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Green Buildings

The Green Property Working Group, published their proposed eligibility criteria for property investments to be certified under the Climate Bonds Standard on the 19th of June 2014. The aim is to provide clarity to investors as to the low carbon integrity of energy efficiency investments in green buildings through a standardised screening tool

The published Green property criteria are now subject to a 30 day period of consultation – if you are interested you can submit your comments in the comments box below or email sends e-mail).

The Climate Bond Standard for Green Property covers three different types of assets pools:

  1. Commercial buildings
  2. Residential buildings
  3. Upgrade finance

The green buildings working group was set up in July 2012 with an objective to develop a standard that ensures the low carbon credibility of certified Climate Bonds issued for ‘Green Buildings’.

The International Energy Agency’s  (IEA) modelling of emission reductions required to head off catastrophic  climate change allocates some 40% to emissions avoided from reduced energy consumption. There is a need  for investment. However financial barriers, including the cost of capital, risk exposure and the inadequacy of  traditional financing mechanisms for energy-efficient projects, hinder the flow of qualifying investment.

The Standard aims to provide clarity to investors as to the low carbon integrity of energy efficiency investments through a standardised screening tool. It will support energy efficiency project developers in signalling to the market the minimal reputational risks associated with their projects at low transaction costs. And finally, it will allow governments to incentivise energy efficiency investments with the confidence that the funds are being used to deliver a Low-Carbon Economy.

The Working Group members include:

Drafting sub-committee

Committee members

What do we mean by “Green buildings?”

Any investments directed towards energy efficiency improvements in buildings is important and should be  supported, but the urgency for roll-out is driven by the need to reduce greenhouse gas emissions generated through the built environment. This will require substantial improvements of the whole building rather than just achieving any impact with modest improvements. For example, if all buildings achieve a 20% efficiency  upgrade but a 40% increase is required to avoid 2 degrees, then 20% is clearly not enough. The risk is to “lock in” weak levels of performance until the next investment period which may not occur for another decade or more.

It will also require large volumes of qualifying assets. To date, energy efficiency projects have been too small to  be commercially attractive to institutional investors. The average retrofit for the average commercial building is in the range of $1-10m. Therefore, aggregating energy efficiency projects into large scale opportunities will be needed. This has the benefit of not only rewarding new builds but also existing assets that exemplify best in  practice.