement over time.

That feels like an important step but it also raises a wider question:

Does benchmarking sufficiently recognise the journey an asset has taken, as well as where it has arrived?

The starting point matters

For value-add investors, the starting point matters.

By definition, these strategies often acquire assets precisely because there is something to improve. Poor energy performance, ageing equipment or outdated building fabric may be part of the investment thesis rather than evidence of a lack of sustainability ambition.

And transformation is rarely instantaneous.

Retrofitting 2,000 individual homes is fundamentally different from managing a handful of large commercial assets. Measures have to be planned, funded and delivered home by home, often across different building types, tenancies and starting conditions.

The environmental benefits can therefore take years to become fully visible in portfolio-level performance data.

Yet that period of transition is precisely where much of the work, and potentially much of the impact, is happening.

Perhaps this points to an important distinction between ESG performance and ESG additionality.

One asks: How sustainable is this portfolio today?

The other asks: How much more sustainable is this portfolio because of what the investor has done?

Both matter.

Absolute performance matters because ultimately the built environment needs to reach much higher standards of energy efficiency, carbon performance and climate resilience.

But additionality matters too.

If capital consistently flows towards assets that are already high-performing, while investors willing to take on inefficient existing stock receive less recognition during the years in which they are improving it, we risk undervaluing one of the most important parts of the transition.

This feels particularly relevant for housing

Improving existing homes is not simply about moving an ESG metric. It can mean warmer homes, lower energy demand, greater resilience, improved comfort and better-quality places for people to live.

And the scale of the challenge is enormous.

We cannot build our way to a sustainable real estate sector purely by creating better new buildings. A huge part of the transition has to come from improving the buildings we already have.

That makes the role of value-add investment particularly interesting.

The investment case isn’t necessarily about acquiring inefficient assets and leaving them that way. It can be about identifying where intervention is possible, deploying capital and actively managing the process of transforming existing stock.

The question for benchmarking is therefore not simply whether those assets are sustainable at a particular point in time.

It is whether the investment strategy is contributing meaningfully to their improvement.

What could the next generation of benchmarking look like?

This is where the current evolution of GRESB becomes particularly interesting.

The Road to Performance consultation points towards a future Standard that places greater emphasis on measurable performance, while recognising both high absolute performance and meaningful improvement.

That direction makes sense.

But for residential and value-add strategies, I think there are still some interesting questions to explore.

Should the starting point of an asset be more explicitly considered when assessing its trajectory?

Should the rate and scale of improvement matter?

How should benchmarks distinguish between improvements that would have happened anyway and those resulting from active investment?

And how do we recognise the complexity of transforming thousands of individual homes, rather than simply measuring the end-state of the portfolio?

These aren’t easy questions.

Benchmarks shouldn’t simply reward investors for starting with worse-performing assets. And absolute performance must remain important. Ultimately, we need buildings that are more efficient, lower carbon and more resilient, regardless of where they started.

But that doesn’t mean the journey should be invisible.

In fact, as the industry moves increasingly towards transition and decarbonisation, understanding that journey may become more important.

Is GRESB going far enough?

GRESB remains an incredibly important framework for bringing consistency, transparency and accountability to real estate sustainability.

Its move towards more performance-focused assessment, alongside more sector-specific approaches such as the Residential Component, is a positive development.

The question is whether the next evolution can go far enough to capture not only where portfolios are, but how they are changing.

For value-add residential investors in particular, that could mean recognising that there are different ways to contribute to a more sustainable built environment.

One investor might acquire an already high-performing portfolio and maintain that performance.

Another might acquire thousands of existing homes and spend years systematically improving them.

Both outcomes matter.

But they represent different types of investment and different contributions to the transition.

Perhaps the future of benchmarking needs to recognise both.

Not simply: “How sustainable is your portfolio?”

But also: “How much better are you making it?”

And ultimately: “What has changed because you invested?”

That is the question I’d like to see discussed more widely across the industry.

If you work in residential, value-add investment, ESG benchmarking or portfolio decarbonisation, we’d be interested to hear your perspective.

Are current frameworks doing enough to recognise improvement and additionality or is there still a gap between the impact investors create and the way we measure it?