ESG building certification

Foreword

ESG refers to the application of Environmental, Social and Governance factors to evaluate a particular organization or project. With respect to the construction and maintenance of our built environment, ESG certifications signal to the general public (and investors) that a given project meets or exceeds certain ESG standards.

The intention of incorporating ESG standards into the construction and maintenance of the built environment is that projects and buildings will be constructed in a resource-efficient method. In turn, healthier buildings will be produced, the impact on the environment will be lessened and maintenance costs will decrease.

ESG standards are developed and maintained by independent organizations which allow for the evaluation. This paper offers a non-exhaustive summary of certain ESG certifications which are available on the market and touches upon certain legal considerations as well.

Ultimately, this paper concludes that, the proliferation of ESG certifications in the built environment has positively affected owners, builders, end-users, and society as a whole.

Introduction

Negative consequences emanating from the construction and inhabitation of the built environment are major concerns to those constructing, working in or living around buildings of all sorts. Buildings generate nearly 30% of all greenhouse gases, 35% of landfill waste, while consuming up to 70% of municipal water.¹ Those spending significant time in buildings are prone to suffer from Sick Building Syndrome (SBS); a situation in which building occupants experience acute health and comfort effects that appear to be linked to time spent in a building, but no specific illness or cause can be identified.

In order to address issues such as those mentioned above, the real estate and development market has seen a proliferation of certifications and accreditations designed to publicly demonstrate that not only can a building be considered “green,” “socially responsible” or “healthy” but just how “green,” “socially responsible,” or healthy that building actually is. Numerous certifications are available on the market. Some have caught on, others have languished. Regardless, the list of certifications is long and is seemingly expanding further. The following paper provides a non-exhaustive summary of select certifications and culminates with practical tips counsel can employ when advising clients in their pursuit of ESG Building Certifications.

Research has demonstrated significant benefits for buildings/projects which obtain ESG Building Certifications. For example, one study found that a WELL Gold certified office saw absenteeism drop by more than 50% in one year and employee turnover dropped 27%.² Another study demonstrated that WELL certification improved overall occupant satisfaction by nearly 30%, as well as occupant perceived well-being scores by 26%, reported mental health scores by 10% and productivity gains by 10 median points.³ The environmental benefits of ESG Certifications are also significant. According to the Canada Green Building Council, LEED accredited facilities are responsible for creating 6.8 million tonnes less GHG emissions, 35 million eMWh of energy saved, 60 billion litres of water saved and 3.85 million tonnes of waste diverted.⁴ In light of the above, the potential advantages of implementing ESG Building Certifications are significant notwithstanding the (not inconsequential) cost. Green building is a resource-efficient method of construction that produces healthier buildings which have less impact on the environment and cost less to maintain.⁵ AECOM notes that though developers naturally need to invest more to gain certification, these costs are readily recovered by way of the improved market-positioning of a property, reduced operational costs through lower utility bills and increased occupant health and wellbeing, which can lead to higher productivity and lower rates of absenteeism in workplace environments.⁶ In short, ESG Building Certifications seem to be a very good thing.

Selected accreditations

It must be cautioned that not all ESG Building Certifications are alike. Each measures different criteria such as energy consumption or occupant health. Notwithstanding, ESG Building Certifications typically have three common characteristics:

Independent evaluation and accreditation

In order to obtain an ESG certification, a given project/building must be evaluated against prescribed requirements set by the accrediting agency. Evaluation and accreditation are never performed by the applicants themselves. This function is independently performed by the accreditation agency or by third-parties (typically engineers or other design professionals) who have accreditation authority delegated to them.

Points-based progressive certification

Commonly, ESG Building Certifications are evaluated using scoresheets, requiring proponents to achieve a minimum score in order to achieve accreditation. For example, Fitwel’s Commercial Interior Space Scorecard⁷ requires an applicant to obtain a minimum of 90 points out of 144 in order to obtain certification. Facilities seeking to achieve TRUE certification must attain at least 31 out of 81 credit points on the TRUE scorecard.⁸

Certification thresholds are also typically minimum scores. It is common for each certification to have tiers (usually three or four) which acknowledge the extent of a project’s ESG investment. It is also worth noting that higher certification levels not only require more points, but those higher-level points are contingent on more stringent requirements.

Recertification

ESG Certifications are not permanent. Generally, an accredited building/project must re-certify after a number of years (a three-year term is typical). Failure to re-certify may result in a building/project losing its accredited status.

Standards also evolve over time, and it may become necessary for a building/project to re-certify in order to comply with the latest standard. For example, the next round of LEED addenda updates was scheduled for April 21, 2023. Those updates impacted LEED credit requirements and substitutions.

LEED

With over 100,000 projects across the globe,⁹ the LEED (Leadership in Energy and Environmental Design) standard is the world’s most widely used green building rating system. In use since 2000, LEED, which rates a building’s environmental performance according to its use of energy, water and carbon emissions, believes that sustainability is key to the design, construction, and operation of all buildings.

LEED certifications are available for all building types and all building phases including new construction, interior fit outs, operations and maintenance and core and shell. Depending on the building/project type, different standards and requirements apply.Given the multitude of options, LEED has developed an online interactive tool (https://www.usgbc.org/discoverleed/) which allows users to select the best LEED system for a particular project. Questions such as “Is this a new or existing building?” and “Is this a build for single or multiple families?” guide the proponent to the rating system best suited for the project. For example, when selecting “New Building” followed by “Residential,” “Multiple Families” and “1-3 Floors,” LEED BD+C (Building Design and Construction: Homes); a program designed for building safer, healthier, more efficient homes is recommended.

All LEED projects must meet three minimum project requirements:

1. Minimum and Maximum Project Size: The LEED rating system is designed to evaluate buildings, spaces, or neighborhoods of a certain size.¹⁰
2. Permanent Location on Existing Land: LEED projects are evaluated as permanent structures. Locating projects on existing land is important to avoid artificial land masses that have the potential to displace and disrupt ecosystems.¹¹
3. Reasonable LEED Boundaries: The LEED project boundary must include all contiguous land associated with the project and supporting its typical operations. This includes land altered as a result of construction and features used primarily by the project’s occupants, such as hardscape (parking and sidewalks), septic or stormwater treatment equipment, and landscaping.¹²

LEED is currently developing a v5 standard which is intended to align the built environment with the Paris Climate Accord’s 2030 and 2050 targets. LEED v5 is scheduled to be available for use in 2025.¹³

TRUE

A slightly more niche certification, TRUE (Total Resource Use and Efficiency) is a zero-waste certification program dedicated to measuring, improving and recognizing zero waste performance¹⁴ and its ultimate goal is to ensure that all solid waste is diverted from landfills, incinerators and the environment.

TRUE utilizes a “Diversion Rate” as the baseline calculation for certification. The rate is determined by comparing the volume of material diverted from landfills, incinerators and the environment to the total amount of waste generated by the project. In addition to a minimum score, in order to qualify for TRUE certification, a facility must have the following seven policies and practices.¹⁵

1. Company or project seeking certification has a zero-waste policy in place;
2. Project has achieved an average 90% or greater overall diversion from landfill, incineration (WTE), and the environment for solid, non-hazardous wastes (referred to as “materials” herein) for the most recent 12 months;
3. Project meets all federal, provincial and local solid waste and recycling laws and regulations. Project complies with all air, water and land discharge permits required for collection, handling or processing of materials;
4. Project has data documenting a base year of waste diversion data, and measurements since the base year that adjust for changes in size, type and nature of business;
5. Project does not exceed a 10% contamination level for any materials that leave the site;
6. Project submits 12 months of waste diversion data to the Canada Green Building Council¹⁶ annually to keep the certification current; and
7. Company submits a case study of zero waste initiatives.

TRUE also certifies events to improve their sustainability. As well, last year, TRUE launched a pilot program applying TRUE to construction projects so that emphasis on the reduction of waste and resource consumption could apply to projects in the construction phase.

WELL

The International WELL Building Institute (IWBI) developed the WELL standard which applies the science of how physical and social environments affect human health, well-being and performance.¹⁷ The standard has been in use since 2014, with the most recent standard (WELL v2) launched in September 2020.

WELL v2 projects fall into one of two groups depending upon project ownership. Projects are either “Owner Occupied” (the facility is primarily occupied by its owner) or “WELL Core” (project owner occupies a small portion of the facility and rents/leases the majority of the facility space to tenants). Certification is spread across 10 concept areas; air, water, nourishment, light, movement, thermal comfort, sound, materials, mind and community. WELL v2 also contains 23 mandatory preconditions and an additional 97 possible optimizations.

In addition to its basic standard, WELL also certifies the “WELL Performance Rating” which uses building and human performance metrics to gain insights into the health and well-being of people inside budlings and then enhance conditions based on those insights.¹⁸ Also available is the “WELL Health-Safety Rating” which is dedicated to health and safety best practices¹⁹ and the “WELL Equity Standard” which empowers organizations to take action and drive accountability toward their diversity, equity, inclusion and accessibility goals.²⁰

Fitwel

Originally created by the U.S. Centers for Disease Control (CDC) and Prevention and U.S. General Services Administration, Fitwel considers itself to be the world's leading certification system committed to building health for all^Ò. Their goal is to implement a vision for a healthier future where all buildings and communities are enhanced to strengthen health and well-being.²¹

Fitwel is unique insofar as there are no individual prerequisites. Accreditation is an interconnected system, focusing on seven impact categories:²²

1. Impacts Surrounding Community Health – Broadening the impact of a project past the health of on-site occupants to reach those who live, work, play, or learn in neighboring areas.
2. Reduces Morbidity and Absenteeism – Promoting a healthy office with reductions in disease transmission and fewer missed days of work.
3. Supports Social Equity for Vulnerable Populations – Reducing or eliminating systemic inequalities to ensure that all people in a community have access to the same outcomes and opportunities.
4. Instills Feelings of Well Being – Promoting inclusion, relaxation, and perceptions of safety.
5. Enhances Access to Healthy Food – Providing occupants with expanded availability to fruits, vegetables, and other nutritious food options.
6. Promotes Occupant Safety – Enabling bicycling or walking as a feasible mode of transportation, protecting bicyclists and pedestrians from vehicular traffic and increasing stair safety.
7. Increases physical activity – Promoting any voluntary skeletal muscle-driven movement involving energy expenditure.

Fitwel’s Certification Team reviews a project and ultimately designates the project with a numerical score and associated Star Rating. The certification and rating are good for a three-year period.

B Corporations

Certified B Corporations (or Beneficial Corporations)²³ are for-profit companies that seek to build a more inclusive and sustainable economy. B Corps are sector agnostic and it is not necessary for a B Corp to produce a product that is sustainable in and of itself. B Corps focus on the way a business is run, how teams are treated, how energy is used and how the environment is treated.

The first generation of B Corporations were certified in 2007²⁴ and the number of certified B Corps is rapidly increasing in recent years. In 2020, Forbes reported there were more than 3,200 B Corps, which sit across 150 industries in 64 countries.²⁵ More recently, BDC reported that more than 6,200 companies in 87 countries and 159 industries are now certified B Corps.²⁶

The journey to B Corp status starts by registering and going through a very long and thought-provoking set of questions known as the “Impact Assessment.”²⁷ The assessment analyses matters including policies, operations, treatment of staff and environmental impact and scores responses out of 300. An applicant must score above 80 to qualify for full B Corp Certification, and certified companies are obligated to post their Impact Assessments on the B Lab website.

Similar to Fitwel, certification is only good for three years. Recertification should never be taken for granted as B Corp standards are always evolving. The next B Corp standards update is scheduled for 2024, and is expected to contain more significant changes than usual, with a move away from the current minimum score toward a set of requirements in 10 different areas that define leadership on social, governance and environmental business impacts.²⁸

A major differentiator between B Corp status and the other accreditations discussed in this paper is that B Corps are obligated to adopt a legal structure that locks the B Corp mission into the company’s core.²⁹ To this end, B Corps are obliged to amend their articles of incorporation to enshrine its commitment to a broader societal purpose.

BOMA BEST

BOMA BEST, founded in 2005, is North America’s largest environmental assessment and certification program for existing buildings. With over 4,000 buildings actively certified in the program,³⁰ BOMA BEST provides owners and managers with a framework for assessing a building’s environmental performance and management.³¹

Two BOMA certifications are of interest. The first, “BOMA BEST 4.0 Sustainable Buildings” has been designed to address current and future sustainability goals. It includes categories such as “Carbon” and “Resilience” and provides pathways to performance improvements. BOMA BEST Sustainable certification has six key focus areas:

1. Energy and Carbon;
2. Water;
3. Indoor Air Quality and Hazards;
4. Accessibility and Wellness;
5. Custodial and Waste; and
6. Resilience and Site.

The organization’s newest certification program is “BOMA BEST Smart Buildings” which sets a standard for assessing technology and innovation in commercial real estate. The certification doubles as a management tool, guiding owners and managers on digital transformation within the built environment to optimize operations, drive sustainability, create unique user experiences, and deliver financial value to their stakeholders and customers. BOMA BEST Smart Buildings has five key focus areas:

1. Security and Safety;
2. Operations and Management;
3. Network and Integration;
4. End-User Experience; and
5. Reporting and Analysis.

Every building that undertakes the BOMA BEST Building Certification Program must undergo an on-site verification conducted by a BOMA BEST Verification Professional to ensure the validity of information entered online, as well as evaluate on-site knowledge and implementation of management practices. On-site verification must occur before the official final score and certification can be awarded. Similar to other standards, Baseline Practices must be met, regardless of the official final score, for a building to achieve certification. Verification and subsequent certification are coordinated and managed by BOMA. Once certified, one of 5 levels (Baseline, Bronze, Silver, Gold and Platinum) may be bestowed upon the building in question.

Legal considerations

Certification selection

Potential proponents are encouraged to carefully consider their aims, and then select the appropriate ESG Building Certification. For example, builders concerned with sustainability could pursue BOMA BEST 4.0 Sustainable Buildings, as opposed to the WELL Equity Standard.

The decision to pursue certifications should be made as early in the development process as possible so that design and construction can be tailored towards achieving the goal. As well, if a project seeks to obtain multiple certifications, one must ensure that the certifications are compatible and do not contain contradictory requirements. Selection of one or more certifications may significantly affect decisions around procurement, schedule, budgets and cost management. Failure to select and implement criteria for ESG Building Certifications early in the design process may result not only in unnecessary costs, but also issues in contracting to impose unique, time intensive, and costly obligations on contractors, trades, and suppliers.

Timely registration

One must be mindful of all certification and recertification dates. In most instances, ESG Building Certifications occur early in the development process (typically via an online platform) so that certifiers and/or design professionals are able to provide the necessary guidance to ensure that the plan will meet the target.

Towards the end of the certification term, building owners (or their delegates) will receive advance notification that certification is set to expire. Awareness of these deadlines is essential as failure to recertify may lead to a loss of certification. Note that certain certifications permit recertification as soon as a project is awarded its initial certification. Fitwel, for example, offers reduced certification fees for projects seeking recertification before the first year of certification expires.³²

Legal risk

When advising design firms with respect to taking on ESG certification mandates, a few best practices are recommended:

1. Confirmation of accreditation

Obvious to most (but certainly not all), design professionals seeking to perform ESG Building Certifications must have the competence and required credentials. Accreditation can come in the form of a simple registration with the ESG entity in question or having passed a licensing exam. Typically, verification of accreditation status is available online.

Note that in certain instances, ESG agencies require that design professionals obtain personal accreditation in addition to obliging that their firms obtain certifications as well.

2. Professional responsibility

The commonly recognized standard of care for design professionals is a negligence-based standard. As such, it is important to understand the definition of negligence and how a finding of negligence might arise. A design professional’s typical standard of care is one where they act with the reasonableness and ordinary competence, commensurate with professionals or other consultants in the performance of comparable services at the time and place where the engineering services are being provided. Unless the agreement in question states otherwise (i.e. a higher or reduced standard of care), the design professional will be held to these common standards. Of note, in the case of Lovely v. Kamloops (City)³³ the Supreme Court of British Columbia ruled that in the case of Professional Engineers, there is a “a paramount professional duty to ensure public safety in all designs signed and sealed by a professional engineer”.

In order to for a design professional to be held liable for damages, a claimant must be able to demonstrate that (1) a duty of care was owed by the design professional, (2) the design professional breached that duty of care by failing to ensure that its conduct met the applicable standard of care, (3) that the claimant suffered damages, and (4) that failure to meet the applicable standard of care of the is the cause of said damages.

One way to understand the standard of care is to examine industry norms. Hence, when a standard of care contains language to the effect of “manner consistent with that degree of care and skill ordinarily exercised by members of the same profession currently practising in the province where the project is located” the design professional will perform the work to the standard of its peers while considering place and time. The design professional must examine the risks and mitigate them but not to the extent that the design professional’s work exceeds the contract requirements. In other words, a design professional does not have to work to such a level where performing the work will actually cost him money and eliminate all profit.

A design professional uses their professional training to anticipate and provide for random factors which are impossible to measure with certain accuracy. As such, a reasonable number of errors are to be expected, and an owner/client must account for a certain percentage of changes or revisions, and that amount would be in keeping with the standard of care as long as the additional work of the design professional was typical for the scope of services being rendered. Where a design professional agrees that the work will be performed “to first class levels,” “to the highest professional standard” or that the work will be “fit for its given purpose,” not only is the design professional placing itself in a precarious position, it is also making the case against itself relatively easy to prove. For example, if a design professional guarantees that a project will receive LEED Platinum certification, they are indirectly assuming responsibility for matters beyond their control. Accepting a heightened standard of care or a fit for purpose guarantee can also have an extensive impact on the design professional’s bottom line in the case of a claim because in some cases, professional / errors and omissions insurance may not cover losses of this nature.

3. Changes to corporate structures

Finally, certain ESG Building Certifications require substantive changes to the organization seeking certification. In the case of a B Corp, it is necessary to to amend articles of incorporation. As this is a relatively complex undertaking, one may want to consult this publication authored by Dennis J. Tobin of Blaney McMurtry LLP in 2018. (https://www.blaney.com/articles/b-corp-certification-in-canada-part-ii-what-else-should-i-be-asking-my-lawyer). Careful reading of this article is recommended.

Conclusion

ESG Building Certifications have been created to help guide owners and tenants towards making more sustainable and socially responsible choices. As competition in the commercial real estate market continues to accelerate, the importance of attracting and retaining high quality tenants and employees will remain high. Given the benefits to developers, (higher value buildings), occupants (healthier places) and society as a whole (reduction of carbon footprint), the strong trend of pursuing of ESG Building Certifications is likely to continue.

The views and opinions expressed in this paper are those of the author and do not necessarily reflect the views or positions of the Dexterra Group nor its respective parent company or affiliates.

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Jason Lewis, LL.L, LL.B is Director, Legal at Dexterra Group, a publicly listed corporation delivering a range of support services for the creation, management, and operation of infrastructure across Canada.