Real estate funds are seeking to rank or rate funds' ESG performance through research analysts and ratings groups—including GS Sustain, TruCost, Sustainalitics, EIRIS, Newsweek and the recently launched FTSE/NAREIT/USGBC indices.

State and municipal laws are more frequently requiring property owners to disclose or benchmark building energy performance. A growing number of cities and states are in the process enacting energy disclosure laws for commercial and/or multifamily buildings. These laws all require building owners to track their properties' energy use, but vary regarding such factors as the size and type of buildings they affect and whether the energy use data must be disclosed publicly or only to potential lenders, tenants or buyers. The new laws pose compliance obligations as well as potential risks to asset performance. For assets with poor energy performance, greater transparency and the associated operating costs for prospective tenants or buyers may increase lease-up times, reduce effective rental rates and lower asset values at disposition.

Commercial tenants' demands are increasingly involving green building features. This is especially true for corporate and government tenants who often have policies for minimum LEED or other green building standards to qualify for leasing. The General Service Administration, for instance, has a policy of a minimum of LEED Silver certification for all federal leases of new construction projects of 10,000 sq. ft. or more. Because of this trend, LEED has become a baseline standard for new development in the office segment of many metro markets—like New York, Washington, D.C., and Chicago—where developers need to deliver green office buildings to be competitive in the market and protect long-term asset value.

ESG reporting strategies are being developed by real estate funds, which are also participating in voluntary sustainability reporting forums like the Carbon Disclosure Project and Global Real Estate Sustainability Benchmark to proactively communicate their sustainability activities and enhance their reputation on ESG issues. GRESB alone attracted over 400 real estate investment funds, reporting to over 40 institutional investor members in 2012.

Federal state and local tax credits and incentives are providing a catalyst for energy efficiency and renewable energy investments. For instance, the IRS Section 179D provides a tax deduction of up to $1.80 per sq. ft. for energy efficiency retrofits. Meanwhile, states, municipalities and local utilities are offering incentives in the form of income tax credits, property tax abatements, bond financing, grants and rebates. Some utility rebates for upgrades to lighting, energy management systems and HVAC systems cover up to 60 percent of the total capital investment.

Asset managers are always on the lookout for opportunities to improve energy and water efficiency of existing properties to improve their market competitiveness and lower their operating costs. Tenants are increasingly paying attention to the total cost of ownership, including energy costs. As a result, asset managers often target energy efficiency improvements as part of larger renovation projects to attract and retain tenants as well as increase asset value. Depending on the building, utility costs can be reduced by 10 percent to 20 percent with relatively low capital investments and payback periods of one to three years.

Well-respected green commercial building studies are still somewhat limited, but a number of them provide empirical evidence of the improved value of green commercial buildings. One recent study published by Maastricht University in the Netherlands and the University of California at Berkeley is especially compelling. The study included a sampling of over 2,500 LEED or Energy Star office buildings and nearly 20,000 control buildings across the U.S. and used statistical methods to control for variations in building attributes, and showed an average 3 percent rental rate premium, 8 percent effective rental rate premium and sales premium of 13 percent for Energy Star- or LEED-certified buildings.