Open for Public Consultation: Expanding Low-Carbon Buildings Criteria: Focus on Embodied Emissions and Incorporating the EU Taxonomy
Climate Bonds Buildings Criteria 2.1 is now open for public consultation, updating the scope of the 'New Buildings' within the criteria and incorporating the EU Taxonomy.
The Climate Bonds Low-carbon Buildings criteria were first developed in 2012, aimed squarely at reducing the operating emissions of existing buildings.
The underpinning requirements considered while developing the criteria were that there should be low transaction costs to meeting the criteria and it should be applicable to financing existing buildings. The criteria predominantly focused on operational performance to drive down in-use emissions (major source of emissions). The criteria are developed and aligned with the best available science definitions and aiming for positive climate outcomes.
Since the development of the criteria, the Paris Agreement has highlighted the need to limit emissions to ensure temperatures remain within the 1.5 degree of pre-industrial levels. Our understanding of the challenges around carbon emissions from the built environment has also evolved and there has been significant growth in the number of sustainability schemes around the world. The new updated criteria have incorporated and gone beyond these aspirations.
Key components of the Low-carbon Buildings Criteria
The Buildings Criteria 2.1 applies to eligible assets, projects relating to buildings investments for both commercial and residential properties that have the potential to be included in the Criteria.
Inclusion of certification for entities/companies is currently available for the commercial buildings only. To achieve certification, building owners must demonstrate that the buildings financed by a bond are operating in line with a linear zero carbon trajectory, established from a baseline target year emission intensity target representing the top 15% of the building performance for a given typology in a city at the time of baselining. These building trajectories are being rolled out to cities across the world using the Climate Bonds ‘Extrapolation methodology’.
Introducing an expanded set of criteria for New Buildings represents a significant step change for the current buildings criteria and will have several advantages, including:
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Enhanced Clarity: It provides increased clarity regarding the utilisation of criteria for new buildings, simplifying comprehension and adherence to these critical sustainability standards.
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Harnessing Technological Advancements: By encompassing New Buildings, these criteria leverage the latest technological capabilities available in the construction industry, thereby promoting innovation and sustainability.
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Addressing Typological Gaps: Addresses the fact that not all building typologies are currently addressed in the Climate Bonds Criteria.
Focus on Embodied Emissions over Energy Performance
Recognising that not all energy sources are equal in terms of their emissions impact, it is imperative to directly measure emissions to both acknowledge high performers and pinpoint assets with further room for improvement. This strategic focus on emissions measurement also serves as a catalyst for identifying opportunities for electrification, enabling assets to enhance their emissions intensity. A prime example of this is transitioning from direct combustion for heat to utilising indirect electricity sourced from decarbonised grids to power heat pumps - an approach with tremendous potential for reducing emissions performance. Notably, the current Energy Use Intensity (EUI) metric falls short in rewarding such innovative emissions reduction strategies, which are pivotal for the swift decarbonization of the building sector.
Hence, these Criteria underscore emissions as the preferred unit of measurement, specifically emissions per square meter/foot (emissions intensity). This metric not only conveys a clear message to investors, asset owners, and building developers but also establishes emissions as the quintessential metric for assessment. In practical terms, this encompasses emissions within the following scopes, as defined by the Greenhouse Gas Protocol (GHG Protocol) methodology:
- Scope 1: This includes direct emissions from buildings, encompassing sources like the on-site combustion of fossil fuels such as natural gas, fuel oil, biomass, and, in some cases, coal. While other forms of direct emissions, like those associated with refrigerants, are not currently mandated, this scope focuses on immediate building-related emissions.
- Scope 2: This comprises indirect emissions sources tied to buildings, including the energy conversion-through-combustion of fossil fuels such as coal, oil, and natural gas. Additionally, it includes emissions originating from non-fossil fuel sources like nuclear and renewables (when their contribution is substantial, e.g., reservoir emissions from hydro), particularly when supplying electricity and/or district heating/cooling to the building.
- Scope 3: Beyond the building's immediate boundaries, this scope accounts for indirect emissions sources related to the sourcing, transmission, and distribution of energy to the building. Notably, other Scope 3 emissions, such as those associated with transport, waste, and water, are not presently integrated into this framework.
By embracing this holistic approach to emissions measurement, we transcend the confines of mere energy performance assessments and delve deeper into the fabric of sustainability, thus advancing our collective efforts towards a low-carbon future.
The last word: Calling for feedback
The new Buildings Criteria 2.1 significant milestone in faccilitating the transition of sustainable built environments. With over 400 billion square meters of building space globally, the building sector's has a huge impact on climate equally it is one of the largest opportunities for transition financing with the market consistently reporting it to be the top three sectors for investment.
With the new Criteria we aim to accelerate 1.5ºC investments in the EU and globally and for the first time ever a focus on embodied emissions over energy performance, a major change from the earlier version.
The Climate Bonds Initiative acknowledges the importance of collaborative insights in defining impactful criteria for investments related to Low-carbon Buildings. Following this, the Low-carbon Buildings criteria is open for public consultation. The consultation forms include questions about separate criteria for New Buildings. This presents unique opportunity for stakeholders, including investors, organizations, experts, and concerned citizens to provide their valuable feedback.
Your insights will help us in fine-tuning our criteria, ensuring that they strike the right balance between usability and practicality. Your active engagement in the public consultation contributes to moulding the future of sustainable Low-carbon Buildings investments and as a result to address climate change.
Please provide your feedback here.
We would like extend our appreciation to the dedicated Technical and Industry Working Groups for their invaluable contributions in driving forward the development of these Criteria.
'Til next time,
Climate Bonds.
