Green Buildings A FINANCE AND POLICY BLUEPRINT FOR EMERGING MARKETS About IFC IFC—a sister organization of the World Bank and member of the World Bank Group—is the largest © International Finance Corporation (2019). All rights reserved. global development institution focused on the 2121 Pennsylvania Avenue, N.W. private sector in emerging markets. We work with Washington, D.C. 20433 more than 2,000 businesses worldwide, using our Internet: www.ifc.org capital, expertise, and influence to create markets The material in this work is copyrighted. Copying and/or transmitting portions or all and opportunities where they are needed most. of this work without permission may be a violation of applicable law. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to IFC Communications, 2121 Pennsylvania Avenue, N.W., Washington, D.C. 20433. The International Finance Corporation is an international organization established by Articles of Agreement among its member countries, and a member of the World Bank Group. All names, logos, and trademarks are the property of IFC and you may not use any of such materials for any purpose without the express written consent of IFC. “International Finance Corporation” and “IFC” are registered trademarks of IFC and are protected under international law. Green Buildings A FINANCE AND POLICY BLUEPRINT FOR EMERGING MARKETS Contents ii Acknowledgements iii Foreword v Executive Summary 1 Introduction 5 29 UNDERSTANDING THE 69 75 MARKET FOR GREEN Annex BUILDINGS BUILDING THE MARKET FOR GREEN BUILDINGS What is a Green 6 Financing Green 30 CONCLUSION AND Building? RECOMMENDATIONS 79 Buildings Acronyms and Endnotes Current and Potential 10 Green Buildings Market Policy and Regulatory 46 Building Blocks The Business Case for 18 Green Buildings Voluntary 58 Commitments to Green Buildings B OX E S FIGURES 8 Box 1: EDGE: Powering green building transformation in 12  Figure 1: Investment Opportunity by Property Type and emerging markets Region 14 Box 2: Estimating the investment opportunity in green 13  Figure 2: Investment Opportunity Across Regions buildings 15 Figure 3: Total Opportunity by Building Type 17 Box 3: Winning strategy to appeal to institutional investors 21 Figure 4: Green Hotel Value Example 19 Box 4: The cost of building green in emerging markets 22 Figure 5: Income Capitalization of Green Buildings 24 Box 5: Green mortgages: A triple win 23 Figure 6: Green Mortgage Example 26 Box 6: Integrating resilience to climate impacts into building design 60  Figure 7: Differences Across a Sample of International and National Certification Systems and Their Uptake 34 Box 7: Building a green real estate portfolio: From vision to supporting clients 35 Box 8: Shaping the green construction market in Colombia 36 Box 9: ING: Client education to strengthen client relationships 37 Box 10: Using green construction finance to launch a green mortgage program 38 Box 11: Examples of green bonds issued to finance green buildings in 2018 40 Box 12: How to issue a green bond, loan, or sukuk 41 Box 13: Barclays blueprint for green bonds 44 Box 14: Catalyzing the green buildings market in South Africa 55 Box 15: Clear green bond guidelines as a lever for the green buildings market 62 Box 16: Market response to multiple green buildings rating systems 64 Box 17: Greening offices through leases in Singapore 65 Box 18: Effecting change across the industry through collaboration 66 Box 19: AccorHotels’ sustainability-linked loan facility Acknowledgements IFC's work in green buildings has benefited from Minchew, and Caitriona Palmer, and guidance from Narayana Minnal Sreenivasan, Smita Thomas, Ronald collaboration with development partners, in particular, Corinne Figueredo, Rusmir Music, and Ommid Saberi. Wu, and Nina Zegger. the State Secretariat for Economic Affairs of Switzerland Elizabeth Lewis and Hlazo Mkandawire managed The authors are grateful to several other colleagues (SECO) and the United Kingdom government. Other communications; creative design, layout, and printing for their input and peer review: Chris Botten (Better partners included European Union; the Ministry services were provided by Irina Sarchenko and Gregory Buildings Partnership); Shamir Ghumra (BREEAM); of Finance of Japan; the Hungarian Export-Import Wlosinski. Copy-editing services were provided by Gina Hall (Carbon Trust); Nora Steurer (GABC/UNEP); Bank; the Canada Climate Change Program and the Clarity Editorial. Yulia Guzairova managed the budget, Georgina Smit (Green Building Council South Africa); Department of Foreign Affairs, Trade, and Development, and Darius Maleki (intern) and Lyudmila Podgola Alice Huang and Maxine Jordan (IEA); Vasudevan Canada; the Royal Ministry of Foreign Affairs of provided additional support. Suresh (Indian Green Building Council); Jessica Denmark and the Danish Green Growth Fund; the Long (Nuveen); John Kraus (RICS); Alifia Doriwala Federal Ministry of Finance of Austria; the Ministry Many World Bank Group colleagues and experts (RockCreek Group); Brian Dean (SEforAll); Martina of Foreign Affairs of Finland; the GEF-IFC Earth provided critical input and ideas to shape this report, Otto and Matthew Ulterino (UNEP); Sean McMahon, Fund Platform; and the World Bank’s Energy Sector as well as feedback during review: William Beloe, Sarah Merricks, and Robert Tufts (U.S. Green Building Management Assistance Program (ESMAP). Martina Bosi, Lenore Cairncross, Shamsah Dhala, Council); Luca De Giovanetti, Roland Hunziker, and Gabriel Goldschmidt, Neil Gregory, Ruth Hupart, This report was prepared by the Climate Business Cristiana Jolivet (WBCSD); and James Drinkwater and Prashant Kapoor, Tom Kerr, Patrick Leahy, Shirong Department (Alzbeta Klein, Director), Climate Finance Stephen Richardson (World Green Building Council). Meng, Rajesh Miglani, Marcene Mitchell, Eloshan and Policy Group (Anup Jagwani, Manager). The authors Their collective wisdom and contributions have Naicker, Shruti Narayan, Alexandrina Platonova-Oquab, are Irina Likhachova, Aditi Maheshwari, and Ayesha dramatically improved the report’s comprehensiveness Tigran Parvanyan, Sandra Pranoto, Randall Riopelle, Malik, with support from Rebecca Menes, Elizabeth and potential for impact. Friedemann Roy, Autif Sayyed, Apoorva Shenvi, Lakshmi ii Green Buildings | A Finance and Policy Blueprint Foreword If you build it, build it green: Green buildings open the door to better business and a cleaner world G reen buildings represent one of the biggest investment In addition, green buildings can help investors and owners opportunities of the next decade—$24.7 trillion across manage the risks associated with a transition to a lower- emerging market cities by 2030. carbon economy. This transition will bring regulatory, economic, and resource changes, and some energy- Cities in emerging markets are expanding at a fast pace to inefficient assets will no longer be profitable. keep up with high population growth and rapid urbanization. The floor area of the buildings that dot our skylines is expected The private sector, governments, and financial institutions to double by 2060. Most of this growth will occur in residential need to work together to transform real estate, especially construction, particularly in middle-income countries. Meeting in emerging markets, where most of the construction will the demand for new buildings through green construction can happen and where green buildings could have the greatest spur low-carbon economic growth and create skilled jobs in impact. Investors, owners, and tenants are beginning Alzbeta Klein Director, Climate Business, IFC emerging markets for decades to come. to recognize the clear business case and are demanding buildings that can meet tenants’ needs, maximize returns, Investors and financiers can take the lead in shaping and and minimize their environmental impact. Governments can accelerating this multitrillion-dollar business opportunity. support the green transformation of real estate by providing Smart investors understand the financial benefits of green regulatory frameworks and strategies to address market buildings: lower long-term operating and maintenance costs, barriers and incentivize green construction in their markets. lower default rates, decreased odds of becoming a stranded Mobilizing banks and institutional investors to offer green asset, and potentially higher returns on investment. construction and green mortgage finance will be essential to Emerging evidence indicates that green buildings are a expanding green building practices. higher-value, lower-risk asset than standard structures. This report captures best practices by investors and Besides lowering energy consumption, and therefore financiers, governments, developers, and owners to provide operational costs, greener buildings typically achieve higher an investment blueprint for green buildings across emerging sale premiums and attract and retain more tenants, ensuring markets. Ensuring that green buildings become the norm a more continuous revenue stream. across emerging markets will go a long way towards supporting low-carbon economic growth.  iii iv Green Buildings | A Finance and Policy Blueprint Executive Summary Executive Summary G reen buildings play a pivotal role in spurring low-carbon economic growth and securing a transition to clean energy as an increasing number of companies and governments aim to be carbon neutral by 2050. As an impact investor focused on pursuing positive social and environmental outcomes through profitable investments, IFC views the green buildings sector as a multitrillion-dollar business opportunity and an avenue to reduce energy-related emissions. Green buildings: A $24.7 trillion investment opportunity The green buildings sector represents a $24.7 trillion investment opportunity by 2030 across all emerging market cities with a population of more than half a million people.1 Most of this investment potential—$17.8 trillion—lies in East Asia Pacific and South Asia, where more than half of the world’s urban population will live in 2030.2 The investment opportunity in residential construction, estimated at $15.7 trillion, represents 60 percent of the market. There is a strong business case for growing the green buildings market. Emerging evidence indicates that green buildings, or buildings that use energy and water more efficiently, are a higher-value, lower-risk asset than standard structures. While building green could range from savings of 0.5 percent to 12 percent in additional costs,3 green buildings can decrease operational costs by up to 37 percent,4 achieve higher sale premiums of up to 31 percent and faster sale times,5 have up to 23 percent higher occupancy rates,6 and have higher rental income of up to 8 percent.7 Investing in green buildings allows market players to manage potential risks that stem from the global transition to low-carbon economies. Globally, the buildings sector consumes more than half of all electricity for heating, cooling and lighting8 and accounts for 28 percent of energy-related greenhouse-gas emissions.9 It will require an estimated 50 percent more energy by 2050 than today.10 Resource-inefficient buildings run the risk of losing economic value or becoming stranded assets due to increasingly stringent regulations, pressure from financial regulators to manage and disclose climate risks, changing consumer preferences, and shareholder demands. Non-compliant buildings could become subject to legal action and fines, making them more expensive to operate and insure, and harder to lease or sell. The floor area of the global buildings sector is expected to double by 2060.11 Most of this construction will occur in emerging markets, particularly in middle-income countries experiencing high population growth, rapid urbanization, and income growth. New construction offers a significant opportunity to integrate energy efficiency into building design from the outset, helping to maximize the financial benefits that come from energy savings and avoid the need for costly retrofits later.12 Green buildings construction at the scale required can spur low- carbon economic growth and create skilled jobs in emerging markets for decades to come, while improving energy security, air quality, and people’s wellbeing. The current size of investments in green buildings, however, is only a fraction of the investment opportunity. Global investments in green buildings accounted for $423 billion of the $5 trillion spent on building construction and renovation in 2017. There are a number of constraints that hamper the development of a robust pipeline of green properties and widespread adoption of green construction. These constraints include the perception of high construction costs, a lack of alignment of incentives and benefits among market players, and a mismatch between relatively short hold periods of real estate assets in portfolios and the long lifespans of buildings and when they might be affected by climate change and stricter regulations. Executive Summary vii Investment opportunity by property type and region (USD billions) $$ Sub-Saharan Middle East & East Asia Europe & Latin America Africa North Africa South Asia Pacific Central Asia & Caribbean $ Education 73.8 122.6 41.2 1,191.4 50.6 269.6 1,749.2 Healthcare 38.7 85.8 13.5 320.6 30.2 81.1 569.9 Hotels & Restaurants 11.9 35.2 38.8 1,345.7 23.6 54.2 1,509.4 Institutional/Assembly 27.6 50.2 17.3 733.7 24 26.7 879.4 Office 49.6 65.3 61.7 2,566.8 40.8 111.9 2,896.2 Retail 31.4 60.7 87.6 844.8 39.1 84.2 1,147.9 Transport 5.3 7.4 3.2 26.2 3.8 11.9 57.8 Warehouse 20.1 22.5 18.2 97.4 7.1 25.1 190.5 TOTAL COMMERCIAL 258.4 449.7 281.5 7,126.6 219.2 664.7 9,000.2 Multi-Unit-Residential 96.6 158.1 542.9 7,555.9 201.3 745.2 9,300 Single-Family- Detached 413 528.4 933.8 1,331.7 460.2 2,751 6,418.1 TOTAL RESIDENTIAL 509.6 686.5 1,476.7 8,887.6 661.5 3,496.2 15,718.1 GRAND TOTAL 768 1,136.2 1,758.1 16,014.2 880.7 4,160.9 24,718.3 viii Green Buildings | A Finance and Policy Blueprint Emerging markets, despite having ambitious targets for green buildings, Institutional investors participating in green real estate market can help struggle to put in place effective measures to mandate and incentivize inject liquidity and enable primary lenders to free up capital to develop large-scale adoption of green construction practices. This is partly due to new green lending products. They can also help scale up local currency low technical capacity to build, operate, and maintain green buildings, financing through direct lending or equity investments. lack of knowledge, and weak enforcement regimes, as well as challenges National and multinational development finance institutions can in developing and implementing consistent standards and requirements catalyze nascent markets and facilitate the entry of private investors. for green construction across a highly local and decentralized industry. They provide a range of financial products not readily available These countries must also address an urgent need to meet a considerable in emerging markets, often in combination with technical support shortfall in affordable housing—a challenge in itself without the added and capacity-building programs. These institutions can also build considerations of building green. Furthermore, low-income countries governments’ capacity to develop enabling environments. and fragile and conflict-affected states face additional challenges given weaker institutions and capacity, and underdeveloped financial systems, Governments can create enabling including the mortgage market. environments to galvanize market growth Despite the challenges, realizing the full investment potential of green Governments can help create a pipeline of green building assets and buildings is within reach, with established financing models and proven, incentivize financiers to channel capital to the sector. As large owners easy-to-implement technologies that are readily available and continue of and investors in real estate, governments can contribute to investor to decrease in cost with their greater adoption. Investors, developers, appetite by requiring all public buildings to be green. This can also build owners, and governments will have to work together to meet demand technical capacity and skills among designers, engineers, and workers, for buildings in a way that is economically beneficial and aligned with who then can build privately financed green buildings. global climate goals. Governments have already signaled their interest in “building it right,” with the buildings sector referenced in 136 countries’ Nationally Investors and financiers can drive green Determined Contributions (NDCs).13 Nevertheless, two-thirds of the buildings investment expected future construction will be in countries that do not have Real estate investors and financiers hold tremendous influence to shape building energy codes, and where they do exist, they are often not and accelerate the market for green buildings. There are clear market robust or enforced.14 To achieve the high-level targets and policies, incentives—both on the opportunities and risks side—to focus investors’ governments need to translate these ambitions into progressive attention on financing green buildings. regulations and incentives. Commercial banks are a key source of financing. Construction finance, Fiscal incentives like tax breaks, grants, subsidies, loans, and rebates, mortgages, home improvement loans, and green financial products complemented by non-fiscal incentives such as preferential or expedited for resource-efficient buildings can significantly accelerate the uptake permitting, density bonuses (such as increased height allowances), or of green buildings, as can better financial terms such as lower interest public advocacy can be deployed. Mandatory building codes can ensure rates and longer tenors. In return, banks can expand their client base that green measures are incorporated from the outset and raise market and product offerings, build higher-value and lower-risk portfolios, and awareness. Labeling and energy performance certifications for buildings access new sources of finance through green bonds, green securitizations, and appliances can help ensure compliance with green standards, and green credit facilities, potentially reducing their cost of capital. catalyze the market for energy-efficient technologies, and generate Executive Summary ix expertise of the public and private sectors can help remove some of the barriers to compliance. Mandating third-party certification can address green-washing concerns and ensure incentives go to eligible recipients without extensive public sector overheads. The private sector can lead the way through voluntary commitments to build green Voluntary adoption of green construction practices by a number of private real estate developers and owners have created momentum, but must be scaled from limited commitments to industry-wide actions, particularly in emerging markets. Current commitments range from greening individual buildings and entire portfolios to joining ambitious pledges through international platforms and initiatives. Such commitments have been primarily linked to and delivered through green building certification programs. International rating systems such as BREEAM, DNGB, EDGE, Green Star, and LEED are among the most popular and influential. In many countries, multiple systems, including locally developed rating systems, operate as complementary drivers of green building. These systems help expand the green buildings market by evaluating and benchmarking green buildings against local practices, as well as providing third-party verification. This report provides a blueprint of the replicable and scalable solutions available to different market players to mainstream private investment in formal, new green buildings construction in emerging markets. It showcases current best practices by the players with the most influence to accelerate and amplify the green buildings market: financiers, policymakers, building owners, and developers across both developed market data to help financial intermediaries select efficient buildings to and emerging economies. invest in. These policy options can be tailored to local legal frameworks, socioeconomic context, and developmental priorities. Governments must also ensure compliance with regulation. Training construction industry professionals and officials can make enforcement easier. Stakeholder engagement that incorporates the interests and x Green Buildings | A Finance and Policy Blueprint Introduction About this report than $4.5 billion in green building projects worldwide and mobilized an additional $1 billion in financing for green homes, offices, hospitals, This report makes the case for investing in green buildings and provides hotels, and retail buildings. Furthermore, it works within an extensive practical guidance to financial institutions and investors across emerging network of client banks across emerging markets to help develop and markets on shifting their real estate portfolios to financing green expand innovative financial products to scale up investments in green buildings. By doing so, they can take advantage of the $24.7 trillion buildings. investment opportunity across emerging market cities by 2030, build strong portfolios, stimulate demand for green buildings, and contribute The report focuses on the construction and use of green buildings to low-carbon economic growth. and considers the business and climate benefits of energy efficiency, water savings, and waste reduction approaches. It does not consider The report also looks at commitments and actions by developers and the climate impacts associated with the production and supply of owners of green buildings and governments, who are critical players in construction materials† or the practices necessary to address the creating the market for the flow of finance to green construction. emissions from the end-of-life demolition phase of the building lifecycle. It is intended primarily for financial institutions across emerging This report focuses on new buildings and does not discuss retrofits. markets as they seek to expand their green construction and mortgage Given the rapid growth of new construction, new buildings represent a finance products in order to build higher-value and lower-risk portfolios larger investment potential. There is also an urgent imperative to “build and access global capital markets. It is recommended for building it right” in order to avoid inefficient use of energy for decades to come. developers and owners across emerging markets who seek to better The market for retrofits is discussed briefly in the Current and Potential understand the business case for green buildings and how they can Green Buildings Market section. differentiate themselves in the market in order to grow their business and access to finance. It is also recommended for emerging markets’ The report does not differentiate between low-income and middle- governments, particularly at the subnational and local levels, which can income emerging markets. While the best practices reviewed in this incentivize green construction to achieve green economic growth and report are intended to inform the application of green construction meet climate commitments. practices across markets, we acknowledge that lower-income and fragile and conflicted-affected states face unique challenges, and these countries The report offers a uniquely private sector perspective on the investment will require significant time, effort, and support to transition to green potential in emerging markets and how to realize this potential, construction and to develop the mortgage market. according to IFC. It draws on IFC’s almost decade-long experience of helping design and implement green building codes across emerging markets. In addition, IFC has designed its own certification system specifically for emerging markets, EDGE, which is available in more than 150 emerging markets. Through its investments, IFC complements existing work that is † Although the embodied carbon of construction materials—greenhouse-gas emissions generated during materials’ production—is beyond the report’s scope, it is important catalyzing sustainable markets. As of June 30, 2019, it has invested more to note that it is a key issue in the context of decarbonizing the construction value chain. The construction industry is the world’s largest consumer of raw materials and, if embodied carbon is taken into consideration, buildings’ contribution to global greenhouse- gas emissions increases from 28 percent to 40 percent. Approaches to decarbonizing construction materials are covered in previous IFC reports. 2 Green Buildings | A Finance and Policy Blueprint Report structure The report is divided into four chapters: Introduction (this chapter), Understanding the Market for Green Buildings, Building the Market for Green Buildings, and Conclusion and Recommendations. Understanding the Market for Green Buildings defines green buildings and outlines the context and framing for subsequent analysis. The chapter estimates the size of the current market for green buildings and its potential in emerging markets. It reviews the investment opportunities by region and building type, and considers the business case for green buildings for investors, developers, and governments. Building the Market for Green Buildings draws on the foundational definitions and business case and reviews key ingredients for functioning markets: finance, policy and regulation, and voluntary standards and actions by the market leaders. The final chapter, Conclusion and Recommendations, distills the best practices reviewed throughout the report into recommendations for the key market players. Introduction 3 4 Green Buildings | A Finance and Policy Blueprint Understanding the Market for Green Buildings What is a Green Building? G reen buildings reduce or eliminate negative impacts on the environment and climate.15 Definitions of green buildings vary. They can be tied to carbon and energy objectives such as net zero emissions or 1.5°C-compliant, as well as considerations for people’s health and wellbeing. While green buildings differ across local contexts and exhibit different green features, it is important to have an agreed on and comparable set of metrics that measure the most material characteristics of what makes a building green. Clear and agreed on definitions of what constitutes these material characteristics, accompanied by relevant metrics to measure and verify a green building’s performance, accounting for local variations, are important for market growth. Definitions and metrics are essential for: • Industry policymakers to establish minimum requirements for compliance, as well as provide incentives for private sector innovation to raise the standard. • Developers to build green buildings and get recognition from buyers for their superior quality. • Financial regulators to develop market rules for green assets. • Financiers and developers to gain access to capital markets for their green building portfolios. Standardized metrics and clear reporting requirements are essential to catalyze investment at the scale required to green the new construction market. They will help investors assess green buildings for their financial Photo: The EDGE-certified Samara Suites, a mixed-used building developed by Asia Green Real Estate and Sintesis Kreasi Utama, is located in the heart of Jakarta. viability, sustainability credentials, and alignment with portfolio strategies. Standards provide the necessary definitions while certifications such as BCA Green Mark, BREEAM, LEED, and others can offer an asset rating to help investors define, measure, and verify their green buildings investments. This facilitates the issuance of green bonds and other forms of green finance, which can increase capital flows to the sector. IFC’s definition of green buildings From almost 15 years of investing in green buildings, IFC has learned that green buildings should be: • Certified as green under one of the internationally recognized certification standards or an approved national standard. • At least 20 percent more energy efficient than a baseline building without energy-efficient design.16 • Able to quantitatively report impact metrics, such as energy and water savings, and greenhouse-gas emissions reductions. When IFC provides credit lines to its client banks and other financial Residents of Greenox, Turkey’s first “vertical forest” apartment complex intermediaries for on-lending for green building projects, it requires built by Aycan-Feres in Istanbul, holding their EDGE certificates. eligible projects to be certified and at least 20 percent more energy efficient than the benchmark.17 When IFC uses the proceeds of green bonds to finance green buildings, it reports on the following metrics: the type of green certification system applied; green floor space; reductions in energy, water, and The focus on operational energy efficiency and the resulting reduction energy embodied in materials against a benchmark; and reductions in in greenhouse-gas emissions aligns with what large commercial banks carbon emissions. For residential projects such as low-income housing, consider to be the most material characteristics for their green real additional metrics include the number of households or people served. estate portfolios.18 Energy use can be measured and verified; however, In addition, it is best practice for green bond issuers to report on focusing on this alone disregards the other benefits of green buildings, quantifiable green building performance to bond holders. namely water-use efficiency and reduced embodied carbon in building materials. Unlike most certification systems, IFC’s EDGE incorporates Understanding the Market for Green Buildings 7 B OX 1 EDGE: Powering green building transformation in emerging markets IFC’s EDGE can be used to certify new and and low-flow water fixtures, which help savings in water and materials as per EDGE existing buildings at the design stage and after optimize building performance. Incremental certification requirements. construction that achieve at least a 20 percent capital costs are indicated with the payback • EDGE Zero Carbon: EDGE Advanced projects cut in energy, water, and embodied energy in period, as well as the value that is transferred to that achieve 100 percent carbon neutrality materials compared to conventional buildings. future owners of the property. The software is through renewables or carbon offsets at the Designed for emerging markets, EDGE offers a calibrated to take local conditions into account, operational stage receive further distinction. faster, easier, and more affordable approach to including climate and local industry costs and certification than was previously available. It practice. EDGE is available in over 150 countries EDGE is the only system that requires consists of free design software, a streamlined for residential, public, and commercial projects. efficiency in embodied energy in materials as online certification system, and the world’s a certification parameter. To better address In September 2019, EDGE launched two new largest network of certifiers. the issue of embodied carbon in construction certification products to recognize high- materials, IFC is exploring moving from EDGE’s software allows a user to apply different performing projects: requiring a minimum of 20 percent efficiency systems, solutions, and design techniques to • EDGE Advanced: Awarded to projects that in embodied energy in materials to embodied discover the most cost-effective way to design improve energy efficiency by 40 percent carbon in materials. and build green. These include energy-efficient or more, in addition to at least 20 percent lighting and cooling, shading, natural ventilation, 8 Green Buildings | A Finance and Policy Blueprint these parameters, and ways to quantify them, into its definition of a The next frontier: Net zero emissions and green building, which requires a minimum of 20 percent greater water zero carbon certification and energy efficiency, and 20 percent less embodied energy in building As technologies advance and governments’ sustainability ambitions materials compared to a local business-as-usual benchmark. grow, so efficiency and decarbonization standards are becoming stricter. IFC is leading discussions with other multilateral development banks to New buildings will have to comply with ever-improving standards and agree on a common definition of green buildings. norms, and existing buildings will need to be regularly monitored and retrofitted to meet new, higher efficiency standards. Extending the scope of certification to The next frontier for green buildings is to have net zero emissions. Net operations zero buildings are highly efficient buildings that use only renewable While energy efficiency and other green measures are increasingly being energy or carbon offsets. In 2017, there were 2,500 net zero emissions incorporated into building designs, studies have shown that these often buildings worldwide that were recognized through a green building do not translate into expected reductions in energy consumption during certification or adhered to an official standard.22 This number needs to the building’s use due to occupant behaviors. This mismatch between significantly increase to reach the net zero emissions goal. design and operation is known as a performance gap. Certification Cities like Boston are already incorporating carbon neutrality systems—which are often aimed at the design stage of building requirements for new buildings,23 and others are following suit. In construction—are working to incorporate requirements that verify that October 2019, Arthaland Corporation became the first company to buildings are used in a way that maximizes the effectiveness of efficiency receive an EDGE Zero Carbon certification, for its flagship office measures.19 They can then ensure that buildings that are designed to be building in the Philippines.24 green are also used in a green manner. The World Green Building Council is calling on the signatories of the One approach is to complement design-focused certifications with Advancing Net Zero agenda—comprising businesses, cities, states, building performance rating systems and certificates such as the EU’s regions, and organizations—to take immediate climate action to reach Energy Performance Certificates that help measure and monitor the net zero operating emissions in their building portfolios by 2030, and building’s energy performance, as well as provide tips on how to cost- advocating for all buildings to be net zero in operations by 2050.25 effectively improve the building’s energy rating (for further details, see This is complemented by the Zero Carbon Buildings for All Initiative, the section on Policy and Regulatory Building Blocks).20 However—as which also calls for national and local leaders to drive decarbonization evidenced in China where less than 5 percent of certified green buildings of all new buildings by 2030 and all existing buildings by 2050. It also hold green performance certificates21—this second stage of certification challenges financial and industry partners to provide expert input and is less commonly used by developers than those for the design stage. commit $1 trillion in investment by 2030.   Understanding the Market for Green Buildings 9 Current and Potential Green Buildings Market The current market for green buildings T he floor area of the global buildings sector is expected to double by 2060, driven by growing population and urbanization rates across emerging markets.26 The projected additional 230 billion square meters of new building construction is equivalent to adding the floor area of Japan every year until 2060.27 It is imperative to ensure that these new buildings are built green to avoid higher carbon emissions for decades that stem from inefficient energy use. Rapid expansion of building construction and the need to reduce emissions present a $24.7 trillion investment opportunity in the green buildings sector in emerging market cities until 2030. Green buildings comprise a relatively small share of global construction. Global investments in green buildings accounted for $423 billion of the $5 trillion spent on building construction and renovation in 2017 and represent an even smaller share of the estimated $217 trillion in global real estate value.28 However, by some estimates, the global green buildings market is expected to grow at an average of over 10 percent annually between 2017 and 2023.29 The residential construction sector accounted for over 60 percent of the global market for green buildings in 2018.30 The green residential sector is expected to grow at a compound annual rate of 10.88 percent between 2018 and 2023.31 The non-residential segment of the market is expected to grow at a compound annual rate of 9.25 percent over the same period.32 A 2018 study of world green building trends33 surveyed 2,078 architects, engineers, contractors, owners, specialists, and investors employed in the construction industry across 86 countries. Almost half of the respondents expect green buildings to comprise over 60 percent of all their projects by 2021. The global average for the same group is expected to increase from 27 percent in 2018 to 47 percent in 2021. This supports the expected strong growth of green buildings as a share of total construction and the significant market potential. A strong business case is driving the growth in green construction. Investor and client demand, as well as environmental regulations, are key triggers and business considerations. Property developers and end users, such as hotels, increasingly understand the financial and reputational benefits of building green. The potential market for green buildings: A $24.7 trillion investment opportunity The estimated $24.7 trillion investment potential in green buildings between 2018 and 2030 in emerging market cities is due to the sharp increase in building construction expected over the next few decades and the opportunity to ensure these are built green.34 This amount reflects the investment opportunity created by fully achieving explicit and implicit urban green buildings-related policies and targets set by local and national governments in emerging markets until 2030. It is informed by pledges, targets, and investment plans contained in city action plans, NDCs, and other policies. These investment opportunity numbers assume that the total population in 2030 across six emerging market regions will be 7.5 billion, of which 4.1 billion people will live in urban areas, according to UN projections. Figure 1: Investment opportunity by property type and region (USD billions) $$ Sub-Saharan Middle East & East Asia Europe & Latin America Africa North Africa South Asia Pacific Central Asia & Caribbean $ Education 73.8 122.6 41.2 1,191.4 50.6 269.6 1,749.2 Healthcare 38.7 85.8 13.5 320.6 30.2 81.1 569.9 Hotels & Restaurants 11.9 35.2 38.8 1,345.7 23.6 54.2 1,509.4 Institutional/Assembly 27.6 50.2 17.3 733.7 24 26.7 879.4 Office 49.6 65.3 61.7 2,566.8 40.8 111.9 2,896.2 Retail 31.4 60.7 87.6 844.8 39.1 84.2 1,147.9 Transport 5.3 7.4 3.2 26.2 3.8 11.9 57.8 Warehouse 20.1 22.5 18.2 97.4 7.1 25.1 190.5 TOTAL COMMERCIAL 258.4 449.7 281.5 7,126.6 219.2 664.7 9,000.2 Multi-Unit-Residential 96.6 158.1 542.9 7,555.9 201.3 745.2 9,300 Single-Family- Detached 413 528.4 933.8 1,331.7 460.2 2,751 6,418.1 TOTAL RESIDENTIAL 509.6 686.5 1,476.7 8,887.6 661.5 3,496.2 15,718.1 GRAND TOTAL 768 1,136.2 1,758.1 16,014.2 880.7 4,160.9 24,718.3 12 Green Buildings | A Finance and Policy Blueprint 8,887.6 7,126.6 The average overall rate of urbanization is assumed to be 56 percent, $16 trillion, accounting for over half of the total opportunity across ranging from 40 percent in South Asia to over 80 percent in Latin all emerging markets. The investment opportunity in South Asia is an America.35 estimated $1.8 trillion across rapidly growing secondary cities as well as 661.5 megacities. 219.2 Investment opportunity across regions Eastern Europe and Central Asia have an investment opportunity of Europe and Central Asia almost $881 billion in new green buildings; however, this amount is More than half of the 4.1 billion people projected to live in urban likely to be much smaller than the investment opportunity in retrofitting areas by 2030 are expected to be in South Asia and the East Asia 1,476.7 686.5 old buildings to make them more energy and resource efficient, given 3,496.2 Pacific449.7 regions—they will need to be accommodated with additional that much of the needed building stock in this region already exists.36 281.5 space. The East Asia Pacific residential and commercial building floor regionMiddle East alone has and an investment opportunity in green buildings of North Africa South Asia 664.7 509.6 East Asia Pacific 258.4 8,887.6 Latin America Figure 2: Sub-Saharan Africa Investment opportunity across regions (USD billions) and Caribbean 7,126.6 661.5 219.2 Europe and Central Asia 1,476.7 686.5 3,496.2 449.7 281.5 Middle East and North Africa South Asia 664.7 509.6 East Asia Pacific 258.4 Latin America Sub-Saharan Africa and Caribbean Commercial Residential Understanding the Market for Green Buildings 13 B OX 2 Estimating the investment opportunity in green buildings To estimate the size of the investment of over half a million by 2030. Second, IFC Third, IFC relied on the actual costs plus opportunity in green buildings, IFC first projected the rate of green construction growth potential inflation of green construction across estimated the scale of the new real estate within the overall construction expansion in emerging markets to calculate the size of the construction projected by 2030 across emerging the target regions and countries. IFC used projected investment opportunity. market cities in the six regions where IFC available historical data on the ratio and growth For a detailed methodology and list of sources works. This estimate relied on projections of rate of green construction, data from its EDGE used, please see IFC’s Climate Investment population growth, urbanization rates, and software, as well as stated commitments Opportunities in Cities report.36 the construction across existing and future and targets by national and subnational emerging market cities with a population governments related to urban green buildings. 14 Green Buildings | A Finance and Policy Blueprint Cities in the Middle East and North Africa have an investment in emerging, intermediate cities.39 Green housing construction is already opportunity of over $1.1 trillion, much of which is expected to go a priority in many of the region’s countries, and meeting stated goals towards new commercial and institutional construction,37 in addition and expected demand for housing will create an estimated investment to addressing resilient housing needs to combat extreme heat and water opportunity of $4.1 trillion in green buildings. stress in the region. Sub-Saharan Africa’s cities are home to more than 470 million people Opportunity by building type today—a number that is expected to double over the next 25 years. 38 In emerging markets, residential buildings40 account for most of the Meeting the housing gap as well as constructing commercial, investment potential until 2030—$15.7 trillion across all regions. institutional, and industrial buildings presents a major opportunity to In comparison, the estimated investment opportunity in commercial green this future construction—worth about $768 billion until 2030. buildings41 is $9 trillion, or about 36 percent of the total investment Latin America is the second most urbanized region in the world, with opportunity in emerging markets. 81 percent of the population living in cities, of which almost a third are Figure 3: Total opportunity by building type (USD billions) Transport Warehouse Healthcare Institutional/Assembly Retail 879.4 Hotels & Restaurants 1,147.9 1,509.4 57.8 Multi-Unit-Residential 190.5 569.9 9,300 Education 1,749.2 TOTAL $24.7 trillion 2,896.2 O ce 6,418.1 Single-Family-Detached Understanding the Market for Green Buildings 15 The investment opportunity in the green residential sector is driven by The retrofit market the growing demand for housing, governments’ concerted efforts to Although beyond the scope of this report, retrofitting existing buildings meet housing demand for its citizens, and underinvestment in energy represents another sizeable investment opportunity and plays a key role efficiency measures in the sector. in reaching global climate goals. To bring the buildings sector onto a Rapid population growth and increased urbanization will compound the 1.5°C compatible pathway, 3 percent to 5 percent of the existing global current housing deficit in emerging markets—particularly in affordable building stock would need to be renovated every year until 2050.47 The housing. India alone needs an estimated 60 million additional housing vast majority of the buildings built today will still be used in 2050. This units to be built between 2018 and 2022 to meet the existing shortfall.42 means that almost every building that is not carbon neutral will need to By 2025, 440 million households globally—an estimated 1.6 billion be retrofitted at some point in the next 30 years. people—will live in substandard housing.43 Undertaking these retrofits presents both a challenge and a significant Residential construction and affordable housing are key priorities for investment opportunity. The retrofit market is expected to grow at a governments in emerging markets. The Indian government has launched compound annual growth rate of 8 percent from 2018 to 2023.48 Energy Housing for All by 2022, a policy that aims to meet the gap in urban efficiency retrofits have shown attractive returns on investment, even for housing with increased private sector participation.44 Affordable housing short-term investors. This is because in addition to generating direct cost is a key component of Kenya’s Big Four development pillars, and the savings, these measures positively affect the overall value of buildings.49 country is on track to build 500,000 affordable homes by 2022.45 Similar trends in all regions will help drive demand for investment in buildings— and there is a huge opportunity to make these buildings green. While residential buildings account for almost 75 percent of energy use by buildings globally, they receive only half of the energy efficiency investment in buildings.46 There is scope for greater investment in energy efficiency measures, including building envelopes, appliances, water efficiency, and waste management. In tandem with residential construction, emerging market cities will also see an increase in demand for commercial construction given population growth in cities and the associated increase in economic activity. Commercial buildings have been a key user of green building certifications, driven in part by competition for capital and tenants, as well as increasingly more stringent regulation. The projected increase in commercial building construction presents a significant opportunity for green buildings. 16 Green Buildings | A Finance and Policy Blueprint B OX 3 Winning strategy to appeal to institutional investors Asset manager Asia Green Real Estate invests their sustainability commitments, Asia Green Real Asia Green Real Estate has also committed to capital and sustainability expertise in buildings in Estate has an in-house team of architects and certifying the projects that it finances with IFC’s Asian metropolises. The firm finances residential engineers with considerable experience in green EDGE. All projects that qualify for financing are and commercial properties for both the expanding design and construction. The company helps required to commit to certification before a middle class and the growing number of national its clients identify and apply the most practical transaction proceeds. and international companies in the region. and cost-efficient solutions to maximize the To date, Asia Green Real Estate has invested in benefits. To support this effort, it has developed Asia Green Real Estate provides an opportunity for more than 2 million square meters of green floor a proprietary sustainability assessment system, private and institutional investors who are looking space. Each of its projects consumes less energy EcoTool. for both financial and sustainability returns. It and water and has a lighter carbon footprint offers returns of 8 percent to 12 percent, with With the EcoTool, a building can be evaluated by than traditional buildings. The value for clients is increasing land value making these investments resources, health, and comfort, with the aim of created by lower operational costs, lower vacancy relatively safe, as the underlying asset is the achieving above-market sustainability standards rates, and potentially higher resale prices. As acquired land. within a local context. Based on an analysis of 80 million people are projected to enter Asia’s strengths and weaknesses, the company then middle class in the next few years, the demand To develop a strong pipeline of projects and develops solutions for improvement with the for housing will continue to rise, creating ample attract capital from investors looking to fulfill highest benefit-to-cost ratio. business opportunities for investors. Understanding the Market for Green Buildings 17 The Business Case for Green Buildings I nvesting in green buildings—whether single-family homes, apartment complexes, office buildings, or industrial setups—makes good business sense for a wide variety of stakeholders. This section of the report considers available evidence of the business case for four main groups of stakeholders: investors and financial intermediaries, developers, owners, and governments. These players own and finance a large proportion of real estate across emerging markets and can benefit significantly from shifting their portfolios to green buildings. Most of the evidence surrounding the benefits of green buildings comes from studies focused on developed markets. However, IFC’s investment and operational experience, combined with anecdotal evidence, points to similar benefits in emerging markets. The type and degree of benefits inherent in building green can differ depending on the climatic conditions of different regions. To build a comprehensive business case for green buildings in emerging markets and to attract substantial public and private financing for green construction, IFC, with financial support from the UK government, will be undertaking further research over the next two years. Studies and evidence across several markets suggest that to build green could range from savings of 0.5 percent to 12 percent in additional costs.50 Green buildings are more efficient than traditional buildings and can lower operating costs, increase revenues, and reduce exposure to the physical and transition risks presented by climate change. These factors can increase the valuation of green buildings, making them stronger credit assets and better collateral. Photo: The EDGE-certified Renault Bu¬charest Connected is the new home of Groupe Renault Romania. Globalworth, the investor behind the project, has certified more than 70 percent of its properties as green. B OX 4 The cost of building green in emerging markets The cost of building green varies across locations, $270 per housing unit. This represents less than smart meters, and other green features. The driven by climatic conditions, cost, and availability 1 percent of the construction cost, yielding an cost of adding green technologies and EDGE of building materials as well as energy- and water internal rate of return between 20 percent and certification is about $300 per home. Thousands -efficient equipment, and availability of technical 30 percent. IHS green homes demonstrated of EDGE-certified homes by Vinte will enter expertise in green construction, among other annual utility savings equal to one month’s rent the market in early 2020. Vinte’s commitment factors. It is, therefore, difficult to definitively compared to IHS non-green development and to sustainability has placed the company on say what it costs to build green across emerging gave the company a competitive advantage Fortune Magazine’s 2019 list of companies that markets. The EDGE software is calibrated to in the market. Having seen that the business change the world.51 take local conditions into account, including benefits outweigh the additional cost of building In Indonesia, the EDGE-certified development climate and local industry costs and practice. The green, IHS exceeded its original target for green Citra Maja Raya reported the additional cost software allows its users to apply different green construction by 21 percent and has registered or of green measures to be 4.7 percent, with a systems, solutions, and design techniques and certified close to 7,000 units with EDGE. Other payback period of 1.8 years. The green measures estimate the associated incremental capital costs examples of low-income housing developers in included optimum window sizing, external and the projected payback periods. The examples Africa that have embraced the business case for shading, insulation of roof and external walls, below from three continents provide anecdotal green construction include EchoStone in Nigeria natural ventilation, and energy- and water- evidence that building green in emerging markets (see p. 65). efficient systems. The utility savings per year can be affordable even for low-income housing. In Mexico, IFC client Vinte builds affordable amount to 30 percent. Some residents reported In South Africa, IFC client International communities that include hospitals and health that their monthly utility bill decreased from an Housing Solutions (IHS), a low-income housing clinics, parks, and schools. Vinte’s homes, equivalent of $55 in previous non-green housing developer, reports the additional cost to build in with a starting price equivalent to $20,000, to $14. accordance with the EDGE standard to be about feature solar panels, modern induction stoves, Understanding the Market for Green Buildings 19 Certified green buildings can lower operating expenses and improve liabilities, increased reputational risks, and increased vulnerability to resource efficiency by lowering utility bills, waste output, and extreme temperatures. maintenance costs. Green buildings can save more than 20 percent on Green buildings can help protect portfolios from the risk of stranded energy and water consumption compared to typical buildings. This can assets, which stems from more stringent green building and energy codes help save green homeowners an average of 15 percent to 20 percent on and carbon taxes, and changing consumer preferences. Laws such as their utility bills.52 Green commercial buildings have recorded operating the recent Climate Mobilization Act in New York, which sets emissions costs of between 18 percent and 37 percent lower than traditional caps for buildings over 25,000 square feet and large fines for missing buildings’.53 Green buildings that incorporate recycling can reduce the target,60 will reward green and penalize energy-intensive buildings in waste output by 90 percent and use 30 percent less energy, equating to their jurisdictions. a 5 percent increase in net operating income compared to traditional buildings.54 Green buildings use technologies with a longer anticipated Non-compliant buildings will become subject to legal action and fines, lifespan and/or more durable components (such as LED lights), reducing making them more expensive to operate and insure. Such buildings may maintenance costs. be more difficult to lease and sell or may face premature termination of leases if tenants seek to move to more energy-efficient buildings. Owners In addition, green property developers can benefit from tax incentives, of non-green buildings may have to sell their property at a discount expedited permitting processes, and density bonuses such as permission or pay for costly retrofits to meet new, stricter requirements or to be to build additional floors beyond the usual limit for conventional competitive in the market. Developers that do not build green may buildings, which policymakers are putting in place to incentivize green experience slower sales times, lower sales prices, lower occupancy rates, construction. and a loss of market share. Their access to finance may become limited Green buildings can increase revenues through higher rent, better as lenders are starting to screen new real estate assets for efficiency to occupancy rates, and higher sale prices. Energy-efficient and certified avoid deterioration in the value of their real estate portfolios and a green buildings can attract between 8 percent and 25 percent higher 55 56 higher rate of non-performing loans. rents than conventional code-compliant buildings. Certified green In addition to these transition risks, buildings are exposed to buildings also enjoy occupancy rates of up to 23 percent higher,57 higher physical risks associated with climate change. Green buildings may tenant retention, and lower vacancy rates. Certified green commercial not necessarily be less prone to flood and hurricane damage, but buildings have demonstrated resale prices of 10 percent to 31 percent temperature changes will alter heating and cooling demands. Green higher.58 The sale prices are 4 percent to 10 percent higher for green buildings will be better positioned to minimize the consequent impact residential properties, which sell as much as four times faster than on operating costs (see the box on Integrating Resilience to Climate conventional residential buildings.59 As building owners, buyers, and Impacts into Building Design). tenants become more aware of the financial benefits of green buildings, developers of green properties stand to benefit from higher demand and Lower operating costs, increased revenues, and reduced exposure to growing market share. physical and transition climate risks make green buildings a well- performing asset class for investors and financiers, developers, owners, Reduced operating costs and higher revenues are just part of the and governments to have in their portfolios. Green buildings can opportunity. The high resource efficiency of green buildings (water, represent a higher-value and lower-risk asset. waste, and energy) can help manage transition and some physical risks posed by climate change, such as increasing energy prices and demand, increasing water shortages and usage restrictions, increased legal 20 Green Buildings | A Finance and Policy Blueprint Figure 4: Green hotel value example (India) Effects of energy efficiency (EE) on the value of a hotel (USD) Particular Hotel without EE Hotel with EE Income (Annual) SAME This example assumes the Room 503,029.00 503,029.00 NET same occupancy rates for a INCOME green and a regular hotel Other 3,595.00 3,595.00 Gross income (IG) 506,624.00 506,624.00 Vacancy rate (VR) (35%) 177,318.40 177,318.40 Net income (NI=GI-VR) 329,305.60 329,305.60 Operating expenses LOWER OP. Energy e ciency measures Electricity 18,766.00 10,450.00 COST can save $10,919/year for a green hotel Gas 5,447.00 2,850.00 Other 177,171.20 177,171.20 Total expenses 201,384.00 190,471.20 HIGHER Net operating income and Net operating income 127,921.40 138,834.40 VALUE therefore the opinion of value will be higher given the savings Capitalization rate 8.75% 8.75% from energy e ciency Opinion of value 1,461,958.86 1,586,678.88 EE e ect 124,720.00 EE PROVIDES Net energy e ciency e ect is the Additional cost of EE 27,680.00 + K di erence between opinion of value of two hotels minus the cost of energy Net EE e ect 97,040.00 e ciency measures, resulting in $97K potential return on investment. Lower operating costs due to energy savings help increase the valuation grows, so does the importance of ensuring that sustainability features of green buildings. Figure 4 shows how energy efficiency could increase and business benefits of green buildings are captured and valued the valuation of a hotel in India by 6.6 percent. appropriately to benefit the owner, investors, and financiers. Although it is the appraiser who would ultimately reflect green features in the Other factors that can increase the valuation of green properties are valuation of properties, investors and lenders can request these services higher occupancy rates, higher rental income, and further potential from valuation professionals. In addition, investors and financiers can savings from not having to pay future carbon taxes or fines for non- develop and implement approaches to reflect the valuation of green compliance with emissions or building standards. Figure 5 provides an properties in their financial models. example of how a building’s green features could be captured in the income capitalization valuation model. As the green buildings market Understanding the Market for Green Buildings 21 Figure 5: Income capitalization of green buildings* Gross revenue (higher rents) – Vacancy (lower vacancy vs. market) E ective revenue (revenue up) Operating expenses (lower utility bills, maintenance, reserves) – Net operating income (NOI up) NOI/Cap rate – value (lower cap rate) *Income capitalizations shown for simplicity. An appraisal using a discounted cash flow model is likey to redirect similar performance adjustments Source: Institute for Market Transformation, Appraisal Institute (2013), Green Building and Property Value: A Primer for Building Owners and Developers, available at: https://www.appraisalinstitute.org/assets/1/7/Green-Building-and- Property-Value.pdf. The development of a widely accepted standard for the valuation of Banks across emerging markets can treat savings in utility bills as their green properties could help direct finance towards green real estate. clients’ additional income, improving a borrower’s credit and risk profile. Some banks in emerging markets are starting to offer green Lower operating costs due to energy savings are a key factor in home buyers a range of beneficial mortgage terms such as lower down strengthening the credit risk profile of green buildings and green payments, reduced interest rates and fees, and longer loan tenors and borrowers. Banks in the United States and Europe enjoy a default rate of grace periods, or approve them for larger loans. up to 33 percent lower from green home buyers.61 This is partly because green homeowners, as they pay lower utility bills, could direct more of Even without beneficial mortgage terms, green mortgages can benefit their income towards mortgage payments. In the United States, green both banks and homeowners. The calculation in Figure 6 shows that building owners report a 7 percent increase in asset value due to a 62 monthly energy savings compensate a green homeowner for the initial higher resale price than conventionally built homes, making them better cost of “green” improvements. These savings reduce the cost of owning collateral. a more expensive and better-performing asset. At the same time, a lending institution will finance a larger mortgage to cover the cost of Utility savings can be particularly significant for low-income families in green improvements, bringing more income for a lower-risk and higher- emerging markets. IHS, a real estate investment and rental company for value asset on its books. low-income housing in South Africa, estimates that utility savings equate to one month’s rent per year for the families renting some of their green- Developers of green properties represent a better credit risk profile certified properties (see Box 4). due to faster sales and higher sale premiums on green buildings. Banks across emerging markets can share a portion of their higher income 22 Green Buildings | A Finance and Policy Blueprint Figure 6: Green mortgage example Standard building: Green building: Standard mortgage Green mortgage Base purchase cost 50,000 50,000 HIGHER • Additional cost of AMOUNT e ciency measures Green measures 1,500 (3% higher costs) • Costs can be lowered if EDGE is utilized early in 20% down payment (10,000) (10,300) the process Loan amount 40,000 41,200 3% Rate 11% 11% TERM CAN • Benefits accrue even on VARY commercial terms, but Term 20 yrs 20 yrs bank can incentivize Monthly payment $413 $425 adoption Utility savings (20%) (20) Cost of monthly $413 $405 ownership -2% • Lower bills for the borrower Bank income (yr 1) 4,371 4,502 3% WIN WIN • Higher income for the bank (3 percent in the example above) with developers by offering them a accepted standards. According to the Climate Bond Initiative,63 in 2018, range of financial incentives to encourage green construction and build 13 percent of green bond proceeds were earmarked for green buildings their pipeline of green properties to finance. In turn, banks benefit from in emerging markets. owning a portfolio of green assets with greater value and less risk. Finally, green buildings bring a range of economy-wide financial, societal, Building a portfolio of green buildings opens access for financiers and and environmental benefits. They can help strengthen countries’ and developers to new sources of capital through green bonds, green credit cities’ water and energy security by reducing demand and thus the need lines, green securitizations, and impact funds that aim to generate for energy imports. More broadly, they can play a significant role in positive environmental and social outcomes alongside financial returns. helping countries meet their NDC goals to reduce emissions. Delivering Green bonds inject liquidity and diversify banks’ and developers’ on this green growth trajectory is expected to result in net job growth, funding sources by connecting them to new investors, potentially with 9 million skilled jobs being created in renewables and construction reducing funding costs. The proceeds of green bonds and green loans by 2030 globally.64 Due to economic linkages between sectors, jobs in can be used to finance green buildings certified with internationally manufacturing, services, and waste management will also grow. Understanding the Market for Green Buildings 23 B OX 5 Loan Amount 83,300 € Down Payment 14,700 € SALES PRICE 98,0o0 € Loan Amount 88,655 € Down Payment 15,645 € SALES PRICE 104,3o0 € Interest Rate 6% Monthly Mortgage Payment Cost of Energy/ Apartment/Month 561 € 101 € 592 € 33 € 662 € 625 € Total Cost of 5.25% 5.15% Monthly Ownership EPC “B” Rated Home RoGBC Qualified Green Home Green mortgages: RoGBC’s model assumes a 70-square-meter home with a 15 percent down payment and a payment period of 20 years. Borrowers in both scenarios have the same credit score, determined through typical underwriting procedures. The “B” rated home is determined by an Energy Performance Certificate score and represents a conventionally A triple win designed home. The RoGBC Qualified Green Home must pass an RoGBC audit of additional, stringent green criteria. Calculations are meant to be indicative and the interest rate may or may not be the same as banks participating in the initiative. The Romania Green Building Council (RoGBC) home through a combination of preferential launched a national television campaign. created the SMARTER Finance for Families mortgage terms and utility savings. About a dozen developers provide green program to convince banks to introduce building assets—30 housing projects in total, or Seventeen organizations from 14 countries— green mortgages. The program argues that 6,500 units that are 60 percent more energy representing a mix of financial institutions, green mortgages can deliver a triple win for efficient. institutional investors, universities, think tanks, developers, banks, and home buyers. green building councils, and manufacturers—are It is still too early to know whether these green • A participating developer builds a more participating in the program. mortgages will result in fewer late payments expensive green home on the condition that or loan defaults—or if they will take off in Two of the participating banks, Raiffeisen a participating bank will provide a larger loan other European markets. SMARTER Finance Bank and Alpha Bank, offer a green mortgage to a green home buyer to cover the extra for Families will share data among participants discount of 75 and 50 basis points respectively cost of building green. to help them better understand how green on the conventional mortgage rate of mortgages perform in comparison to ordinary • The bank books a larger and less risky loan, 5.25 percent. Raiffeisen developed a specialty home loans. The results will show whether the earning a higher return. branch, trained its staff, and started marketing lesser risk of green mortgages does indeed bring green mortgages on its website to target • The home buyer benefits with a lower better rewards. first-time home buyers. Alpha Bank recently monthly ownership cost for a superior 24 Green Buildings | A Finance and Policy Blueprint Photo: Universidad del Medio Ambiente believes that each student entering the university will become an agent of change. The EDGE-certified building won this year’s international “Energy & Hot Climates” prize offered by Construction21. Governments own, operate, and occupy a substantial portion of real Building Blocks further discusses governments greening their own estate, including government office buildings, schools, hospitals, low- buildings to shift the market. income housing, and commercial properties. For example, according Ensuring that government buildings are green creates new technical to some estimates, the U.S. government owns about 15 percent of the capacity for architects, designers, builders, appraisers, and certifiers. country’s commercial real estate.65 A 20 percent saving in energy and Large government contracts and policies to encourage green buildings water in government-owned buildings would lower utility bills, freeing can help create new markets for green products and services, stimulating up public funding for priority development areas to improve citizens’ economic growth. Green buildings could also strengthen the local tax lives. In addition, green social housing would allow low-income tenants revenue base. Many municipalities collect taxes on local businesses’ to save on their utility bills, thus reducing utility-related subsidies profits. As local businesses retain a greater share of their profits due to provided by governments. The section on Policy and Regulatory reduced operating costs, so the government’s tax revenue will go up. Understanding the Market for Green Buildings 25 B OX 6 Integrating resilience to climate impacts into building design Because of their long lifespans, buildings are to commercial, residential, and industrial TO O L S F O R R E S I L I E N T N E W continually subjected to physical climate risks properties as well as expenses resulting from CONSTRUCTION that are only set to intensify over time. Climate business interruption.66 To minimize future IFC is developing the Climate Resilience Index impacts can negatively affect a building’s losses, all the reconstruction must be designed for Buildings to help developers assess and safety, habitability, and financial performance. to be resilient as well as green. According to report location-specific climate-related risks Properties’ financial performance is impaired by World Bank analysis, the overall net benefit and risk mitigation measures used for different unforeseen expenses to address damages from of investing in resilient infrastructure is $4 for types of buildings. This web-based tool focuses acute climate-related events (such as extreme every $1 invested.67 on climate variables that materially affect precipitation affecting structural integrity), buildings, in addition to volcanic, fire, and Awareness of the need to factor in resilience as well as chronic events (such as sea level seismic risks. The objective is to provide a simple and energy security in investments is growing rise), that can significantly change a building’s self-declaration system for developers applying globally. More than 70 percent of organizations valuation. This will hurt insurance groups, as well for construction finance to identify and address surveyed by Johnson Controls in 2018 consider as borrowers and lenders locked into long-term risks to the property, while providing a tool for resilience an extremely important factor mortgages with a maturity mismatch in risks banks and insurance companies to understand when considering future energy and building that could spark defaults and financial losses. the asset’s risk potential. This unified system to infrastructure investments, in order to maintain Hurricane Dorian, which hit the Bahamas critical operations during severe weather events measure risk and resilience across all building in 2019, could cost the country $7 billion in or extended power outages. 68 types and developments will provide consistent insured and uninsured losses from damage definitions for all actors and increased 26 Green Buildings | A Finance and Policy Blueprint EXAMPLE: IFC EDGE FOR GREEN AND RESILIENT CONSTRUCTION IN THE PHILIPPINES Developers and banks in the Philippines are interested in IFC’s resilience tool, given the frequent natural disasters in the country. Developers such as The Ascott Limited and transparency to support enhanced resilience in and urban flood prediction, and access to Italpinas Development Corporation are already developments and reduced risks for all involved. emergency supplies. To be eligible for RELi using EDGE to build green and command This tool is being developed for piloting in the certification, all prospective projects must also greater value in the market. They are Philippines. When paired with green building register for LEED certification. Other certifiers, interested in using the climate resilience index certification, this tool will ensure both emissions such as the Indian Green Building Council, tool under development, together with major mitigation and resilience in buildings. provide a design and construction framework banks such as Banco de Oro, China Bank, Rizal for buildings that emphasizes using less water Commercial Banking Corp., Union Bank, and The U.S. Green Building Council recently and incorporating resilience features suited for Security Bank. The tool will help integrate adopted RELi, a new resilient construction local climatic conditions. new technologies into buildings to withstand standard that takes a holistic approach to extreme weather events and help the design. It is used to assess and mitigate Sustainably developing the built environment financial sector assess the impact of climate against all acute hazards that buildings and to address climate risks is no longer a nice-to- and disaster risks to projects seeking green communities can face during unplanned events. have. It must be considered within all decision- financing. The tool’s five-level grading system, Based on the assessment, buildings are designed making processes to ensure that buildings are with a grade of A given to projects that bear and built to maintain critical life-saving services fit for use over their lifespan. the least risk, will also help buyers understand during an extended loss of power, heating the risks involved in buying properties. The fuel, or water. The new certification system aim is to make green certification and the new gives property owners points for features like resilience tool a standard for green building adaptive design for extreme weather, resilient development in the country. Understanding the Market for Green Buildings 27 technological advances in construction, stricter building codes, and maturing supply chains for green materials and technologies will continue to reduce the incremental cost of building green. As more data becomes available from the growing green construction market, the perception of high costs will change. Another constraint to the growth of green construction stems from differing incentives and benefits among market players. Developers are reluctant to absorb the additional costs of green design when energy- saving benefits are realized by owners. Owners often focus on immediate affordability over uncertain utility savings or long-term appreciation. Bankers fail to provide additional financing to cover extra capital costs, for fear of increasing non-payment risk, and are reluctant to establish systems to validate savings if there is an insufficient green building pipeline. There is also a mismatch between the relatively short hold periods of real estate assets in portfolios and the long lifespans of buildings, as well as when they might be affected by climate change and stricter regulations. For example, investors and financiers hold assets for seven to 10 years and building owners about 10 to 15 years. In contrast, a building’s full lifecycle is 70 to 100 years. As such, market players may not feel the immediate need to invest in green measures as the adverse impacts are likely to be felt when they no longer have the asset. Although many developing countries have ambitious targets for green buildings, they struggle to put in place effective measures to mandate Key barriers to the uptake of green and incentivize large-scale green construction. This is partly due to low construction technical capacity, lack of knowledge, and weak enforcement regimes. In addition, the construction industry is highly local and decentralized. Despite the growing evidence of the business case for green buildings, This poses challenges in developing and enforcing consistent standards the market remains small, with global investments in certified green and requirements for green construction. Low-income countries and buildings only accounting for $423 billion of the $5 trillion spent on fragile and conflict-affected states face additional challenges given building construction and renovation in 2017.69 A number of constraints weaker institutions and capacity, and underdeveloped financial systems, hamper the development of a robust pipeline of green properties and including the mortgage market. widespread adoption of green construction. The remaining sections of this report examine emerging best practices The perception that green construction involves high upfront costs is among investors, financiers, developers, building owners, and a key barrier to its widespread adoption. In some cases, the perceived governments in providing various products and policies to overcome additional cost is as high as 30 percent, whereas the actual cost ranges these market barriers, align incentives across different market players, from savings of 0.5 percent to 12 percent in additional costs.70 New and generate economic benefits for all.   28 Green Buildings | A Finance and Policy Blueprint Building the Market for Green Buildings Financing Green Buildings R eal estate is a large and well-established long-term investment asset class for institutional investors and commercial banks. Institutional investors­— pension funds, insurance companies, sovereign wealth funds, hedge funds, and mutual funds—hold $100 trillion in assets,71 of which about 8 percent to 10 percent comprises real estate investments.72 Commercial banks hold over $110 trillion on their balance sheets73 and are a key source of financing for real estate through construction finance, mortgages, and home improvement loans. The global market for residential mortgages was estimated to be more than $31 trillion at the end of 2018.74 Mobilizing institutional investors is essential to accelerate the uptake of green building practices. Institutional investors participating in the green real estate market will help inject liquidity and enable primary lenders to free up capital to develop new green lending products. They can also play a key role in scaling up local currency financing through direct lending or equity investments in green buildings. Likewise, commercial banks can significantly accelerate the uptake of green building practices by developers and owners through new green financial products for resource-efficient buildings. In return, investors and banks can expand their client base and product offering, build a higher-value and lower- risk portfolio, and access new sources of finance through green bonds, green securitizations, and green credit facilities. To reap these benefits, investors and financiers will need to adjust how they do business: from modifying internal practices and procedures, to overcoming barriers in the green buildings market. Photo: The homes of Ecoloft Jababeka Cikarang, developed by Asia Green Real Estate and certified with EDGE, are estimated to be more than 80 percent energy efficient. Building the Market for Green Buildings 31 1 2 How to build a Develop a green buildings asset strategy and process Create green buildings finance products green • Develop a green buildings asset strategy for the • Develop green buildings finance products—green real company. • Define green buildings and eligibility criteria for construction loans, green equity, and green mortgages—and consider appropriate financing estate terms for specific markets. projects and develop a selection and valuation process. • Consider developing interlinked products (such portfolio as financing green construction and offering • Embed green building criteria into loan green mortgages for the same building). documents. • Consider developing products to expand services • Establish a system for identifying, analyzing, and to existing clients (for example, loans to improve To build green real estate reporting green buildings finance. the energy efficiency of existing buildings in your portfolios, investors and • Train investment and credit staff on how to portfolio or green loans to existing developers). banks can follow these identify and screen projects. • Consider developing new capital markets steps and best practices Best practice is to rely on well-established green products such as green bonds and securitizations from both developed and building certification and labeling systems for to boost liquidity. emerging markets. an industry-accepted definition and eligibility Best practice is to consider providing better criteria for green buildings. The most material financing terms that can help offset or spread over considerations for green assets include resource time the higher upfront cost of green construction efficiency and carbon emissions that can be to developers and home buyers. measured, tracked, and reported. 32 Green Buildings | A Finance and Policy Blueprint 3 4 5 Determine appropriate funding Generate a pipeline of sources to support rollout of green Collect and report data eligible projects buildings finance products • Own capital. • Develop a marketing and outreach strategy for • Capture data on the performance of green real developers and home buyers. estate projects.75 • Access capital markets through green bonds. • Develop internal technical expertise in green • Report annually to green funding sources that • Access dedicated green loans. construction and green finance. Consider the funds are allocated to green projects and The green bond and green loan markets are training through an internationally accepted share performance data. expanding rapidly, with the potential to provide green building certification system. Best practice is to disclose environmental impacts lower-priced capital to support the expansion of • Provide technical advice and support to using consistent metrics such as type of green green buildings financial products. Green buildings developers on green construction and how to certification system; green floor space; reductions are included in the acceptable use of proceeds minimize upfront costs. in energy, water, and materials use against a within both the Green Bond Principles and the benchmark; and reductions in carbon emissions. Green Loan Principles, as well as climate bonds • Train residential property developers on how For low-income housing projects, additional and impact investing. to issue green building certificates to each home metrics could include number of households or buyer, so that banks can issue a green mortgage. people served. Best practice is for financial institutions to actively engage developers to demonstrate the economic benefits of green construction and offer technical support on how to cost-effectively build green. To reach prospective home buyers, it is important to explain that the long-term benefits of green homeownership outweigh the slightly higher upfront cost. IFC is helping banks generate a pipeline of eligible green building projects through its EDGE Green Building Market Transformation Program. It can also train financial institutions’ staff on technical aspects of green construction, as well as developing and securitizing green finance products. Building the Market for Green Buildings 33 B OX 7 Building a green real estate portfolio: From vision to supporting clients Dutch bank ABN AMRO views According to the bank’s policy, all sustainability within the real estate new buildings must have a minimum sector as strategically important energy label of “A,” in line with Energy Types of green financial products for managing risk and opportunity. Performance Certificate requirements, The following green financial products are being used by financiers The bank aims to become the most and new commercial buildings must leading the transition to green building portfolios. sustainable property bank in the have a BREEAM “excellent” or LEED Netherlands and to accelerate the “platinum” certification. Existing GREEN CONSTRUCTION FINANCE: DEBT AND transition to sustainable commercial buildings must have an average energy EQUITY property. To implement this vision, ABN label of “C” on gross floor area in square Many banks in emerging markets lack a pipeline of green properties to AMRO developed a sustainability policy meters, and a strategy for reducing “D,” finance. To build this pipeline, banks can incentivize green construction to guide its real estate business.76 The “E,” “F,” and “G” labels. practices by offering financial incentives to developers and actively policy sets out specific due diligence engaging with them to raise their awareness and improve capacity in To help commercial real estate clients standards and minimum requirements green construction. transition to sustainable real estate, for lending to different real estate asset ABN AMRO has launched an online To help spread out or offset the higher upfront costs of building green classes, divided into new and existing application that allows clients to for developers, banks can offer beneficial financing terms such as a buildings. It identifies five crucial calculate the investment, return times, discounted rate, longer tenor, longer grace period, or lower front-end sustainability issues for real estate: and carbon reduction figures for each fee. To ensure that beneficial financial terms will be used for green energy consumption and greenhouse- energy efficiency measure, such as construction, banks can start with a conventional loan until the gas emissions, regulatory risk, vacancy insulation, LED lighting, and solar preliminary green certification, based on the planned design, has been levels, asset value, and innovation. The panels. These economically effective achieved. Following the preliminary certification, the beneficial conditions policy establishes processes and targets measures can improve a property’s of a green loan will kick in, with clear requirements of the timeframe for each of these five issues to monitor energy label by at least two grades. The within which the building has to be completed and certified green. and manage the associated risks. bank has made €1 billion in financing Another financial benefit that banks can offer is to cover green available for these improvements.77 certification costs in part or in full. To offset this investment, banks can peg their green mortgage product to the certified building they are financing to build. 34 Green Buildings | A Finance and Policy Blueprint B OX 8 Shaping the green construction market in Colombia Bancolombia, Colombia’s largest commercial completion. Until the preliminary certification To recover its investment and continue to bank, provides over 40 percent of the was received, the bank provided a developer expand its green construction and mortgage construction finance in the country. Realizing with a conventional, non-discounted loan. portfolio, the bank is tapping into lower- the business value of green construction, it cost capital. In 2018, it issued a second To build its pipeline of green construction decided to grow its green building portfolio. green bond worth $100 million. The bond projects, Bancolombia held events in 17 cities To finance this expansion, the bank issued a was oversubscribed 2.8 times and attracted around the country, attracting 500 property $117 million green bond with IFC in 2016. 72 domestic investors, lowering the cost of developers. An intensive digital marketing capital for the bank. Using the proceeds of the green bond and strategy supplemented this approach with its own capital, the bank offered green an online knowledge platform, webinars, Access to the bond market and cheaper capital construction financing at an interest rate prime-time advertising, and social media. In is key to the bank’s strategy to profitably build of 0.5 percent to 2 percent lower than the first year, 25 projects were put forward by a better portfolio of green assets. The bank conventional loans. The more measurably green developers to secure the discounted rate. expects that once there is sufficient proof that the project was, the better the financing rate. greener assets have greater value and less risk, In addition, Bancolombia offers green mortgages Qualified projects had to receive a preliminary the cost of incentives can be assumed by the to qualifying home buyers who buy certified certification from an approved green building other players in the market. properties at a rate 65 basis points lower than rating system such as LEED or IFC’s EDGE usual for the first seven years of the loan. Next, the bank plans to expand its program to and confirm the certification on the building’s El Salvador and Panama, where it also operates. Building the Market for Green Buildings 35 B OX 9 In other words, banks can finance the same building twice: through green construction finance and through green mortgages. The building’s green certification could satisfy the conditions required for green mortgages without extra appraisal steps. To support the development of new green construction finance products, banks can boost their liquidity and lower their cost of capital through green bonds, green securitizations, green loans, and government programs designed to incentivize building green. Offering beneficial financial terms attached to green products may be necessary to jump-start the market. However, such terms could be phased out over time as awareness of the benefits of green buildings grows among developers and buyers, and the upfront incremental costs ING: Client education to strengthen decline due to economies of scale with the wider adoption of green building practices. Alternatively, banks may choose to retain these client relationships incentives to maintain their competitive position and remain attractive to lower-risk borrowers. ING, the largest commercial real estate per year for a building, the client is Banks have also been incorporating outreach and support to financier in the Netherlands, developed offered a free on-site BREEAM and developers into their business marketing efforts to raise awareness an app to help its borrowers identify energy audit. and build capacity in green construction, and build a pipeline of the energy improvement measures Within its first two years, the app had projects to finance. Such outreach efforts include holding road shows for their buildings that provide the been used to scan 18,000 buildings to present the business case for green buildings and the bank’s green most attractive financial returns and measuring 10 million square meters construction finance offering, providing information on various green biggest carbon emission reductions. (65 percent of ING’s real estate finance building certification systems, and employing a technical specialist The borrower enters basic information portfolio). ING’s goal is to reach 5,000 on green construction who can advise clients. As building codes and about their buildings such as type, clients that would equal to 28,000 building energy efficiency codes become more stringent to drive green age of construction, and floor area. buildings. It plans to roll out the app to construction, the need for developer education will diminish. However, The app analyzes their portfolio and other European countries. In addition, banks may choose to continue to educate consumers as part of their recommends the top 10 measures per to help stimulate the Dutch market, marketing outreach and customer service to help clients comply with building to lower energy costs and ING has started providing discounts on new requirements. reduce carbon emissions, showing “sustainable loans,” as well as providing indicative costs, financial returns, and In addition to commercial banks, equity investors such as real estate funds advice and offering free Energy carbon reductions. If the app indicates and real estate investment trusts (REITs) can offer similar products. Performance Certificate assessments to energy savings greater than €15,000 its clients.78 36 Green Buildings | A Finance and Policy Blueprint Photo: Fourleaf Estate by Similan Properties offers more than 300 low-income, EDGE-certified homes in Port Elizabeth, South Africa. BOX 10 R E TA I L B A N K I N G : G R E E N R E S I D E N T I A L M O RT G AG E S Home buyers are often more concerned with a home’s immediate affordability than its long-term operating costs. Typically, a green home is more expensive than regular construction, though not as much as the Using green construction finance to launch a market perceives, and the cost can be minimized if green measures are brought early into the design process. Banks can work together with green mortgage program developers to educate home buyers about how the energy performance In 2016 Costa Rican bank Banco the discount on the front-end fee of a green home will yield a return on a high sales price through lower Promerica obtained a $30 million loan covered most of the cost of the upfront utility bills and other benefits, decreasing the cost of homeownership from the Dutch development bank, requirement of green certification. over time. FMO, to launch a green construction Promerica succeeded in building a An important tool to advance greater adoption of residential energy finance and green mortgage program. sufficient supply of green properties to and resource efficiency is flexible mortgage pricing or underwriting that start offering green mortgages. It offers Before the bank could launch a green reflects the savings that come from resource efficiency. It can include a qualifying home buyers a 30-year fixed mortgage program, it had to build a lower down payment, as savings on utility bills can be redirected into rate that is slightly higher than the sufficient pipeline of certified green a larger loan payment. Banks can adjust the debt-to-income ratio by market rate for 30-year variable-rate properties. To incentivize developers treating savings as an increase in a customer’s income, allowing them to mortgages in the country. It aims to to build green, the bank offered a expand the pool of eligible customers. They can also pass lower interest expand its mortgage portfolio, which discount on green construction finance. rates for green financing to end customers to incentivize buying green is currently 10 percent of its business. It charged 8.75 percent (instead of homes and to build a higher-value, lower-risk mortgage portfolio. To finance this expansion, the bank 9.25 percent), offered a 0.75 percent plans to securitize its green mortgage Banks have been reluctant to implement these incentives partly because front-end fee (instead of 1 percent), and portfolio once it reaches $20 million to there has been insufficient data on loan performance to justify such provided a four-year term (instead of $30 million in size. measures. However, a recent survey of 10 large European banks found three years). Depending on the project, that the emerging financial case for green energy improvements is compelling enough to test green products without a perfect green Building the Market for Green Buildings 37 B OX 1 1 Examples of green bonds issued to finance green buildings in 2018 Financial institution ING: $3 billion. Mortgage institution DNB Lithuania placed the first tranche Industrial Development About 35 percent of the proceeds Boligkreditt: $1.7 billion. Proceeds (€20 million, or $24 million) of its Corporation, South Africa: will finance buildings with an will finance or refinance new and sovereign green bond program, $651 million for low-carbon Energy Performance Certificate existing mortgages for housing with proceeds earmarked for buildings. Label A and emissions performance that complies with the Norwegian energy efficiency upgrades to within the top 15 percent of the building codes 2010 (TEK10) or 2017 about 160 apartment buildings. Dutch market. (TEK17), corresponding to the top 7 percent of Norwegian housing in terms of energy performance. 38 Green Buildings | A Finance and Policy Blueprint performance data history and, in the process, collect data to further assess the financial performance of green buildings loans.79 Furthermore, 47 European banks and mortgage lenders have joined the EU-sponsored Energy Efficient Mortgage Initiative, under which they provide preferential financial terms for buying energy-efficient buildings or improving the energy efficiency of existing buildings. The initiative collects large-scale empirical evidence from the participating financial institutions on the financial performance of energy-efficient mortgages.80 GREEN BONDS Building a portfolio of certified green buildings provides an opportunity for banks to increase their liquidity, develop new capital markets products, and expand their access to lower-cost capital, and for institutional investors to put their capital in green assets. Green bonds tap into international resources to leverage a wider investor base such as pension funds, sovereign wealth funds, and insurance companies and can potentially reduce the cost of borrowing for the issuer. Offering a similar risk-return profile to traditional bonds, green bonds provide lower-cost, stable funding opportunities. Low- carbon buildings are one of the eight sectors accepted for the use of proceeds under the Green Bond Taxonomy. To provide sector-specific real estate guidance for issuers and investors, the Global Real Estate Sustainability Benchmark (GRESB) developed the Green Bond Guidelines for the Real Estate Sector. The guidelines establish a framework to identify eligible green projects, implement and manage investment proceeds, and communicate outcomes. 2018 saw a record $167.4 billion in green bond issuances, bringing the total market size to $521 billion. 2019 is expected to be another record year, with issuances estimated to reach $250 billion. Commercial banks, property banks, and REITs were the most active in financing real estate property in 2018. Banks have used mainly senior unsecured bonds to fund mortgage lending programs for energy-efficient homes (ABN AMRO, Barclays) and commercial properties (BerlinHyp, LBBW), along with residential mortgage-backed securities (Obvion, NAB) and covered bonds Photo: IHS invested in the EDGE-certified Waterfall Park, located outside Johannesburg, which offers affordable homes for rent and sale. B OX 1 2 How to issue a green bond, loan, or sukuk Any entity that has suitable green assets can issue a green bond, a green sukuk (the Arabic name for financial certificates that comply with Islamic religious law commonly known as Sharia), or a green loan. Green assets that are suitable for these instruments include renewable energy, low-carbon transport, low-carbon buildings, sustainable water and waste management, sustainable land use, and climate change adaptation measures such as flood defence infrastructure. To issue a green bond, loan, or sukuk, follow these key steps: 1 2 3 4 5 Develop a green Arrange an external review, which could include: Check for local Issue a green bond, Report after bond framework subsidies and sukuk, or loan. issuance every year • An assurance report to confirm the that outlines support. Some on the allocation framework’s compliance with the Green Bond eligibility criteria for governments offer of funds to green Principles and the Green Loan Principles. projects/assets, a grants, subsidies, and projects. It is best selection process, • A green rating against a well-recognized tax deductions to practice to also and a tracking third-party rating methodology to consider cover green advisory report on the and reporting the investments’ environmental aspects. and issuance fees, environmental mechanism. • A verification report by a third party before and the cost of performance of and after issuance confirming that the use external reviews. financed projects in of proceeds of the certified climate bond absolute terms and adheres to the Climate Bonds Principles and against an accepted Sector Criteria and the 2°C scenario and full benchmark. decarbonization by 2050. Adapted from the Climate Bonds Initiative report: https://www.climatebonds.net/resources/reports/green-bonds-state-market-2018. 40 Green Buildings | A Finance and Policy Blueprint BOX 13 Barclays blueprint for green bonds Barclays has a significant presence in the Process of evaluation and selection: UK residential mortgage market. In 2017, it Barclays’ residential mortgage portfolio launched the Barclays Green Bond Framework will be mapped against the latest Energy to enable it to finance and refinance low- Performance Certificate data and filtered to carbon buildings. The framework, which ensure mortgages are not encumbered and complies with the International Capital are in the top 15 percent of the lowest carbon- Market Association’s 2017 Green Bond intensive properties. Principles, articulates the use of proceeds Managing proceeds: The size of the allocated and the process for evaluating and selecting portfolio of eligible mortgage assets will projects, managing proceeds, and reporting. be monitored monthly, while redeemed or Use of proceeds: Barclays will allocate an ineligible mortgages will be replaced by other equivalent amount of funding proceeds from eligible mortgage assets. its green bonds to finance and refinance Reporting: Barclays will publish an annual energy-efficient residential mortgages investor report. A suitably qualified assurance that are in the top 15 percent of the lowest provider will also perform and report on carbon-intensive properties, based on Energy verification testing. Performance Certificate data. Building the Market for Green Buildings 41 for commercial property (Berlin Hyp, Deutsche Hypo) or housing old energy-inefficient appliances with Energy Star devices and recycle (SpareBank 1, DNB Boligkreditt). Securitization remained the second- debris rather than send it straight to a landfill. largest bond type, driven by the $20 billion issued by mortgage loan • Policies designed for homeowners who generate their own power. company Fannie Mae. Swedish mortgage bank SCBC issued its debut These policies cover income loss due to power outages and extra green covered bond in January 2019. Of the green bond allocations expenses homeowners might incur to buy electricity from another made for green buildings, 13 percent were by emerging market issuers source. They generally cover the cost of getting back online, such as and 19 percent by developed market issuers. utility charges for inspection and reconnection. G R E E N LOA N S • For commercial properties, green upgrade insurance enables policyholders to replace traditional systems and materials with green In March 2018, the Loan Market Association published the Green ones, in accordance with well-established certification systems. If the Loan Principles to support and encourage green lending. Modeled on entire building is destroyed, green insurance will often pay for the the Green Bond Principles, the Green Loan Principles specify how loan replacement with a green-certified building. proceeds should be used and how projects should be selected in order to qualify for green-loan status. The market for green loans is expected to For properties that have already been certified green, some insurers surpass the market for green bonds because it is more widely accessible. offer reduced rates and provide coverage for vegetated roofs, alternative In 2018, the green loan market reached nearly $56 billion, with real 81 water systems, and green power generation equipment if a loss occurs. estate entities issuing 32 percent of green loans by amount.82 In addition to providing green insurance, many companies are starting to provide green risk management consulting. They help clients GREEN INSURANCE PRODUCTS select the most cost-effective and proven options to reduce energy consumption and costs, decrease operating costs, and reduce risk and Insurance companies play a unique role in advancing green losses. construction. They are both a source of capital, as institutional investors managing $31 trillion in assets,83 and insurers that can help promote green finance products. Investors needed to create markets Mobilizing private investors and financiers to participate in the green Insurance companies’ ability to develop new green insurance products construction market is essential to reducing emissions from buildings at depends largely on green building certifications, because going through the scale required to reach carbon neutrality. National and multinational well-established green building certification systems allows developers development finance institutions and governments play a critical role in to better identify and reduce risk, making them better candidates for catalyzing nascent markets and facilitating the entry of private capital. insurance. New insurance products that support the growth of the green buildings D E V E LO P M E N T F I N A N C E I N S T I T U T I O N S market include:84 National and multinational development finance institutions pursue • Premium discounts for homes that meet stringent efficiency and a number of development objectives, including climate goals. While sustainability standards. the amount of financing they have invested in green buildings is small • Homeowners’ coverage for replacing or rebuilding after a loss with in absolute terms, these institutions play a critical role in catalyzing more eco-friendly materials as part of a standard homeowner’s markets and facilitating the entry of private investors. policy. Some companies will pay homeowners extra if they replace 42 Green Buildings | A Finance and Policy Blueprint Photo: The triple-certified Shanghai headquarters of Johnson Controls has earned LEED Platinum, EDGE Advanced, and China’s Three-Star certification. Development finance institutions provide a range of financial products, through joint investments, and technical trainings, and by demonstrating including blended finance, not readily available in their markets, often the business case in emerging markets. in combination with technical support and capacity-building programs In addition, development finance institutions have a clear role in for local financial institutions, developers, and other stakeholders. supporting the growth of green affordable housing. Many emerging They also advise governments on developing the enabling environment markets face the urgent need to meet the shortfall in affordable housing. to incentivize green construction and green finance, and work with The priority has been placed on building fast and at scale, while the multiple stakeholders to create the right conditions for the green attention on green construction has been lagging. The green buildings buildings market to grow. market is currently too nascent to scale and compete with the cost IFC is coordinating the development of a green building programmatic margins of conventional practices. Development finance institutions approach with other development finance institutions and is sharing best can help demonstrate the viability of affordable green housing finance practices and lessons learned. In collaboration with the Inter-American through their own investments in partnership with private lenders for Development Bank, GIZ, and others, IFC is advancing green buildings the market to follow. Building the Market for Green Buildings 43 B OX 1 4 Catalyzing the green buildings market in South Africa In South Africa, supply of affordable quality To encourage the fund and partner developers and renters. The greening costs also decreased housing falls far short of the demand. To address to incorporate cost-effective green technologies substantially over time, from 2-6 percent to the shortage of low-income houses, in 2015, in the design of their projects without affecting 0.25-0.8 percent per unit in 2018 in the fund- IFC invested $21 million in a $300 million fund the expected returns to investors, IFC structured supported green projects. managed by the IHS—a large equity investor a $10 million concessional equity investment IHS also compared the performance of a 200- in South Africa’s affordable housing sector. with funds from the Global Environmental Fund unit green development against a similarly The fund focused on building, buying, renting, to partially cover the incremental greening sized non-green development next door. Green and selling single and multifamily housing, costs. KfW, a partner in the IHS Fund, followed homes demonstrated annual utility savings along with converting existing real estate to suit using the same structure. equal to one month’s rent. Such significant multifamily housing. In addition, IFC helped build technical capacity savings make green homes attractive to buyers IFC saw an opportunity to open the market in within the IHS Fund on applying the EDGE and renters, helping developers compete South Africa for green residential construction certification standard. The fund then trained the for buyers and tenants in a price-sensitive through the IHS Fund. However, the developers developers and provided technical support at affordable housing market. This competitive could not pass the extra cost of greening the design, construction, and operation phases advantage, in combination with decreased measures to low-income homeowners and to meet the certification requirements. incremental costs of green measures, convinced renters. This meant that the fund’s expected the developers of the advantages of EDGE The fund succeeded in convincing developers returns to investors would take a hit. certification. Most of the builders participating to adopt green technologies, which have in the IHS Fund have pledged to build all their demonstrated 20 percent energy and water properties as EDGE-certified. savings, lowering utility bills for home buyers 44 Green Buildings | A Finance and Policy Blueprint GOVERNMENTS As a large owner of and investor in real estate, governments significantly influence the development of the green buildings market. As an investor, they can influence green construction directly by setting and requiring green standards for all the buildings they own, finance, and buy. By taking the lead in requiring public buildings to be built green, governments catalyze and enable markets through building technical capacity and skills among designers, engineers, and workers, who can then build privately financed green buildings. In addition, they can catalyze the market for a green supply chain such as producing energy- efficient cooling and heating systems and appliances. For example, China’s Ministry of Housing and Urban-Rural Development mandated that all public buildings, including offices, schools, hospitals, and affordable housing in major cities, meet green building standards from Today, the IHS Fund has 4,900 EDGE-certified 2014 onwards.85 homes, and is on track to exceed its target of Governments can also play a critical role in developing financial 6,000 homes. Another 7,000 homes are being incentives and programs to promote green construction and energy planned for green construction. Furthermore, efficiency improvements and make green homeownership affordable. IHS is expanding into Botswana, Kenya, and For example, a U.S. government-sponsored residential lender, Fannie Namibia and has announced that all new Mae, has introduced a range of green lending products that offer projects will be EDGE-certified. preferential pricing (at least 10 basis points) and a free energy and water The blended finance and technical support audit report to borrowers to finance green property improvements.86 from IFC were critical to opening the The U.S. government’s Property Assessed Clean Energy model is an market for green homes in South Africa. The innovative mechanism that allows building owners to repay the upfront partnership with IHS Fund has had a far- costs of investing in energy efficiency and renewable energy over time reaching demonstration effect: it created broad (10 to 12 years) through property assessments.87 Under the Pay As You market awareness among the developers and Save program, utilities finance and install energy efficiency technologies consumers about the financial benefits of at no upfront cost, and subsequently recover the costs through tariffs green construction and demonstrated how to included in customers’ monthly bill for their meters. Since 2011, implement existing green technologies cost- Mexico’s federal organization INFONAVIT (“Instituto del Fondo effectively. IHS plans to apply this knowledge Nacional de la Vivienda para los Trabajadores”), the fourth largest and experience to projects in other countries. mortgage institution in the world, has required all of its mortgages to be for green homes or green home improvement measures.88 Building the Market for Green Buildings 45 Policy and Regulatory Building Blocks O ne of the main barriers to unlocking the $24.7 trillion investment opportunity in green buildings across emerging markets is the lack of green buildings for investors and financiers to finance. The previous section, Financing Green Buildings, provides examples of banks and funds that are developing a pipeline of green properties to finance by offering better financial terms and actively reaching out to and educating developers. Not all financiers are willing to undertake such efforts, however. This is where the government’s role is critical to create an enabling environment for developers to build green and, thus, create a robust pipeline of green assets for financiers to finance, while creating conditions for the growth of green finance practices in the financial sector. Governments have already signaled their interest in “building it right”—the buildings sector is referenced in 136 countries’ NDCs,89 and several cities are incorporating green buildings into their Climate Action Plans.90 Ambitious targets and high-level policies must be complemented by regulations and incentives if governments are to translate policy into action. Clear market signals are needed to amplify the pace and scale of green construction. Policymakers must drive performance through stricter building codes to improve benchmarks. They can also incentivize the private sector to outperform those codes. Building codes that incorporate energy efficiency and green measures will move developers to build a pipeline of green buildings, aided by fiscal and non-fiscal incentives to exceed the minimum code requirements. Photo: Vinte’s homes feature solar technologies, state-of-the- art induction stoves, smart meters, and more, bringing high quality and affordability to residents in the State of Mexico. Governments can demonstrate their commitment by requiring publicly Nationally Determined Contributions (NDCs) owned and financed buildings to be green, but they can also go further, Since December 2015, 194 countries have submitted NDCs—national shifting the market with their huge aggregate demand, which in turn plans that outline governments’ commitment to reducing emissions can trigger the development of a pipeline of green buildings and related through climate solutions, including renewable energy, low-carbon products. Policymakers can help incentivize banks to provide direct capital cities, and energy efficiency. Of these, 136 mention the role of the to the sector by establishing guidelines for green finance instruments and buildings sector, with 104 citing energy efficiency and 51 committing to requiring reporting on climate risk in investment portfolios. Green labeling using renewable energy in buildings as ways to reduce their economy- or performance certificates can help investors verify, compare, and manage wide emissions.91 These government priorities signal to investors and their investments to expand their green portfolios. developers where future demand can come from. Economy-wide energy efficiency policies and NDCs can indicate priority sectors for investment and growth, working in concert with market- based mechanisms that can make green buildings more cost-effective India’s NDC calls specific attention to a “building sector based on than higher-carbon alternatives. These not only create the underlying energy conservation,” pledging to make its Energy Conservation policy framework to develop green project pipelines, but also signal the Building Code (ECBC) stricter, highlighting its domestic building opportunities that can arise from investing in climate-smart assets such rating system GRIHA (Green Rating for Integrated Habitat as green buildings. Assessment), which scales energy efficiency in buildings. These examples are a few among the vast suite of regulatory options Lesotho’s updated NDC, released in 2017, commits the country that are being deployed by governments to help developers create a to decarbonizing its buildings sector by implementing climate- pipeline of investable green buildings projects and incentivize investors smart building codes and standards, launching energy efficiency to direct their capital to them. The following section reviews some of programs, and encouraging the use of energy-efficient appliances.92 the best-practice policy and regulatory instruments related to building enabling environments for green buildings and green finance. Not all of Grenada’s NDC commits the nation to achieving energy savings these will be applicable in every context in the same way—governments targets of 30 percent for new construction through new energy across emerging markets can work with experts to choose which of efficiency codes, in addition to a 20 percent reduction in energy these policy options might be relevant in their jurisdictions. These must consumption of existing buildings through retrofits by 2030.93 be tailored to legal frameworks, socioeconomic contexts, developmental priorities, and other local conditions. Building the Market for Green Buildings 47 Energy efficiency policies Green requirements for government-owned In 2017, mandatory energy efficiency policies covered 34 percent of or -financed buildings energy use from buildings worldwide,94 increasing to about 40 percent As owners of large portfolios of real estate and buildings, governments in 2018.95 Demand for energy-efficient buildings can be created have significant sway to shift market demand. Many governments begin by policies at regional, national, and local levels, particularly as by mandating energy efficiency in public buildings. governments attempt to translate their NDCs into concrete policies, and enhance the energy security and energy efficiency of their economies. For example, Gabrovo, Bulgaria, has adopted an energy-saving For example: target of at least 30 percent for its public buildings, committing to track progress using an energy management system. To help As of 2018, the Energy Efficiency Directive and the Energy meet this target, Gabrovo aims to develop and implement a Performance of Buildings Directive by the European Commission program that will include portfolio benchmarking, energy audits, includes a non-binding target to improve energy efficiency by operational and maintenance improvements, energy efficiency 32.5 percent by 2030, to be reviewed again in 2023.96 As part of standards, and energy performance contracts.100 this, the Energy Performance of Buildings Directive will require member states to develop long-term strategies to fully decarbonize Given that public procurement accounts for about 12 percent of and reduce the energy use of their entire building stock.97 gross domestic product in OECD countries and up to 30 percent in emerging markets,101 governments can significantly influence markets In 2017, China released its 13th Five-Year Plan for Building Energy to shift to green products, and align the use of public funds to achieve Efficiency and Green Building Development. This plan mandates governmental priorities such as reducing carbon emissions. that 50 percent of all new urban buildings are certified green and includes pilot programs for energy-efficient schools, hospitals, If structured correctly, green public procurement policies can incentivize and public buildings. Following this national directive, almost 98 suppliers to develop climate-smart products and processes without 20 Chinese cities have set even more ambitious targets, with cities increasing the initial purchase price, helping to reduce green building including Shanghai, Beijing, Shenzhen, and Chongqing requiring all emissions. Public procurement policies and distribution schemes have new commercial buildings to be certified green. 99 been particularly effective at creating markets for greener appliances and products, which in turn increases private demand. In conjunction with energy efficiency policies, incentives and regulations Increases in procurement costs can be avoided by aggregating the that encourage distributed renewable energy sources for buildings and public sector’s buying power through bulk procurement. India’s UJALA otherwise green the electricity grid will also reduce carbon emissions scheme—the largest non-subsidized LED distribution program in the from buildings. world102—lowered the upfront cost of investment in LEDs for public utilities and state governments by creating mass awareness and buying in bulk.103 The scale of public demand shifted the whole market, incentivizing private consumers to also switch to LED, making India the second largest LED market in the world in 2015.104 This scheme was part of the Indian government’s efforts to facilitate energy efficiency projects under Energy Efficiency Services Limited, a company that 48 Green Buildings | A Finance and Policy Blueprint is also promoting energy-efficient cooling through its Super-Efficient Photo: The Bac Ninh Exhibition Center of Urban Development and Air Conditioning program.105 Product and design specifications that Architecture, which has been certified with EDGE, celebrates the architecture of Bac Ninh province in northern Vietnam. incorporate energy and water efficiency into such policies can help incentivize the use of, and thus create demand for, energy-efficient appliances. Both national and subnational governments are developing guidelines and implementing policies for green public procurement to suit their contexts: In South African City of Tshwane’s Integrated Environmental Policy outlines a strategy to promote and implement municipal green procurement practices. The intention is to develop a green procurement guideline that will select five categories of green products each year to be included on the city’s procurement list.106 With a specific section dedicated to green buildings, Tshwane specifies how to incorporate sustainable technologies in all buildings and advocates for sustainable supply chains.107 In South Korea, government agencies submit implementation plans on green purchases every year, along with the previous year’s performance records, to the Ministry of Environment.108 Each institution must also set its own green purchase target and a corresponding implementation plan. Green purchases can include items such as energy-efficient appliances that help reduce emissions from the day-to-day use and occupation of public and government buildings. As of 2017, there is now a global standard for sustainable procurement. The International Standards Organization launched ISO 20400 to help companies improve the sustainability and ethical levels of their supply chains.109 This standard aims to build global consensus around what responsible procurement means. It describes the principles and core ideas behind sustainable procurement, and provides guidance on how to integrate sustainable procurement practices at both strategic and operational levels within an organization.110 While the standard is not specifically tied to green buildings, it aligns with the UN Sustainable Development Goals and includes environmental and climate-related practices. Photo: Developed by PPP Habitacional, the EDGE-certified Julio Prestes apartment complex is part of São Paulo’s efforts to revitalize its urban core. Green building codes design principles and renewable energy sources to be integrated into building design, and mandates that new buildings demonstrate energy The most cost-effective way to reduce the use of resources during savings of at least 25 percent to be code-compliant.113 This code is also a building’s life is to integrate green measures during design and one of the first to make provisions for improvement and performance construction.111 Mandatory building codes ensure that green measures beyond minimum code compliance by defining incremental, voluntary are considered from the start, playing a significant role in promoting energy efficiency performance levels: ECBC compliant (energy savings of green construction and raising market awareness in a cost-effective way. 25 percent), ECBC Plus (energy savings of 35 percent), and Super ECBC When mandatory codes are enforced, they establish the minimum (energy savings of 50 percent).114 Continuously improving building requirements for performance and energy efficiency across the building codes also forces voluntary certifications to improve to retain their types covered by the policy, reducing the entire sector’s energy intensity additionality. and emissions. However, in 2018, two-thirds of all countries lacked In order to decarbonize the buildings sector effectively, building codes mandatory building energy codes, resulting in new construction that need to incorporate energy and water efficiency requirements. Such potentially locks in low performance and high energy and carbon codes could also benefit from input from the private sector and taking intensity for a building’s lifetime. Even once passed, building codes take locally available technology into consideration. Various government a long time to implement and significant resources to enforce.112 departments need to be engaged to ensure adequate resources are To encourage developers to sufficiently reduce emissions from their new budgeted for long-term enforcement. The codes should account for the constructions, building codes must continuously raise the baseline. For costs and benefits of different options and should initially streamline example, India updated its ECBC for commercial buildings in 2017 and suggested approaches to a limited number of requirements, which can its ECBC-R for residential buildings in 2018. The ECBC now includes then be built on incrementally. Finally, governments must invest in energy performance standards for commercial buildings, requires passive capacity building for enforcement for building codes to be effective. 50 Green Buildings | A Finance and Policy Blueprint Fiscal and non-fiscal incentives for developers Such policies can help reduce the upfront cost of implementing green measures and incentivize builders to choose green alternatives, FISCAL INCENTIVES expanding the pipeline of green building projects for investors. In addition to incentives and regulations aimed directly at the financial NON-FISCAL INCENTIVES sector, governments are using fiscal policies such as property tax incentives, technical assistance, grant provisions, and loan programs to Because buildings are local, city-level permitting processes and encourage developers to build green. 115 regulations can have a greater impact on the sector than those from national governments. In Argentina, residential buildings receive a 10 percent VAT exclusion San Borja, a residential district in the capital of Peru, passed an if they include insulation Class B, solar hot water collectors, and ordinance121 that allows property developers to build three or four LED lighting up to 140,000 UVA. The tax exemption is for the first stories higher, depending on the zone, if the apartment buildings 60,000 units that apply and are built by August 2022. 116 are certified green, are set back from the curb, and have green roofs and gardens that are at least 50 percent visible by pedestrians. The Both residential and commercial buildings in Colombia qualify for ordinance, the product of a collaborative approach, resulted in a a 19 percent VAT exclusion and a 25 percent income tax deduction new style of architecture and increased uptake in certified green for using project design services and technical solutions such as buildings, demonstrating how public-private engagement can help insulation and energy-efficient air conditioning systems.117 achieve green goals.122 Japan offers tax deductions for installing energy-efficient Arequipa, Peru, also used height bonus incentives to encourage equipment such as high-efficiency air conditioning systems, highly green construction of residential, commercial, and educational insulated windows, and LEDs in the residential sector.118 buildings. Developers can build one extra floor and benefit from a reduction in parking space requirements if their building is certified In Bulgaria, a 100 percent real estate tax exemption is given to green, has 40 percent green roofs, has 50 percent transparent building owners for 10 years for installing renewable energy fences, and includes waste segregation and bicycle racks.123 technology. Building owners are required to obtain a certificate under the Energy Efficiency Act and the Building Certificate Regulation.119 Other non-fiscal policies available to local authorities include expedited permitting processes and reduced permitting requirements. Such The City of Mandaluyong in the Philippines worked with IFC to incentives and policies can help reduce the emissions intensity of develop a green buildings ordinance that compensated property individual buildings and projects, as well as encourage cities to move owners for compliance through several measures such as a real towards green urban development. Providing incentives for waste property tax discount of 50 percent on machinery installed in segregation and distributed generation in building complexes, as well as accordance with the green building regulation.120 These discounts, for the construction of mixed-use buildings near transit nodes, can help independent of others applicable through the city’s tax code, were reduce city-wide emissions and generate a pipeline of green projects that found to be attractive enough for developers to adopt even if their create value for investors. buildings were not required to comply. Building the Market for Green Buildings 51 Labeling and energy performance Market-based mechanisms certification Market-based mechanisms like carbon taxes and cap-and-trade Labeling and energy performance certifications for buildings and programs place an explicit price on emissions or energy use to appliances help ensure compliance with green standards, and help encourage businesses to find innovative, cost-effective ways to reduce investors measure, verify, and compare their green building investments. their energy consumption or carbon footprint.125 For example: Given that emissions from electricity and gas consumption can significantly outweigh emissions from other stages of a building’s life such as raw materials manufacturing or demolition,126 several governments The European Energy Performance of Buildings Directive are implementing regulatory instruments that encourage green design introduced an energy performance label for buildings from “A” to and target efficient energy and water use by tenants. The following are “G,” with “A” being the most energy efficient. In 2018, the Dutch examples of market-based mechanisms aimed at reducing emissions by government adopted a decree requiring office buildings to have incentivizing the use of green, energy-efficient building design: an energy performance label of “C” or higher by 2023 and an “A” label by 2030. An office building falling short of the requirements can no longer be used, sold, or leased, effectively making it a India’s Perform, Achieve, and Trade program is a regulatory cap- stranded asset. and-trade instrument that aims to reduce energy consumption in specific energy-intensive sectors using a market-based mechanism Similarly, the EU’s mandate to require Energy Performance through which participants (known as designated consumers) can Certificates was strengthened by instituting independent quality get certification for and trade excess energy savings.127 While the control of Energy Performance Certificates, introducing penalties program was initially created for large industrial businesses, it for non-compliance, requiring the energy label to be displayed in was extended to hotels for the year 2020–2021.128 Energy-saving advertisements, requiring sellers or landlords to provide buyers or certificates equal to 1 metric ton of oil equivalent of energy savings tenants with a copy of the Energy Performance Certificate on sale are awarded to designated consumers when they meet their savings of the building or rent transactions, and improving renovation target, and can be sold to other designated consumers that fail to recommendations.124 do so at a price set by market supply and demand.129 As of 2017, 150 to 200 hotels consuming about 1,000 million metric tons of oil Labels are an important tool for governments to implement new equivalent have already been appointed as designated consumers130 policies and for financial intermediaries to manage climate transition eligible to receive and trade energy-saving certificates, provided risk in their portfolios and select energy-efficient buildings for financial they meet their targets.131 support. Labeling existing buildings also provides market data to developers, which influences the design decisions of new buildings. South Korea applied an emissions trading system at the point of electricity consumption to expand the mechanism’s scope to include entities such as large buildings that would have otherwise been exempt.132 52 Green Buildings | A Finance and Policy Blueprint Ireland has levied a carbon tax on fossil fuel imports for sectors other than heavy industry and power as covered under the EU’s emissions trading system, including on heating in buildings. This tax is passed on to consumers at the point of purchase.133 Subnational governments are also using similar mechanisms: Tokyo’s emissions trading system covers urban facilities, including public institutions, commercial buildings, lodging, educational facilities, medical facilities, and office buildings—the latter accounts for four-fifths of the covered entities.134 Shanghai’s pilot program for an emissions trading system covers “indirect” emissions, calculated using electricity consumption and a default grid emissions factor, from entities including large buildings such as hotels. Such measures can incentivize consumers and owners to choose green buildings that are energy efficient or incorporate renewable energy such as rooftop solar, thus driving demand and creating a market for the sector.135 British Columbia’s 2008 carbon tax on fuel use reduced natural gas consumption in commercial buildings “by a much larger amount than would be expected on the basis of the normal response to changing natural gas prices”.136 However, market mechanisms like carbon pricing can be politically unfeasible for the residential sector and may disproportionately affect vulnerable groups.137 Hybrid models that combine elements of quantity- based emissions trading systems and price-based tax instruments can provide the flexibility needed to maximize the emissions coverage while accommodating socioeconomic priorities and variances in building type, asset class, and market type.138 Hybrid models could also help to minimize price volatility, which would appeal to investors and governments. Photo: Maintenance workers clean solar panels on the rooftop of a government building in Gandhinagar, India. © Dominic Chavez/IFC Financial sector regulations and incentives At a sectoral level, financial regulation and policy incentives are being used to target high-emitting industries—including the buildings sector: Frameworks on climate risk management, such as the Taskforce on Climate-related Financial Disclosures, are clarifying the link between climate change and systemic financial risk. Given the transition and The Bank of Bangladesh has mandated that all commercial banks physical risks posed by climate change, greening the financial system must provide a discounted financing rate of 9 percent for the extra and incentivizing low-carbon investments is essential. Regulators and cost of green measures applied to light industry buildings.142 central banks in emerging markets are beginning to develop policies and implement innovative financial tools to direct capital towards green The Lebanese government has implemented a National Energy real estate to diversify their economies and mitigate climate-related Efficiency and Renewable Energy Action initiative, which financial risks. encourages commercial banks to provide cheap credit to the private sector for renewable energy, energy efficiency, and green building For example, the Central Bank and Supervisors Network for projects.143 The Lebanese Central Bank reduces the obligatory Greening the Financial System brings together financial regulators to reserve requirements of commercial banks that provide green loans share best practices, exchange experiences, mitigate climate risk to to such projects by an amount equal to 100 percent to 150 percent financial systems, and mobilize finance for transitioning to sustainable of the loan.144 economies.139 In April 2019, it published “a call for action,” which outlines recommendations for central banks on how they can direct In Indonesia, the Financial Services Authority (Otoritas Jasa the financial sector towards achieving global climate goals.140 These Keuangan) issued a national regulation that requires banks to recommendations, although non-binding, promote more stringent report annually on their green financing products and services; climate risk approaches within the financial sector. growth in green finance portfolios; organizational, governance, and risk management changes to ensure their compliance with Similarly, the Sustainable Banking Network brings together financial ESG norms; and internal capacity building related to sustainable sector regulatory agencies and banking associations from 38 emerging finance. This regulation has pushed banks to recognize green assets markets to improve environmental, social, and governance (ESG) as a separate asset class and develop green growth strategies. A and climate risk management and create positive climate impact second regulation which defined green bonds in terms of eligible by increasing capital flow.141 For example, the Mongolian Bankers use of proceeds, reporting requirements, and obligatory third-party Association, a network member, includes the construction and verification, included certified green buildings as an eligible use infrastructure sectors in its Sustainable Finance Principles and Sector of funds. Building on this foundation, policymakers are exploring Guidelines, developed in consultation with multiple parties, including how lower mortgage rates could be made available for green the country’s central bank. The guidelines identify environmental and homes. The Bank of Indonesia has announced a 5 percent increase social risks associated with residential, commercial, and industrial in the maximum loan-to-value ratio for green property. building construction and suggest methods to limit those risks. Investors are made aware of these risks—and can direct their capital towards green buildings that mitigate them. 54 Green Buildings | A Finance and Policy Blueprint BOX 15 Clear green bond guidelines as a lever for the green buildings market The increased uptake of green bonds in regions: India, the Association of Southeast several markets is mainly due to central banks Asian Nations, Chile, Peru, and Egypt are and regulators providing clear guidelines on only a few other examples of countries how to issue these bonds. The People’s Bank issuing green bond guidelines. Many of these of China published its Green Bond Guidelines issuances are being used for financing green in 2015 as a way to improve market integrity. buildings. It has subsequently released a Green Bond Such guidelines and frameworks, although Endorsed Project Catalogue that provides not directly aimed at the green buildings a comprehensive, official list of types of sector, can help increase green investment projects eligible for green bond financing.145 across the economy. By including low-carbon This regulatory clarity has helped China’s buildings in official lists of project types green bond market to grow to the second eligible for such financing, governments can largest in the world as of 2018, accounting for enable a project pipeline in the sector without 18 percent of total global issuance, valued at directly targeting it.146 over $30 billion. Similar trends are seen across Photo: The EDGE-certified Verde Two Monteverde Tower in Jakarta was developed by FARPOINT and Asia Green Real Estate. Lessons learned and next steps The governments of Arequipa and San Borja in Peru awarded height bonuses to developers based on third-party certification of In 2017, existing policies covered just over 50 percent of carbon dioxide their green buildings, which helped prevent greenwashing, ensured emissions related to global buildings.147 Even if current NDCs are compliance, and directed incentives to eligible recipients. achieved, policy coverage would only increase to 63 percent148—a clear indication that the buildings sector commitments for 2020 must be more ambitious. In addition to policy coverage, the targeted energy intensity Every level of government needs to take action to develop and enforce the of the global buildings sector per square meter needs to improve underlying enabling frameworks to create a market for green buildings: by 30 percent by 2030, which will be essential to keeping global temperatures to under 1.5°C.149 Policymakers should set minimum standards with compulsory codes How public policies and regulations are structured and sequenced, and and encourage voluntary certification to spur private sector ambition how they are implemented, are key to achieving their goals. IFC’s lessons and innovation. Policymakers and regulators can design policies that learned are shared below. consider industry-specific factors to induce behavioral change. Policies First, IFC’s experience in South Asia and Latin America suggests that need not have fiscal impacts. For example, easing processes and non-fiscal incentives at the city level tend to be a more effective first step procedures for building green, such as expediting construction permits, than financial incentives in nascent or developing markets. Introducing can be a low-cost way of encouraging the uptake of green buildings. non-fiscal measures is easier as they can be executed without having Templates or checklists that help developers fulfill green requirements to coordinate between the different government departments, which is can be made publicly available to ease the burden of compliance. necessary for financial incentives. Governments can help bridge existing data gaps and improve Second, policies need to be effectively implemented and enforced. IFC’s gathering and sharing of information on buildings. Factors such as work with governments has brought to light several approaches that can energy intensity in the buildings sector, the expected rate of growth, the be used to make it easier for developers and other value chain actors to grid’s emissions factor, and other relevant variables, if made public, can comply with green building requirements: help the private sector plan its investment in green buildings. Publicly available data on buildings’ energy and resource consumption through, for example, building labels can also encourage building owners and IFC successfully helped improve code compliance in Vietnam and tenants to choose green buildings, creating demand in the sector. Indonesia by training over 1,000 construction industry professionals and monitoring officials in each country. It also created checklists Policies and regulations must work for all actors along the green for inspectors and technical guidance for code criteria, making buildings value chain, as well as embody and encourage transparency, enforcement easier. longevity, and certainty. They must be designed together with stakeholders in order to understand the tensions, challenges, Colombia’s national chamber of construction, Camacol, played a opportunities, and pathways that will bring about sustained change. crucial role in including the private sector in the process of creating Governments need to set clear targets and work with contractors, the first mandatory green building code in Latin America. This investors, and consumers to develop approaches to implement and multi-stakeholder engagement helped raise awareness about the ease, achieve them. The actions taken at these levels must align with each affordability, and operational savings generated by building green, other to ensure policy certainty and a clear understanding of what it thereby boosting code compliance. means to build green for the private sector. 56 Green Buildings | A Finance and Policy Blueprint Photo: The Gerardo Arango S.J. Building—School of Arts, located on the campus of Pontificia Universidad Javeriana in Bogotá, has been certified with EDGE. Building the Market for Green Buildings 57 Voluntary Commitments to Green Buildings Certifications enabling commitments V oluntary commitments from private sector actors across the value chain have driven much of the development of the green buildings market. This has largely been in the absence of comprehensive policies or mandates requiring such practices. Companies outside the construction sector are increasingly taking on green buildings commitments that move beyond individual buildings to portfolio and industry-wide efforts. These commitments provide a clear signal to financiers that there is growing demand. They also provide an entry point, particularly in emerging economies, to further grow the green buildings market. Most of these commitments have been delivered through green building certification programs. Such programs have been instrumental in expanding the market by evaluating and benchmarking levels of building achievement in energy and other sustainability dimensions for design, construction, and operational performance, and by providing third-party verification and certification. BREEAM, DGNB, EDGE, Green Star, LEED, and NABERS are among the most influential international rating systems. Many countries have also developed their own systems,150 often based on BREEAM and LEED, with modifications to reflect local priorities and market conditions. To date, 85 countries have adopted national or local building certification programs, which can be voluntary or mandatory for all or part of the buildings sector.151 To achieve net zero carbon for Photo: Developed by Flamingo Dai Lai Joint Stock Company, Forest in the Sky immerses its residents in the atmosphere of a tropical jungle. Awarded EDGE Advanced certification, the project is located in Hanoi. all new construction by 2030, these standards will need to become more stringent and consistently enforced to mitigate the risk of greenwashing. Brief snapshots of a small selection of international and national certification schemes are included in Figure 7. It is not an exhaustive overview of the main schemes currently available, but instead shows the broad variety in approaches, areas of focus, and scale of uptake in these systems. Elements such as recognition of pre-qualified accredited professionals across programs, including LEED and EDGE, ensure consistent messaging and shared goals. While not all rating tools are applicable in all markets, in many countries multiple systems operate in parallel, serving as complementary drivers of green building (see box on Market Response to Multiple Green Building Rating Systems). Certifications help to create awareness, and offer a verifiable performance indicator that financiers can lend against, helping to advance green building practices. Of the 1,005 real estate companies, developers, REITS, and funds, representing more than $4.1 trillion in assets under management, that reported to GRESB in 2019, 90 percent align their projects with green building rating standards for construction and operations. In addition, 45 percent of them require a specific level of certification for more than three-quarters of their projects under development.152 With 48 percent floor area coverage, hotels lead property types in certified floor area, narrowly ahead of offices.153 The consistency and replicability of performance ratings is key to enabling this growth in both the commercial and residential market.154 Figure 7: Differences across a sample of international and national certification systems and their uptake International systems 147 Building Research Establishment Excellence in Design for Greater Leadership in Energy and Certification system and Environmental Assessment Method Efficiencies (EDGE)—International Environmental Design (LEED)—U.S. managing organization (BREEAM)—BRE Global† Finance Corporation‡ Green Building Council± Green building rating and certification Online platform to determine cost- Green building program for buildings, system through on-site independent effective options for designing green communities, and cities, providing a rating third-party verification for new within a local climate context, a green and certification system through second- construction, in-use, refurbishment and building standard, and a certification party verification for new construction, Type of certification fit-out, commercial interiors, core and system for new construction, existing existing buildings, operations and shell, schools, retail, healthcare, homes, buildings, and major retrofits of maintenance, commercial interiors, core communities, and infrastructure commercial/residential structures and shell, schools, retail, healthcare, homes, neighborhood development, and cities Weighted performance in 9 categories Independent certification for projects Performance across 9 categories with minimum standards: Energy, achieving EDGE standard of 20% less scored out of 110 points: Sustainable health and wellbeing, transport, water, energy use, 20% less water use, and sites, water efficiency, energy and materials, waste, land use and ecology, 20% less embodied energy in materials atmosphere, materials and resources, management, and pollution compared to a base case building indoor environmental quality, locations and linkages, awareness and education, Areas of focus No prerequisites for in-use EDGE Advanced certification for >40% innovation in design, and regional priority energy savings, with at least 20% savings through a set of prerequisites and credits in water and materials EDGE Zero Carbon for 100% carbon neutrality, with >40% energy efficiency required on-site Number of countries covered 83 154 176 Residential 1,648 169 34,632 Office 5,240 41 19,236 Total number Retail 3,231 454 7,640 of projects Education 2,506 8 6,035 certified by building type Hospital 730 8 1,353 Hotel Included in Other 18 846 Other 8,187 6 10,987 Total floor area registered (m ) 2 1,060,000,000 16,304,630 1,291,791,279 Total floor area certified (m ) 2 235,000,000 7,697,001 806,871,943 60 Green Buildings | A Finance and Policy Blueprint National systems Green Building Evaluation Label (China Three Star)—Ministry of Housing Green Star Africa—Green Building IGBC Green Rating System—Indian and Urban-Rural Development of the Council South Africaº (GBCSA) Green Building Council* People’s Republic of China¤ Green building certification program Green building rating system for new Green building certification available for applicable to new construction and buildings, refurbishments, existing projects achieving thresholds identified refurbishment of existing buildings building performance, interior fit-outs, under standards for new buildings, and sustainable precincts existing buildings, townships, cities, sustainable economic zones, landscapes, and mass rapid transit systems Evaluates projects based on 6 categories: Performance assessed across 9 Mandatory requirements and the Number of project † Land, energy, water, resource/material categories: Management, indoor minimum number of credit points across certifications included efficiency, indoor environmental quality, environmental quality, energy, transport, the following: Sustainable architecture on website as of and operational management water, materials, land use and ecology, and design, site selection and planning, October 2, 2019. Total emissions, and innovation water conservation, energy efficiency, floor area certified as building materials and resources, indoor of April 2019. BREEAM has 2.3 million environmental quality, innovation, and registered assets and development over 570,000 certified assets. Certifications as of ‡ June 30, 2019 1 10 1 Certifications as of ± October 29, 2019 1,900 5 309 1,006 413 727 Certifications as of ¤ December 31, 2015 264 5 83 174 11 115 Certifications as of º October 17, 2019 92 Included in Other 30 215 3 48 Certifications and * registrations as of 326 60 533 September 2019 Not available Not available 652,001,881 459,962,951 6,332,815 167,573,144 Building the Market for Green Buildings 61 B OX 1 6 Market response to multiple green building rating systems Many countries have seen multiple green buildings and others over 20,000 square meters green buildings under both standards. China building rating systems thrive, as they meet are mandated to use this system to build is the second biggest market for LEED outside different market needs for recognition sustainably.155 In parallel, designers and building the United States. Its uptake is a good indicator domestically and internationally. For example, owners can use IFC’s EDGE software to achieve of growing market demand, particularly in EDGE, BREEAM, and LEED are operating credits towards the Three-Star system. This is the commercial properties segment, due to alongside the national Green Building the first time that a software product from an its independent status. In 2018, LEED-certified Evaluation Label (GBEL) in China, also known international system has been benchmarked Grade A office buildings exceeded 523 million as the Three-Star rating system, which has and aligned with GBEL to encourage green square meters across China and accounted standards for different building types covering building growth. Thirty public buildings have for more than 27 percent of the total market the design, construction, operation, and retrofit successfully achieved two- or three-star GBEL share in 10 prominent cities.156 Some buildings stages. The national system supports the certifications using the EDGE app. Similarly, are pursuing multiple certifications—the Asia- country’s ambitious goals, including requiring BREEAM and the Chinese Society for Urban Pacific headquarters of Johnson Controls in green certification for at least half of all newly Studies (CSUS) Green Building Research Centre Shanghai has received triple certification in constructed buildings by 2020, and all public are developing a dual-certification system of GBEL, EDGE, and LEED. 62 Green Buildings | A Finance and Policy Blueprint Committing to green buildings through development banks and private financial institutions have committed global platforms to aligning their financing of buildings with global agreements on climate change and national climate policies—a move that could lead International platforms and initiatives are critical—not only to building to a potential $1 trillion in “Paris compliant” buildings investment momentum and encouraging action, but also to extending demand in developing countries by 2030.160 Through the Better Buildings for building green outside the construction sector. For example, Partnership, 23 of its members, covering £300 billion in assets under the World Green Building Council’s Advancing Net Zero calls on management and over 11,000 commercial properties, have committed businesses, organizations, cities, states, and regions to reach net zero to net zero carbon real estate portfolios by 2050. Another program carbon operating emissions within their portfolios by 2030 and to with significant reach across both financiers and the built environment advocate for all buildings to be net zero carbon by 2050. As of October is the Science Based Targets Initiative. Of the 689 companies from both 2019, 31 businesses (including investors, designers, engineering firms, developed and emerging markets that have committed to aligning with developers, owners, and product manufacturers), 26 cities, and six the Paris Agreement, almost 50 are financial institutions and more than regions have committed to this goal.157 These companies are part of 100 are involved in the buildings sector. a wider group committed to The Climate Group-led EP100 initiative, which aims to help them double their energy productivity through energy-efficient innovations.158 Individual building, portfolio-wide, and industry commitments These platforms have enabled companies outside the construction sector to take on green buildings commitments that extend beyond their Building owners, developers, and corporations are taking on individual direct operations. For example, multinational clothing retailer H&M commitments to green their buildings or portfolios. They are also acting has pledged to double its energy productivity by 2030. By building at an industry level to reap the business benefits, such as an 8 percent stores that use 40 percent less energy than those constructed today, saving in operating costs in the first year and increased building asset and investing in new technologies for lighting, heating, ventilation, values of 7 percent for new green buildings.161 These commitments and air conditioning, it intends to generate immediate financial and provide a strong signal that the demand for green construction is across sustainability benefits. These ambitions are being extended beyond its all building types and not restricted to any one sector. As such, banks own operations. H&M aims to have all its suppliers enrolled in an and investors seeking to grow their green real estate portfolios can energy efficiency program by 2025, while reducing the energy used in finance a wide spectrum of borrowers and investees to expand the green its logistics, transport, and warehouses. It envisages a climate neutral buildings market. supply chain for its first- and second-tier suppliers by 2030. To date, H&M has reduced greenhouse-gas emissions in factories in Bangladesh, OFFICES China, India, and Turkey. 159 Financiers with lending activities spanning Almost 50 percent of all office buildings covered under GRESB have industry-specific value chains can use such commitments to develop green certification for their operations. Green offices achieve lower financial products that encourage corporates to adopt green buildings operating costs, and higher rent and tenancy rates compared to across their operations. conventional offices in most markets, raising their values. They also The Zero Carbon Buildings for All Initiative pledges to make new provide better collateral due to higher resale values, representing a buildings carbon neutral by 2030 and existing buildings by 2050 in higher-value asset for investors and financiers, which in turn improves member countries. The initiative is targeting financiers. Multilateral access to finance for owners and developers. Building the Market for Green Buildings 63 B OX 1 7 Client demand has driven the construction of green office spaces, as these are often central to corporates achieving their low-carbon strategies. Corporate tenants are also increasingly aware of the strong connection between green buildings and employee health and wellbeing, job satisfaction, recruitment, and staff retention. Tenants can recoup their costs through lower utility bills and improved productivity and comfort.163 Many landlords are using the building’s sustainable operations as a selling point. Class A office spaces are now mostly being constructed to meet green credentials in order to attract premium corporate tenants. In Beijing alone, almost 45 percent of the total floor area of Grade A office buildings is LEED certified.164 South African developer Growthpoint Properties has pledged that all its new office developments will achieve at least a four-star Green Star SA rating from the Green Building Council South Africa and the green performance of its existing office buildings will be improved.165 Greening offices through Such efforts are being driven in part by owners and renters using green leases. A green lease adds smart, energy-aligned clauses to commercial leases in Singapore leases to unlock investments in energy efficiency and sustainability that benefit both landlords and tenants. Landlords define the green building Early adopters of green leases tend to be large operating program to be used in the commercial properties using organizations with environmentally friendly internal standards such as BREEAM, and subsequently align the lease to the cultures facing the possibility of strict government standards. Green leases have yet to be introduced to and implemented in regulations. For example, City Developments Limited from all property markets. Singapore initiated a Green Lease Partnership Programme in 2014 to support its commercial tenants’ efforts to lower RESIDENTIAL their carbon footprint. Since 2017, all existing tenants have Residential developers pass the value of lower operational costs directly pledged their commitment to go green by signing a Green to their customers. This value transfer results in an opportunity, Lease Memorandum of Understanding. All new tenants including in affordable housing, as developers can distinguish their receive green guidelines and checklists to help them in properties from the competition and demonstrate that they care about fitting out works and operations. As a result, nine of City their customers and the environment. They are increasingly able to Developments’ commercial properties have been awarded benefit from incentivized financing offered by progressive banks and the BCA Green Mark Pearl and Pearl Prestige Award, which investors to encourage the design of better-performing buildings. Other are given to building owners with a substantial number reasons why residential developers are starting to take a portfolio of tenants who are Green Mark certified under the Green approach to certification include to improve their business models and Mark occupant-centric schemes.162 attract international attention to their brands. 64 Green Buildings | A Finance and Policy Blueprint BOX 18 Examples of large-scale commitments by property developers include the following: EchoStone plans to build 182,000 affordable, certified green homes in Lagos, Nigeria, by 2023. By working with local banks, it ensures that home buyers have access to low interest rates and long mortgage tenors. Vinte has committed to certifying its entire future portfolio at a rate of almost 4,000 homes per year in Mexico. The company has issued two sustainability bonds to finance the certification, guaranteeing investors climate-smart social impacts.166167 H OT E L S Hotels account for 1 percent of global emissions—a percentage that is Effecting change across the expected to increase as the industry continues to grow.168 Integrating sustainability measures into operations is critical for hotels, with industry through collaboration such efforts having an effect on most of the drivers of the industry’s Led by the CEOs of leading developers and financial growth: cost efficiency, city policies (both regulations and incentives), institutions, the Sustainable Housing Leadership internal sustainability goals, corporate/brand image, and better guest Consortium is a first-of-its-kind voluntary private sector satisfaction. Getting the design right at the outset is critical, as the cost consortium that works to mainstream green homes of resource-efficient solutions at this stage is marginal compared to in India. The consortium is committed to building and making corrective measures later. Sustainability efforts drive business certifying all of its new housing as green, contributing models and ultimately profitability, thereby positioning hotels to take 110 million square feet of green housing by 2020.160 The advantage of green finance options that lower long-term risk assessment aim is for at least 20 percent of India’s new housing from investors and lenders, and enhance the cost of financing. developments to be green by 2022. It is achieving this through scalable, market-ready technologies to decrease costs, working with the government to create an enabling policy environment for green buildings to become the mainstream choice, and stimulating demand for green homes through a multimedia awareness campaign targeting 7 million people. Building the Market for Green Buildings 65 B OX 1 9 AccorHotels’ sustainability-linked loan facility AccorHotels has made sustainability a core country. At the end of 2018, about 50 buildings between AccorHotels’ financing cost and its component of its long-term financing strategy. among all Accor and AccorInvest buildings were overall ESG performance; and the introduction It aims to contribute to limiting rising global certified or in the process of being certified.169 of an additional margin adjustment parameter temperatures by achieving carbon neutrality. linked to AccorHotels’ ESG score. The external AccorHotels’ commitment to sustainability is This requires more demanding green building score required by the financing is provided demonstrated in its corporate practices. Its requirements in the construction and by Sustainalytics, while various provisions are recent five-year, €1.2 billion multi-currency renovation phases, and constantly cutting its included in the documentation to ensure the senior unsecured revolving credit facility, led hotels’ energy consumption and emissions incentive mechanism is well implemented and by BNP Paribas, will be used in line with the through efficient equipment and building maintained.170 company’s sustainability ambitions. The facility’s design. Its constructions and renovations are pricing mechanism includes a correlation certified with the highest recognition in each 66 Green Buildings | A Finance and Policy Blueprint Leading hotel brands are turning to green certifications to help Global chains like Starbucks are championing green buildings, secure group business, such as corporate travel and conferences, as having pursued certification for every new, company-operated store corporations look to “green” their entire business: since 2008 globally. As of 2018, it has committed to designing, building, and operating 10,000 “greener stores” globally by 2025, under a framework developed with SCS Global Services and ITC Hotels has committed to the highest green building standard, WWF. These stores are expected to save $50 million in utilities with its entire portfolio of hotels across India certified as LEED expenses over the next 10 years, enhancing returns and appealing Platinum. Several measures were used to minimize its carbon to investors.175 footprint, reduce waste, and improve water efficiency while ensuring the comfort of hotel guests.171 Retail mall developers are also committing to building green. Novare Equity Partners—a developer of malls and retail stores Host Hotels & Resorts—the world’s largest lodging REIT, owning across Africa—recently sought green certification for the 93 properties with 52,000 rooms—collaborates with operators construction of the Novare Great North mall in Lusaka, Zambia, and managers to adopt industry best practices that improve to attract well-known African retailers Shoprite Holdings and Pick environmental performance and enhance asset value. Over the n Pay. The mall’s resource-efficient measures were implemented at past four years, Host has invested more than $210 million in a minimal additional cost and utility bills are expected to reduce by engineering projects with sustainability components, with expected over 40 percent.176 annual savings of $30 million. This equates to a 14 percent cash- on-cash return and about $320 million in enterprise value.172 H O S P I TA L S R E TA I L Hospital investors and operators are discovering that resource efficiency leads to better patient care. For example, the Costa Rican Social As brands with physical retail spaces seek new ways to stand out from Security Fund has built two lower-carbon medical clinics in Belén that online competitors and peers, sustainability has become an asset. Retail support Costa Rica’s commitment to become carbon neutral by 2021. centers typically spend 11 percent of their total operating costs and Through eco-efficient solutions, energy and water consumption are 19 percent of their net revenue on energy.173 By pursuing green building reduced. Operational savings can be used to buy better equipment and certification, they can reduce their overhead, minimize waste, and benefit pay for more medical professionals, improving patients’ wellbeing. The from decreased dependence on energy, while attracting customers who fund aims to become a model public institution for its connection to care about the environment. According to the Retail Industry Leaders communities and commitment to environmental performance.177 Association, 93 percent of global consumers expect the brands they use to support social and environmental issues.174 Developers and owners of retail stores can demonstrate achievement of ESG goals to their investors, customers, and other stakeholders. For example: Building the Market for Green Buildings 67 WA R E H O U S E S Modern warehouses are becoming sustainable facilities that serve as hubs for high-tech tracking, repackaging, and quality control testing. Chinese pharmaceutical distributor Jointown used green certification tools to identify resource efficiency opportunities in its 13 new warehouse distribution centers and three offices across six provinces. Introducing high-performance building envelopes; optimizing lighting, heating, and cooling systems; and using solar energy are expected to yield average energy savings that are 25 percent better than code requirements, reducing the warehouses’ costs and improving their profitability. Photo: ALP North’s three EDGE-certified warehouses in Kenya were D ATA C E N T E R S developed by Africa Logistics Properties. Data centers are significant users of energy. As the pace of digitization continues to increase, the demand for them will keep in step. Owners are planning for this by sustainably addressing their growing energy needs: Moving from commitments to scale Global platforms and individual and industry commitments have been CyrusOne is a global data center REIT. Two of its existing London critical to growing the green buildings market. Large property owners and facilities run on a 100 percent renewable energy tariff, which developers pledging to green their entire building portfolios has increased transfers the annual energy usage, equivalent to 52,000 households, awareness in the market, attracted green finance, and encouraged smaller to zero emissions sources. It has committed to running all new companies to follow suit. However, this progress has been uneven across data center inventories in London off renewable energy, benefiting the world, and the scale of initiatives and commitments has not kept up customers through reduced unit costs through the procurement with the rapid pace of urbanization and construction. process and exemptions from the Climate Change Levy.178 These voluntary efforts are key to maintaining momentum in the Microsoft has committed to pursuing LEED Gold certification sector and need to be scaled from individual to industry-level actions, for all of its data centers. Together with the U.S. Green Building particularly in emerging markets, allowing for concerted advancement Council, it has created standardized design and expected of green construction. Investors and banks must seize this momentum performance criteria for the LEED data centers standard, which and increase the flow of finance to owners and developers of green will serve as a blueprint for Microsoft and others to build buildings to incentivize scale and take advantage of the sizeable greener.179 investment opportunity they represent. Policymakers can expedite this by embedding consistent green requirements into construction and finance policy frameworks and providing incentives. Collectively, these efforts can sustain the transition towards a net zero carbon buildings sector by 2050. 68 Green Buildings | A Finance and Policy Blueprint Conclusion and Recommendations Conclusion and Recommendations T he future of building construction is green. It must be if we are to reach global climate goals and restrict global warming temperatures to under 1.5°C from pre-industrial levels. Green buildings can substantially reduce the carbon emissions that come from heating and cooling spaces and powering multiple appliances and devices. Reducing emissions through green buildings comes with a $24.7 trillion investment opportunity over the next decade across emerging market cities, which are growing and building at a rapid pace. There is a strong business case for investing in green buildings. They are more efficient than traditional buildings, driving up revenues and lowering operating costs. Equally important, they can reduce the risk of buildings becoming stranded assets as a result of their exposure to the physical and transition risks stemming from climate change. Realizing the full investment potential in green buildings is within reach. Technologies to build green are well known and easy to implement; and the cost of applying these technologies continues to decrease with their greater adoption. Furthermore, financing and investment mechanisms for constructing and operating buildings are well known. This report has identified and reviewed best practice approaches that can be replicated and scaled to move emerging markets towards green construction. A summary of recommended actions that key market players can take to translate the multitrillion-dollar investment opportunity in green buildings into investment projects is set out below. Investors and financiers Investors and financiers can do the following to build their green real estate portfolios: Investors and financiers hold tremendous influence in shaping and accelerating the capital-intensive real estate market’s transition to green • Develop a green buildings asset strategy and process, which relies on construction. This shift will help take advantage of the significant green building certification and labeling systems for industry-accepted green building investment opportunity and build stronger real estate definitions and eligibility criteria. investment portfolios resilient to financial, regulatory, and reputational • Create green buildings finance products that could include favorable risks associated with the transition to low-carbon economies. The financing terms to offset higher upfront costs of green construction for valuation of green properties can be higher because they have lower developers and home buyers. This will help jump-start the market and operating costs and higher occupancy rates and rental income. In the ensure a pipeline of projects. clean energy transition scenarios, the valuation of green buildings can • Determine appropriate funding sources to support the rollout of green increase further because they avoid the increasing likelihood of penalties buildings finance products, such as rapidly expanding the green bond imposed on carbon emissions. All these factors also make green and loan markets to provide additional capital for expanding green buildings a better credit risk asset and better collateral. buildings finance products. In emerging markets, banks and funds are starting to take it upon • Generate a pipeline of eligible projects by actively engaging developers themselves to educate developers and customers about the benefits of on the economic benefits of green construction and explaining the building and buying green and, at times, offer favorable financing terms long-term advantages of green homeownership to prospective buyers. to incentivize green construction and green homeownership. By doing so, financiers can develop new green finance products, capitalize on • Collect, analyze, and report data on the environmental and financial the first mover advantage to expand into new market segments, access performance of green real estate projects and the allocation of funds diverse and potentially cheaper sources of capital through the green to green projects. bond market, and build higher-value and lower-risk portfolios. Conclusion and Recommendations 71 Governments as investors and regulators Governments—national, subnational, and local—can create the right conditions for the growth of the green buildings market and provide As the world’s largest investor, owner, and operator of real estate, clarity and policy certainty to the private sector through regulations. To governments have significant power to shape the green buildings market. do so, they can: Governments set rules and create incentives for market players through policies, regulations, and monitoring compliance. By requiring and • Set national targets for emission reductions, sending a clear signal to incentivizing green construction practices, governments can help create a the market and setting clear objectives across ministries and different strong pipeline of green assets for banks and investors to finance. levels of government to develop enabling policies and regulations (energy codes, building energy codes, and green building codes). Governments stand to benefit from the transition to green construction both financially and in meeting their environmental and social • Adopt mandatory labeling and certification systems that can help objectives. Green public buildings deliver significant budget savings drive enforcement of policies and regulations and provide assurance to through paying lower utility bills. Green buildings can drive up tax the market that buildings meet the requirements. Training government revenue on profits from local businesses, which in turn are able to and industry professionals will optimize enforcement. benefit from lower operating costs. Green buildings can help strengthen • Develop and implement programs to incentivize practices that go countries’ energy and water security and help them achieve their goals beyond mandatory codes, including, as appropriate, tax incentives— to reduce emissions. income tax, VAT, and real estate tax breaks, grants for capital Governments can catalyze the green construction if they: expenditure buy-downs, interest rate rebates, and technical capacity- building programs. • Require all new public buildings to be built green in line with well- established green building certification systems. • Implement effective non-financial incentives, such as expedited and/ or preferential permitting processes and density bonuses—increased • Help build technical capacity in the market to design, build, appraise, height and/or footprint allowances—for green buildings. and finance green buildings. • Align financial regulations to incentivize the flow of finance to green • Put in place procurement policies for green building systems and buildings, including the definition of the green buildings as an asset appliances to incentivize the cost-efficient production of green heating class, the mechanism for monitoring allocation of finance to green and cooling equipment, as well as energy-efficient appliances and lighting. buildings, and reducing capital adequacy requirements for green • Collect, analyze, and report data on the environmental and financial buildings finance. Develop guidance for domestic markets on how to performance of green buildings to communicate the business case to issue green bonds. the market. Not all of these steps can, nor should they, be taken simultaneously • Develop incentives and programs to help cover higher upfront costs or in the same linear sequence in every market. They must be tailored of green construction and green homeownership to accelerate the and applied as best suited to local conditions, according to the legal transition to green construction beyond public buildings. frameworks, socioeconomic contexts, and developmental priorities in each market. 72 Green Buildings | A Finance and Policy Blueprint Developers and owners • Collect and analyze data comparing the business benefits of green and traditional properties. The data can be used to consider adjustments The green buildings market can also be shaped by progressive to the business model, such as integrating the impact of utility savings companies—developers and owners—that demonstrate a proof of into building valuation models. concept and pave the way for others to follow. Voluntary commitments and actions by these players have been critical in the absence of • Communicate data on the benefits of green buildings to customers and comprehensive policies and practices mandating and incentivizing green financiers to gain a competitive differentiation in the market. construction. Corporations and large brands around the world also drive voluntary Standard-setting organizations have contributed to these efforts by adoption of green building practices, as they make commitments to developing green building certification systems, building technical reduce emissions from their buildings and operations. In the process capacity, and continuously advocating for higher standards and bolder they benefit from lower utility bills and lower maintenance costs, and commitments from leading market players towards net zero carbon reduced legal and reputational risk. buildings. Recommendations for corporate property owners and operators include Certifying with well-established green building certification systems allows the following: developers to differentiate their products in the market and reap the • Communicate sustainability goals and actions to send clear signals to benefits of a green building label—including access to faster sales times developers and financiers. and higher sale premiums; additional sources of finance earmarked for • Acquire green buildings to benefit from lower operating costs and green lending, such as green bonds, green loans, and green funds; and higher revenue, and to ensure that the values of their assets are lower-priced loans. Additional benefits to developers include tax incentives, preserved over the long term. expedited permitting processes, and permissions to build higher. • Measure, analyze, and report resource usage and emission reductions, Based on best practice among progressive developers, others can as well as the financial benefits of owning and operating green consider the following recommendations: buildings. • Integrate green features into the project specification, contracts, and A common consideration for all market players is the importance of early design to find the most cost-effective way to build green. raising awareness of the business case for green buildings and building • Invest in green building certification to demonstrate compliance with technical capacity across markets. All market players have stepped today’s green finance criteria and to ensure market recognition by into this role, which not only serves their needs, but also contributes to customers. advancing the green buildings market. • Explore financial and non-financial incentives, as well as support Awareness and capacity-building efforts intend to support both new programs offered by national, subnational, and local authorities to entrants and those looking to increase their green building ambitions. build green. Increased collaboration among these initiatives will help generate robust • Explore specialized green construction finance products and other and transparent markets across all types of stakeholders. incentives offered by commercial banks and/or issue green bonds to access cheaper capital for green construction. Conclusion and Recommendations 73 To date, the most common material characteristics of green buildings have included energy efficiency and emission reductions measurements. Clear definitions and metrics enable the collection and reporting of information on the size and performance of green building portfolios, bringing transparency to the market. The availability of larger datasets enhances investors’ ability to make more informed decisions. Greater awareness of the business case for green buildings will help stimulate supply and demand in the market—growing a pipeline of green building assets and the financial products to finance them. Increased consumer awareness of the financial benefits of green buildings will further stimulate demand for green construction. It is critical that the market players continue to work towards widely accepted definitions and metrics for green buildings that can apply across geographies and enable skills transfer. It is important to ensure Photo: A construction worker on the job at DCM’s Elements that these definitions and metrics incentivize continuous improvement near Mexico City, which has received EDGE Advanced certification. Rooftop co-generation systems will provide along a progression scale, from a minimum of 20 percent energy- power to meet electricity and hot water demand. efficient improvements towards net zero carbon buildings. E X PA N D I N G S C O P E It is also vital to work towards reducing carbon emissions from the Future direction production of construction materials. The construction industry is the world’s largest consumer of raw materials such as cement, steel, bricks, NEED FOR DEFINITIONS AND METRICS aluminum, and glass. If embodied carbon is taken into consideration, Accepted definitions and metrics of what constitutes a green building are buildings are responsible for 40 percent of global greenhouse-gas foundational to the efforts by all market players to catalyze investment emissions.180 Addressing the issue of embodied carbon is particularly at the scale required to green the massive new construction market. important because emerging markets are in a construction boom. Definitions and metrics are essential for: A holistic approach to construction is needed to reduce buildings’ • Policymakers to establish minimum code requirements and provide emissions, from their development to the end of their lives. While outside incentives for the private sector and financial innovation. of the scope of this report, approaches to decarbonizing construction • Developers to create green building assets and get recognition from materials have been covered in separate IFC reports on the construction buyers and financiers for their superior quality. value chain.181 IFC is also working to address the issue of embodied carbon through its EDGE certification. EDGE is the only system that • Financiers to access capital markets for their portfolio of green requires efficiency in embodied energy in materials as a certification building assets. parameter and IFC aims to measure embodied carbon in the future. 74 Green Buildings | A Finance and Policy Blueprint Annex Building Awareness and coalitions, and other support mechanisms available to support new entrants and existing participants looking to increase their ambitions. Capacity Among Key Increasing awareness and building capacity can be done through policy development, financial support, and market-building initiatives, many of Market Players which are cross-cutting. This annex looks at some of these efforts. P O L I C Y D E V E LO P M E N T A N D S U P P O RT Implementation of Sustainable Consumption and Production in India The complex nature of buildings—and green buildings in particular— (SCP): Aims to generate awareness among policy and decision makers has generated a range of legal requirements, certification schemes, on the importance of adopting SCP approaches in India’s sustainable and marketing initiatives. To build awareness and capacity, there are development policy. a variety of supporting initiatives, exchanges, hubs, programs, and »» More info: https://www.oneplanetnetwork.org/initiative/implementation- projects. Efforts target a variety of audiences, including governments, sustainable-consumption-and-production-india developers, owners, investors, and other financial institutions, at the local, national, regional, and global levels. Increasing awareness and International Energy Agency (IEA) Global Exchange for Energy building capacity can be done through policy development, financial Efficiency: A resource for policymakers to learn about sector-specific support, and market building, with many additional cross-cutting policies and lessons learned around the world. initiatives: »» More info: https://www.iea.org/topics/energyefficiency/ • Policy: Capacity-building initiatives that focus on policy provide an overview of existing policies, as well as best practices and lessons Regional Policies Towards Green Buildings (REGREEN): Operates learned. across the EU, targeting developers and investors to improve regional development policies and promote green regions as part of a broader • Finance: Financial capacity-building efforts can help develop a green economy. pipeline of creditworthy and bankable projects. »» More info: http://www.re-green.eu/en/go/objectives • Cross-cutting activities and initiatives incorporate both finance and policy approaches to create demand and generate markets. These F I N A N C I A L S U P P O R T A N D M O B I L I Z AT I O N types of initiatives develop reporting frameworks and create tools to assist, quantify, and reduce the built environment’s impact. Asia Sustainable Finance Initiative (ASFI) Knowledge Hub: A multi- stakeholder forum in Singapore that supports financial institutions in A selection of relevant initiatives from these three categories is provided implementing ESG practices to harness and amplify the finance sector’s below. ability to create resilient economies that deliver on the Sustainable Development Goals and the Paris Agreement. Sample initiatives »» More info: https://www.asfi.asia/# Understanding the technical aspects of green buildings as well ENERFUND: An Energy Retrofit Funding Tool that rates and scores as the various certification schemes and marketing tactics can deep renovation opportunities based on a set of parameters, such as be overwhelming. There is a wide range of initiatives, alliances, energy performance certificates, the number of certified installers, 76 Green Buildings | A Finance and Policy Blueprint existing governmental schemes, and the quality of heating systems. It Kreditanstalt fuer Wiederaufbau (KfW) Energy Efficient Construction aims to enhance investments in the refurbishment of buildings across Program: Supports building and acquiring new energy-efficient Europe. residential buildings with low energy consumption and reduced carbon »» More info: http://enerfund.eu/ emissions. It offers an incentive reduction of between 5 percent and 15 percent on the total amount on which interest is paid, depending European Bank for Reconstruction and Development (EBRD) Green on achieved KfW energy efficiency building standards, in addition to Cities: Has over €1 billion in committed funds and is operational favorable interest rates. in more than 20 EU cities. It is focused on building a better and »» More info: https://www.kfw.de/kfw.de-2.html more sustainable future for cities and their residents by identifying, prioritizing, and connecting cities’ environmental challenges with MARKET BUILDING sustainable infrastructure investments and policy measures. »» More info: https://www.ebrdgreencities.com/about Better Buildings Initiative: A U.S. initiative that aims to enforce multifamily affordable rental housing and acts as a non-profit developer European Covered Bond Council: Energy Efficient Mortgages Initiative to make commercial, public, industrial, and residential buildings (EeMI) is organized by the European Covered Bond Council and 20 percent more energy efficient over the next decade. consists of EeMAP (Energy efficient Mortgages Action Plan) and »» More info: https://betterbuildingssolutioncenter.energy.gov/ EeDaPP (Energy efficient Data Protocol and Portal). Both projects are funded via the European Commission’s Horizon 2020 Programme. Concrete Sustainability Council: Partners from Europe, the United »» More info: https://hypo.org/ecbc/market-initiative/emf-ecbc-energy-mortgages- States, Latin America, and Asia promote and demonstrate concrete initiative/ as a sustainable building material to enable informed decisions in construction. The council uses its certification system for responsibly Financing Sustainable Cities Initiative (FSCI): A partnership between sourced concrete, which includes the complete concrete supply chain: the World Resources Institute (WRI) Ross Center for Sustainable cement producers, aggregates suppliers, and concrete manufacturers. Cities, C40 Cities Climate Leadership Group, and Citi Foundation. »» More info: https://www.concretesustainabilitycouncil.com/ Main components include the development of a peer-to peer learning community, technical assistance, and an online engagement platform. Construction Industry Development Board (CIDB) Malaysia, »» More info: http://financingsustainablecities.org/ Sustainable Construction Excellence Centre (MAMPAN), and Malaysian Carbon Reduction & Environmental Sustainability Tool (MyCREST): Global Alliance for Buildings and Construction (GABC): A UN CIDB Malaysia regulates, develops, and facilitates the construction initiative that aims to increase the pace and scale of the green buildings industry by delivering a high-quality and sustainable built environment. transformation and to keep the buildings and construction sector on MAMPAN focuses on sustainable construction. MyCREST aims to warming path of well below 2°C. GABC’s Programme for Energy guide, quantify, and reduce the built environment’s carbon impact Efficiency in Buildings (PEEB) combines financing for energy efficiency while considering a more holistic view of the built environment and in large-scale projects with technical assistance through policy advice integrating socioeconomic considerations. and expertise for building sector professionals. »» More info: http://www.cidb.gov.my/index.php/en/focus-areas/sustainable- »» More info: https://globalabc.org/ and https://www.peeb.build/ construction and http://www.cidb.gov.my/index.php/en/bidang-utama/ pembinaan-mampan/mycrest Annex 77 European Commission Level(s) program: A voluntary reporting UN Green Growth Knowledge Partnership (GGKP): Consists of three framework to improve the sustainability of buildings. Using existing knowledge platforms—the Green Growth Knowledge Platform, the standards, Level(s) provides a common EU approach to the assessment Green Industry Platform, and the Green Finance Platform. They offer of environmental performance in the built environment. quick and easy access to the latest research, case studies, toolkits, »» More info: https://ec.europa.eu/environment/eussd/buildings.htm learning products, principles, and protocols to empower policymakers and advisors, small and medium-sized enterprises, and banks, insurance, Energy in Buildings and Community Program (EBC): Allows researchers and investment firms to make evidence-based decisions about how to and experts funded by national programs and industry to pool their green their operations. collective expertise to produce high-quality project outputs, creating and »» More info: https://www.greengrowthknowledge.org/sector/buildings reinforcing technical networks. »» More info: https://iea-ebc.org/ebc/about UN Sustainable Buildings and Climate Initiative (SBCI): A UNEP initiative that promotes and supports sustainable building practices Passive House Institute: Researches and develops construction concepts, on a global scale with a focus on energy efficiency and greenhouse-gas building components, planning tools, and quality assurance for energy- emissions reduction. SBCI brings together stakeholders involved in the efficient buildings. The institute provides building consultancy and building, planning, and policymaking process at the local, national, and technical guidance. international level by providing a platform for dialogue and collective »» More info: https://passivehouse.com/ action. »» More info: https://www.unenvironment.org/explore-topics/resource-efficiency/ SBT4buildings: A World Business Council for Sustainable Development what-we-do/cities/sustainable-buildings (WBCSD) initiative to accelerate the transformation of the built environment to reduce carbon emissions and pave the way to a net zero WBSCD Energy Efficiency in Buildings Amplify (EEB Amplify): built environment by 2050. It develops guidance for companies in the A convening vehicle for the private sector to engage with local building and construction system that want to set their carbon reduction governments and collaborate on ensuring that the right policies, funding targets in line with keeping global warming below 1.5°C. mechanisms, capacity-building programs, and awareness initiatives are »» More info: https://www.wbcsd.org/Programs/Cities-and-Mobility/Sustainable- in place to maximize market growth of energy-efficient buildings. Cities/Science-based-targets »» More info: https://www.wbcsd.org/Programs/Cities-and-Mobility/Energy- Efficiency-in-Buildings/Resources/EEB-Amplify-2017-2020 UNEP United for Efficiency (U4E): A UNEP-led global effort that informs policymakers of the potential environmental, financial, and economic savings of a transition to high-efficiency products; identifies and promotes global best practices in transforming markets; and offers tailored assistance to governments to develop and implement national and regional strategies and projects to achieve a fast and sustainable market transformation. »» More info: https://united4efficiency.org/ 78 Green Buildings | A Finance and Policy Blueprint Acronyms and Endnotes Acronyms BREEAM Building Research Establishment Environmental Assessment Method C Celsius ECBC Energy Conservation Building Code EDGE Excellence in Design for Greater Efficiencies ESG Environmental, social, and governance EU European Union GBEL Green Building Evaluation Label GRESB Global Real Estate Sustainability Benchmark IFC International Finance Corporation IHS International Housing Solutions LED Light-emitting diode LEED Leadership in Energy and Environmental Design NDC Nationally Determined Contribution REIT Real estate investment trust RoGBC Romania Green Building Council UK United Kingdom UN United Nations US United States USD United States dollar VAT Value-added tax 80 Green Buildings | A Finance and Policy Blueprint Endnotes 1 IFC (2018), Climate Investment Opportunities in Cities, available at: https://www.ifc.org/wps/wcm/connect/ 24 Philippine Daily Inquirer (2019), World’s first “EDGE Zero Carbon” building is in PH, available at: https:// topics_ext_content/ifc_external_corporate_site/climate+business/resources/cioc-ifc-analysis. business.inquirer.net/280824/worlds-first-edge-zero-carbon-building-is-in-ph. 2 United Nations, Department of Economic and Social Affairs, Population Division (2017), Probabilistic 25 See https://www.worldgbc.org/thecommitment. Population Projections based on the World Population Prospects: The 2017 Revision, available at http://esa. un.org/unpd/wpp/. 26 IEA/UNEP (2017), Global Status Report 2017, available at: www.globalabc.org. 3 World Green Building Council (2013), The Business Case for Green Building: A Review of the Costs and Benefits 27 IEA/UNEP (2017), Global Status Report 2017, available at: www.globalabc.org. for Developers, Investors and Occupants, available at: https://www.worldgbc.org/news-media/business- 28 IEA/UNEP (2018), 2018 Global Status Report, available at: https://www.globalabc.org/uploads/media/ case-green-building-review-costs-and-benefits-developers-investors-and-occupants. default/0001/01/0bf694744862cf96252d4a402e1255fb6b79225e.pdf. 4 World Green Business Council (2013), The Business Case for Green Building: A Review of the Costs and 29 Principles for Responsible Investment/UNEP FI/UN Global Compact (2018), Impact Investing Market Map, Benefits for Developers, Investors and Occupants, available at: https://www.worldgbc.org/sites/default/files/ available at: https://www.unpri.org/thematic-and-impact-investing/impact-investing-market-map-green- Business_Case_For_Green_Building_Report_WEB_2013-04-11-2.pdf. buildings/3540.article. 5 Fuerst, F. and McAllister, P. (2011), Green Noise or Green Value? Measuring the Effects of Environmental 30 IEA/UNEP (2017), Global Status Report 2017, available at: www.globalabc.org. Certification on Office Values, available at: http://immobilierdurable.eu/images/2128_uploads/Fuerst_article_ autoris_.pdf. 31 Globe Newswire (2019), Green Building Market 2019: Global Industry Overview By Historical Analysis, Comprehensive Research Study, Opportunities, Competitive Landscape and Regional Trends by Forecast 6 World Green Business Council (2013), The Business Case for Green Building: A Review of the Costs and to 2023, available at: https://www.globenewswire.com/news-release/2019/06/12/1867490/0/en/Green- Benefits for Developers, Investors and Occupants, available at: https://www.worldgbc.org/sites/default/files/ Building-Market-2019-Global-Industry-Overview-By-Historical-Analysis-Comprehensive-Research-Study- Business_Case_For_Green_Building_Report_WEB_2013-04-11-2.pdf. Opportunities-Competitive-Landscape-and-Regional-Trends-by-Forecast-to-2023.html. 7 Eichholtz, P., Nils Kok, N., and Quigley, J. (2010), Why Companies Rent Green: CRS and the Role of Real Estate, 32 Globe Newswire (2019), Green Building Market 2019: Global Industry Overview By Historical Analysis, available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.457.4571&rep=rep1&type=pdf. Comprehensive Research Study, Opportunities, Competitive Landscape and Regional Trends by Forecast 8 IEA/UNEP (2018), 2018 Global Status Report, available at: https://www.globalabc.org/uploads/media/ to 2023, available at: https://www.globenewswire.com/news-release/2019/06/12/1867490/0/en/Green- default/0001/01/0bf694744862cf96252d4a402e1255fb6b79225e.pdf. Building-Market-2019-Global-Industry-Overview-By-Historical-Analysis-Comprehensive-Research-Study- Opportunities-Competitive-Landscape-and-Regional-Trends-by-Forecast-to-2023.html. 9 IEA/UNEP (2017), Global Status Report 2017, available at: www.globalabc.org. 33 Dodge Data & Analytics (2018), World Green Building and Construction Trends 2018, available at: https://www. 10 See https://www.iea.org/topics/energyefficiency/buildings/. construction.com/toolkit/reports/world-green-building-trends-2018. 11 IEA/UNEP (2017), Global Status Report 2017, available at: www.globalabc.org. 34 IFC (2018), Climate Investment Opportunities in Cities, available at: https://www.ifc.org/wps/wcm/connect/ topics_ext_content/ifc_external_corporate_site/climate+business/resources/cioc-ifc-analysis. 12 See https://www.usaid.gov/energy/efficiency/economic-impacts. 35 The calculation considers the projected growth in building stock and the climate commitments by city and 13 IEA (2019), Perspectives for the Clean Energy Transition, available at: https://www.iea.org/publications/ national governments (including Nationally Determined Contributions), and green construction targets reports/PerspectivesfortheCleanEnergyTransition/. and investment plans contained in city action plans and other policy documents. For further detail on 14 IEA (2019), Perspectives for the Clean Energy Transition, available at: https://www.iea.org/publications/ methodology, see IFC’s Climate Investment Opportunities in Cities report (2018). reports/PerspectivesfortheCleanEnergyTransition/. 36 IFC (2018), Climate Investment Opportunities in Cities, available at https://www.ifc.org/wps/wcm/connect/ 15 See https://www.worldgbc.org/what-green-building. topics_ext_content/ifc_external_corporate_site/climate+business/resources/cioc-ifc-analysis. 16 IFC (2018), Climate Metrics for Intermediary Financing, Version 1.3. 37 Dodge Data & Analytics (2018), World Green Building Trends 2018: Middle East/North Africa, available at: https://www.worldgbc.org/sites/default/files/SMR0918_MENA_24Nov18.pdf. 17 IFC (2018), Climate Metrics for Intermediary Financing, Version 1.3. 38 IFC (2018), Climate Investment Opportunities in Cities, available at: https://www.ifc.org/wps/wcm/connect/ 18 UN Environment Inquiry/Climate Strategy & Partners (2017), Green Tagging: Mobilising Bank Finance for topics_ext_content/ifc_external_corporate_site/climate+business/resources/cioc-ifc-analysis. Energy Efficiency in Real Estate, available at: https://unepinquiry.org/publication/green-tagging-mobilising- bank-finance-for-energy-efficiency-in-real-estate/. 39 IFC (2018), Climate Investment Opportunities in Cities, available at: https://www.ifc.org/wps/wcm/connect/ topics_ext_content/ifc_external_corporate_site/climate+business/resources/cioc-ifc-analysis. 19 See https://www.usgbc.org/education/sessions/qatar-green-building-conference-2015/closing-performance- gap-6085290. 40 Residential buildings include apartments, condominiums, single or multifamily homes, and dormitories. 20 See https://www.epcregister.com/. 41 Commercial buildings include office buildings, medical centers and hospitals, educational buildings, hotels and restaurants, retail buildings and malls, institutional and assembly buildings, transport-related buildings, and 21 Paulson Institute (2019), Insuring to Ensure Green Buildings, available at: http://www.paulsoninstitute.org/ warehouses. paulson-blog/2019/05/06/insuring-to-ensure-green-buildings/. 42 McKinsey Global Institute (2016), Addressing the Global Affordable Housing Challenge, available at: http:// 22 World Resources Institute (2019), Accelerating Building Decarbonization: Eight Attainable Policy Pathways to pubdocs.worldbank.org/en/773591464879251915/housing-finance-conference2016-session-1-presentations. Net Zero Carbon Buildings for All, available at: https://wriorg.s3.amazonaws.com/s3fs-public/accelerating- pdf. building-decarbonization.pdf. 43 McKinsey Global Institute (2014), A blueprint for addressing the global affordable housing challenge, available 23 Plautz, J. (2019), Boston to require carbon neutral design for new city buildings, available at: https://www. at: https://www.mckinsey.com/featured-insights/urbanization/tackling-the-worlds-affordable-housing- smartcitiesdive.com/news/boston-to-require-carbon-neutral-design-for-new-city-buildings/564624/. challenge. Acronyms and Endnotes 81 44 JLL/Indian Chamber of Commerce (2016), Affordable Housing in India, Key Initiatives for Inclusive Housing for 66 The Nassau Guardian (2019), Dorian caused $7B in damage to the Bahamas, estimates catastrophic modeling All, available at: https://smartnet.niua.org/sites/default/files/resources/Affordable%20Housing-ICC%20-%20 firm, available at: https://thenassauguardian.com/2019/09/09/dorian-caused-7b-in-damage-to-the- Final.pdf. bahamas-estimates-catastrophic-modeling-firm/. 45 Bloomberg (2019), Kenya on Course to Deliver 500,000 Homes by 2022, President Says, available at: https:// 67 World Bank (2019), Lifelines: The Resilient Infrastructure Opportunity, Sustainable Infrastructure Series, www.bloomberg.com/news/articles/2019-06-01/kenya-on-course-to-deliver-500-000-homes-by-2022- available at: https://openknowledge.worldbank.org/handle/10986/31805. president-says. 68 Johnson Controls (2018), Energy Efficiency Indicator Survey, available at: https://www.johnsoncontrols.com/ 46 IEA/UNEP (2018), 2018 Global Status Report, available at: https://www.globalabc.org/uploads/media/ media-center/news/press-releases/2018/11/15/2018-energy-efficiency-indicator-survey. default/0001/01/0bf694744862cf96252d4a402e1255fb6b79225e.pdf. 69 IEA/UNEP (2018), 2018 Global Status Report, available at: https://www.globalabc.org/uploads/media/ 47 Ecofys/NewClimate Institute/Climate Analytics (2016), CAT Decarbonisation Series, Constructing the Future: default/0001/01/0bf694744862cf96252d4a402e1255fb6b79225e.pdf. Will the Building Sector Use Its Decarbonisation Tools?, available at: https://climateanalytics.org/media/ cat_decarbonisation_series_buildings.pdf. 70 World Green Building Council (2013), The Business Case for Green Building: A Review of the Costs and Benefits for Developers, Investors and Occupants, available at: https://www.worldgbc.org/news-media/business- 48 Environment + Energy Leader (2018), Energy Retrofit Systems Market to Grow 8% by 2023, available at: case-green-building-review-costs-and-benefits-developers-investors-and-occupants. https://www.environmentalleader.com/2018/11/energy-retrofit-systems-market-to-grow-8-by-2023/. 71 IMF (2016), Working Paper: From Global Savings Glut to Financing Infrastructure: The Advent of Investment 49 UNEP Finance Initiative (2014), Commercial Real Estate, Unlocking the Energy Efficiency Retrofit Investment Platforms, available at: https://www.imf.org/external/pubs/ft/wp/2016/wp1618.pdf. Opportunity, available at: https://www.unepfi.org/publications/investment-publications/property- publications/commercial-real-estate-unlocking-the-energy-efficiency-retrofit-investment-opportunity/. 72 Institutional Real Estate, Inc (2018), 2018 Institutional Investors Real Estate Trends, available at: https://irei. com/wp-content/uploads/woocommerce_uploads/2018/04/2018_IRE-Trends-Survey.pdf. 50 World Green Building Council (2013), The Business Case for Green Building: A Review of the Costs and Benefits for Developers, Investors and Occupants, available at: https://www.worldgbc.org/news-media/business- 73 G20 Energy Efficiency Finance Task Group/IEA/UNEP FI/IPEEC (2017), G20 Energy Efficiency Investment case-green-building-review-costs-and-benefits-developers-investors-and-occupants. Toolkit, available at: https://www.unepfi.org/wordpress/wp-content/uploads/2017/05/G20-EE-Toolkit.pdf. 51 Shared Value Initiative, 2019 Fortune Change the World List, available at https://www.sharedvalue.org/ 74 See https://www.prnewswire.com/news-releases/residential-mortgages-market-worth-31k-billion-globally- groups/2019-fortune-change-world-list by-2018-289672451.html. 52 Institute for Market Transformation/UNC Center for Community Capital (2013), Home Energy Efficiency 75 The Global Real Estate Sustainability Benchmark (GRESB) has become the benchmark for environmental, and Mortgage Risks, available at: https://www.imt.org/wp-content/uploads/2018/02/IMT_UNC_ social, and governance (ESG) reporting for real assets, aligned with international reporting standards such HomeEEMortgageRisksfinal.pdf. as the Global Reporting Initiative and Principles for Responsible Investment. GRESB works in collaboration with the real estate industry and institutional investors to provide standardized and validated ESG data to the 53 World Green Business Council (2013), The Business Case for Green Building: A Review of the Costs and capital markets. Benefits for Developers, Investors and Occupants, available at: https://www.worldgbc.org/sites/default/files/ Business_Case_For_Green_Building_Report_WEB_2013-04-11-2.pdf. 76 ABN AMRO (2018), Summary – Sustainability Requirements for Commercial Real Estate, available at: https:// www.abnamro.com/en/images/Documents/040_Sustainable_banking/070_Sustainability_policy/ABN_ 54 Bushnell, S. G. (2010), Insurance and Going Green, available at: https://www.insurancejournal.com/ AMRO_CRE_Sustainability_Policy_summary.pdf magazines/mag-features/2010/11/14/160495.htm. 77 ABN AMRO (2016), ABN AMRO makes 1 billion euros available for energy transition of real estate clients, 55 Eichholtz, P., Kok, N., and Quigley, J. (2010), Why Companies Rent Green: CRS and the Role of Real Estate , available at: https://www.abnamro.com/en/newsroom/press-releases/2016/abn-amro-makes-1-billion- available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.457.4571&rep=rep1&type=pdf. euros-available-for-energy-transition-of-real-estate-clients.html 56 World Green Business Council (2013), The Business Case for Green Building: A Review of the Costs and 78 Better Buildings Partnership (2017), BEYOND RISK MANAGEMENT: How sustainability is driving innovation Benefits for Developers, Investors and Occupants, available at: https://www.worldgbc.org/sites/default/files/ in commercial real estate finance, available at: https://www.hermes-investment.com/wp-content/ Business_Case_For_Green_Building_Report_WEB_2013-04-11-2.pdf. uploads/2018/10/beyond-risk-management_how-sustainability-is-driving-innovation-in-commercial-real- estate-finance.pdf 57 World Green Business Council (2013), The Business Case for Green Building: A Review of the Costs and Benefits for Developers, Investors and Occupants, available at: https://www.worldgbc.org/sites/default/files/ 79 UN Environment Inquiry/Climate Strategy & Partners (2017), Green Tagging: Mobilising Bank Finance for Business_Case_For_Green_Building_Report_WEB_2013-04-11-2.pdf. Energy Efficiency in Real Estate, available at: https://unepinquiry.org/publication/green-tagging-mobilising- bank-finance-for-energy-efficiency-in-real-estate/. 58 Fuerst, F. and McAllister, P. (2011), Green Noise or Green Value? Measuring the Effects of Environmental Certification on Office Values, available at: http://immobilierdurable.eu/images/2128_uploads/Fuerst_article_ 80 See https://eemap.energyefficientmortgages.eu/. autoris_.pdf. 81 See https://www.linklaters.com/en-us/insights/thought-leadership/sustainable-finance/the-rise-of-green- 59 Institute for Market Transformation/UNC Center for Community Capital (2013), Home Energy Efficiency loans-and-sustainability-linked-lending. and Mortgage Risks, available at: https://www.imt.org/wp-content/uploads/2018/02/IMT_UNC_ HomeEEMortgageRisksfinal.pdf. 82 Climate Bonds Initiative (2018), Green Bonds: The State of The Market 2018, available at: https://www. climatebonds.net/files/reports/cbi_gbm_final_032019_web.pdf. 60 City Lab (2019), New York City Passes Sweeping Climate Legislation, available at: https://www.citylab.com/ environment/2019/04/new-york-city-climate-mobilization-act-energy-efficient-buildings/587548/. 83 G20 Energy Efficiency Finance Task Group/IEA/UNEP FI/IPEEC (2017), G20 Energy Efficiency Investment Toolkit, available at: https://www.unepfi.org/wordpress/wp-content/uploads/2017/05/G20-EE-Toolkit.pdf. 61 Institute for Market Transformation/UNC Center for Community Capital (2013), Home Energy Efficiency and Mortgage Risks, available at: https://www.imt.org/wp-content/uploads/2018/02/IMT_UNC_ 84 Bushnell, S. G. (2010), Insurance and Going Green, available at: https://www.insurancejournal.com/ HomeEEMortgageRisksfinal.pdf. magazines/mag-features/2010/11/14/160495.htm. 62 See https://www.worldgbc.org/benefits-green-buildings. 85 See http://www.mohurd.gov.cn/wjfb/201703/t20170314_230978.html. 63 Climate Bonds Initiative (2018), Green Bonds: The State of The Market 2018, available at: https://www. 86 Better Buildings Partnership (2017), Beyond Risk Management: How sustainability is driving innovation in climatebonds.net/files/reports/cbi_gbm_final_032019_web.pdf. commercial real estate finance, available at: http://www.betterbuildingspartnership.co.uk/beyond-risk- management-how-sustainability-driving-innovation-commercial-real-estate-finance. 64 International Labour Organization (2018), Greening with Jobs—World Employment and Social Outlook 2018, available at: https://www.ilo.org/weso-greening/. 87 https://www.energy.gov/eere/slsc/property-assessed-clean-energy-programs. 65 Forbes (2017), Solving the Mystery of Government-Owned Real Estate, available at: https://www.forbes.com/ 88 Infonavit (2011), GREEN MORTGAGE PROGRAM INFONAVIT—MÉXICO, available at: http://www.ecpamericas. sites/bisnow/2017/04/11/solving-the-mystery-of-government-owned-real-estate/#6d47309f2bd0. org/data/files/Initiatives/energy_efficiency_working_group/eewg_mexico_workshop/infonavit.pdf 89 IEA/UNEP (2018), 2018 Global Status Report, available at: https://www.globalabc.org/uploads/media/ default/0001/01/0bf694744862cf96252d4a402e1255fb6b79225e.pdf. 82 Green Buildings | A Finance and Policy Blueprint 90 U.S. Green Building Council/C40/World Green Building Council (2015), Green Building City Market Briefs, 121 See https://busquedas.elperuano.pe/normaslegales/ordenanza-de-promocion-de-edificaciones-sostenibles- available at: https://www.c40.org/researches/c40-usgbc-and-wgbc-green-building-city-market-brief- en-zonas-ordenanza-no-610-msb-1710516-1/. compendium. 122 See https://www.edgebuildings.com/market-players/governments/. 91 IEA/UNEP (2018), 2018 Global Status Report, available at: https://www.globalabc.org/uploads/media/ default/0001/01/0bf694744862cf96252d4a402e1255fb6b79225e.pdf. 123 See https://www.edgebuildings.com/market-players/governments/#toggle-id-7. 92 IEA/UNEP (2018), 2018 Global Status Report, available at: https://www.globalabc.org/uploads/media/ 124 BPIE (2016), Building Renovation Passports: Customised roadmaps towards deep renovation and better default/0001/01/0bf694744862cf96252d4a402e1255fb6b79225e.pdf. homes, available at: http://bpie.eu/wp-content/uploads/2017/01/Building-Passport-Report_2nd-edition.pdf. 93 UNEP (2018), A Guide for Incorporating Buildings Actions in NDCs, available at: https://www.globalabc.org/ 125 See https://www.c2es.org/content/market-based-strategies/. uploads/media/default/0001/02/05f09bba8699afcc3115c02ce6daa96eaa0920a7.pdf. 126 IFC (2019), Greening Construction: The Role of Carbon Pricing, available 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Perform Achieve and Trade—Hotel under PAT Sectors, available at: https:// bitstream/handle/20.500.11822/20919/GlobalReview_Sust_Procurement.pdf?sequence=1&isAllowed=y. beeindia.gov.in/sites/default/files/Perform%20Achieve%20and%20Trade%20-%20Hotel%20under%20PAT%20 102 The Economic Times (2019), Over 25 crore LED bulbs distributed under UJALA scheme: EESL, available at: sectors.pdf https://economictimes.indiatimes.com/industry/energy/power/over-25-crore-led-bulbs-distributed-under- 132 Resources for the Future (2016), Pricing Carbon Consumption, available at: https://media.rff.org/documents/ ujala-scheme-eesl/articleshow/59635515.cms. RFF-DP-16-49.pdf. 103 See https://eeslindia.org/content/raj/eesl/en/Programmes/UJALA/About-UJALA.html. 133 ACEEE (2016), Learning from 19 Carbon Taxes: What Does the Evidence Show?, available at: https://aceee.org/ 104 See https://eeslindia.org/content/raj/eesl/en/Programmes/UJALA/About-UJALA.html. files/proceedings/2016/data/papers/9_49.pdf. 105 See https://eeslmart.in/. 134 Resources for the Future (2016), Pricing Carbon Consumption, available at: https://media.rff.org/documents/ RFF-DP-16-49.pdf. 106 Agyepong and Nhamo (2016), Green procurement in South Africa: Perspectives on legislative provisions in metropolitan municipalities, available at: https://link.springer.com/article/10.1007/s10668-016-9865-9. 135 Resources for the Future (2016), Pricing Carbon Consumption, available at: https://media.rff.org/documents/ RFF-DP-16-49.pdf. 107 Agyepong and Nhamo (2016), Green procurement in South Africa: Perspectives on legislative provisions in metropolitan municipalities, available at: https://link.springer.com/article/10.1007/s10668-016-9865-9. 136 ACEEE (2016), Learning from 19 Carbon Taxes: What Does the Evidence Show?, available at: https://aceee.org/ files/proceedings/2016/data/papers/9_49.pdf. 108 See https://www.oneplanetnetwork.org/initiative/green-public-procurement-republic-korea. 137 Marie-Laure, N., Branger, F., and Quirion, P. (2014), Abating CO2 emissions in the building sector: The role of 109 GreenBiz (2017), First global standard for sustainable procurement hits the market, available at: https://www. carbon pricing and regulations, available at: https://cecilia2050.eu/system/files/Marie-Laure%20et%20al.%20 greenbiz.com/article/first-global-standard-sustainable-procurement-hits-market. %282014%29_Abating%20CO2%20emissions%20in%20the%20building%20sector.pdf. 110 ISO (2017), Sustainable Procurement—Guidance, available at: https://www.iso.org/obp/ 138 IFC (2019), Greening Construction: The Role of Carbon Pricing, available at: https://www.ifc.org/wps/ ui#iso:std:iso:20400:ed-1:v1:en:sec:4. wcm/connect/topics_ext_content/ifc_external_corporate_site/climate+business/resources/greening- construction. 111 IFC (2019), Greening Construction: The Role of Carbon Pricing, available at: https://www.ifc.org/wps/ wcm/connect/topics_ext_content/ifc_external_corporate_site/climate+business/resources/greening- 139 See https://www.banque-france.fr/en/financial-stability/international-role/network-greening-financial- construction. system/about-us. 112 See https://www.iea.org/tcep/buildings/. 140 Network for Greening the Financial System (2019), A Call for Action Report, available at: https://www. banque-france.fr/sites/default/files/media/2019/04/17/ngfs_first_comprehensive_report_-_17042019_0.pdf. 113 IEA (2018), Market Report Series: Energy Efficiency 2018, available at: https://webstore.iea.org/download/ direct/2369?fileName=Market_Report_Series_Energy_Efficiency_2018.pdf. 141 See https://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/sustainability- at-ifc/company-resources/sustainable-finance/sbn. 114 IEA (2018), Market Report Series: Energy Efficiency 2018, available at: https://webstore.iea.org/download/ direct/2369?fileName=Market_Report_Series_Energy_Efficiency_2018.pdf. 142 See https://www.edgebuildings.com/market-players/governments/#toggle-id-3. 115 See https://www.edgebuildings.com/market-players/governments/#toggle-id-1. 143 See https://www.iea.org/policiesandmeasures/pams/lebanon/name-158840-en.php. 116 See https://www.edgebuildings.com/market-players/governments/#toggle-id-2. 144 Campiglio, E. (2014), Beyond carbon pricing: The role of banking and monetary policy in financing the transition to a low-carbon economy, available at: http://www.lse.ac.uk/GranthamInstitute/wp-content/ 117 See https://www.edgebuildings.com/market-players/governments/#toggle-id-5. uploads/2014/06/Working-Paper-160-Campiglio-20142.pdf. 118 See https://www.iea.org/policiesandmeasures/pams/japan/name-24270-en.php. 145 Climate Bonds Initiative (2018), Green Bonds: The State of the Market 2018, available at: https://www. 119 KPMG International (2015), Taxes and Incentives for Renewable Energy, available at: https://assets.kpmg/ climatebonds.net/files/reports/cbi_gbm_final_032019_web.pdf. content/dam/kpmg/pdf/2015/09/taxes-and-incentives-2015-web-v2.pdf. 146 Climate Bonds Initiative (2018), Green Bonds: The State of the Market 2018, available at: https://www. 120 City of Mandaluyong (2014), Ordinance No. 535, S-2014: Green Building Regulations of Mandaluyong City, climatebonds.net/files/reports/cbi_gbm_final_032019_web.pdf. available at: http://www.mandaluyong.gov.ph/updates/downloads/files/merged.pdf. Acronyms and Endnotes 83 147 IEA/UNEP (2018), 2018 Global Status Report, available at: https://www.globalabc.org/uploads/media/ 167 Delegation of the European Union to India and Bhutan (2017), The Sustainable Housing Leadership default/0001/01/0bf694744862cf96252d4a402e1255fb6b79225e.pdf. Consortium launches #greenhomes campaign for 20% of India’s new homes to become green by 2022, available at: https://eeas.europa.eu/delegations/india_en/30112/The%20Sustainable%20Housing%20 148 IEA/UNEP (2018), 2018 Global Status Report, available at: https://www.globalabc.org/uploads/media/ Leadership%20Consortium%20launches. default/0001/01/0bf694744862cf96252d4a402e1255fb6b79225e.pdf. 168 Urban Land Institute (2019), Sustainability in Hotels, available at: https://americas.uli.org/wp-content/ 149 IEA/UNEP (2017), Global Status Report 2017, available at: www.globalabc.org. uploads/sites/2/ULI-Documents/ULI-HotelSustainabilityReport.pdf. 150 For example, in East Asia, Indonesia has GREENSHIP; Malaysia has GBI (Green Building Index); the Philippines 169 ACCOR (2018), 2018 Registration Document, available at: https://s3-us-west-2.amazonaws.com/ungc- has BERDE (Building for Ecological Responsive Design Excellence); Singapore has GREENMARK; Thailand production/attachments/cop_2019/476637/original/ACCOR_2018_RD.pdf?1563202028. has TREES (Thai’s Rating of Energy and Environmental Sustainability); and Vietnam has LOTUS (by Vietnam Green Building Council or VGBC) and new rating tool VACEE (by Vietnam Association of Civil Engineering 170 See https://cib.bnpparibas.com/sustain/accommodating-sustainability_a-3-2196.html. Environment). In the Middle East and North Africa, Egypt has TARSHEED, Abu Dhabi has the Pearl Rating System for Estidama, and Lebanon has the ARZ. 171 See https://gbci.org/leed-itc-hotels-video. 151 See https://www.iea.org/tcep/buildings/buildingenvelopes/ 172 Urban Land Institute (2019), Sustainability in Hotels, available at: https://americas.uli.org/wp-content/ uploads/sites/2/ULI-Documents/ULI-HotelSustainabilityReport.pdf. 152 See https://gresb.com/2019-real-estate-results/. 173 See https://www.edgebuildings.com/building-types/retail/. 153 See https://gresb.com/2019-real-estate-results/. 174 Retail Industry Leaders Association (2016), The Value of Sustainability in Retail Marketing, available at: http:// 154 Whole Building Design Guide (2019), Green Building Standards and Certification Systems, available at: https:// www.retailcrc.org/sustainability/Lists/Briefings/Attachments/14/RILA%20Issue%20Brief%20-%20The%20 www.wbdg.org/resources/green-building-standards-and-certification-systems. Value%20of%20Sustainability%20in%20Retail%20Marketing.pdf. 155 See https://www.export.gov/apex/article2?id=China-Construction-and-Green-Building. 175 MarketWatch (2018), Starbucks Announces Global Greener Stores Commitment, available at: https://www. marketwatch.com/press-release/starbucks-announces-global-greener-stores-commitment-2018-09-13. 156 See https://www.export.gov/apex/article2?id=China-Construction-and-Green-Building. 176 See https://www.edgebuildings.com/projects/novare-great-north/. 157 IEA (2019), Perspectives for the Clean Energy Transition, available at: https://www.iea.org/publications/ reports/PerspectivesfortheCleanEnergyTransition/. 177 See https://www.edgebuildings.com/green-hospitals/. 158 See https://www.theclimategroup.org/EP100-members. 178 FM Link (2019), CyrusOne’s move to 100% renewable energy in its London data centers shows how the industry can leverage its size to reduce energy use and costs, available at: https://fmlink.com/articles/ 159 The Climate Group (2018), Why high street fashion retailer H&M is committed to smarter energy use and cyrusone-london-data-centers-100-renewable-energy/. switching to 100% renewables, available at: https://www.theclimategroup.org/news/why-high-street- fashion-retailer-hm-committed-smarter-energy-use-and-switching-100-renewables. 179 Microsoft (2017), Building and Operating Greener Datacenters: Our Commitment to LEED Gold, available at: https://blogs.microsoft.com/green/2017/11/08/building-operating-greener-datacenters-commitment-leed- 160 UN (2019), Climate Action Summit 2019: In the face of worsening climate crisis, UN Summit to deliver new gold/. pathways and practical actions to shift global response into higher gear, available at: https://www.un.org/ en/climatechange/assets/pdf/CAS_main_release.pdf?utm_source=newsletter&utm_medium=email&utm_ 180 World Economic Forum (2016), Shaping the Future of Construction: A Breakthrough in Mindset and campaign=newsletter_axiosgenerate&stream=top. Technology, available at: http://www3.weforum.org/docs/WEF_Shaping_the_Future_of_Construction_full_ report__.pdf. 161 Dodge Data & Analytics (2018), World Green Building and Construction Trends 2018, available at: https://www. construction.com/toolkit/reports/world-green-building-trends-2018. 181 IFC (2019), Greening Construction: The Role of Carbon Pricing, available at: https://www.ifc.org/wps/ wcm/connect/topics_ext_content/ifc_external_corporate_site/climate+business/resources/greening- 162 See https://www.cdlsustainability.com/cdl-six-capitals/manufactured-capital/green-lease-tenant- construction. engagement/. 163 FM Link (2019), Find out what award-winning landlords and tenants are doing to save energy and reduce costs, available at: https://fmlink.com/articles/imt-doe-2019-green-lease-leaders-boma-event/. 164 CBRE Research (2017), China Green Building Report: From Green to Health, available at: https://www.cbre. us/research-and-reports/China-Major-Report---China-Green-Building-Report-2017. 165 See https://growthpoint.co.za/environmental-sustainability/targets. 166 See https://www.revistatqv.mx/soluciones-verdes/certificacion-edge-es-adoptada-por-miembros-de-la- adi/. 84 Green Buildings | A Finance and Policy Blueprint 2019 2121 Pennsylvania Ave., NW Washington, DC 20433, USA www.ifc.org/greenbuildingsreport