Decarbonizing the 40% – How the finance sector can drive the transformation to a net-zero built environment

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09 July, 2021


WBCSD insights



Roland Hunziker, Yi Sun

  • Investors can adopt decarbonization policies and set requirements for the real estate part of their investment portfolios, in line with Paris Agreement compatible emissions trajectories. It is important that this includes whole life carbon emissions of built assets.
  • Asset managers can support the investors in setting and executing their strategies.
  • Lenders can link carbon performance to their loans and provide incentives (as currently done e.g., for mortgages related to energy efficiency).
  • Property developers can set carbon performance requirements as part of the procurement process for their projects, also including circular solutions.
  • All these firms occupy or manage real estate themselves and can develop policies for low-carbon performance in their role as tenants.

Two recently published WBCSD reports provide practical guidance to financial institutions for adopting policies and setting requirements to bring their investments in the built environment in line with the Paris Agreement and a whole-life carbon approach:

How finance can accelerate the net-zero transition – a system-wide approach

While many promising technologies and solutions for reducing emissions in the built environment already exist, there is a need for legislative and financial support to transform the market and bring them to scale. Some key actions include:

  • Measure and report on whole-life carbon performance. Use a common metric that aligns with mainstream reporting frameworks (TCFD, SASB etc.) to capture consistent, reliable, and comparable data at the asset level, so that financial institutions can make better-informed investment and financing decisions. WBCSD’s Building System Carbon Framework can be adopted as a monitoring and reporting tool to demand information on whole-life carbon impact of built assets. 
  • Extend the scope of carbon accounting from the current focus on operational energy (and carbon) to whole life carbon, including both embodied and operational carbon. Today, a widely adopted tool by investors is CRREM, which covers the operational emissions from energy usage in buildings. Several financial institution networks, such as the Partnership for Carbon Accounting Financials (PCAF) and the Institutional Investors Group on Climate Change (IIGCC), with support from the Laudes Foundation, are exploring how to adopt a whole-life carbon approach for setting targets for the real estate sector.
  • Enhance the business case to develop risk-adjusted return opportunities and inspire more financial instruments (equity portfolios, ETFs, bond issuance, project finance, etc.) to move toward net zero and circular real estate and infrastructure. This can happen by connecting forward-looking financial institutions with the “best-in-class” companies to address environmental and social challenges through a variety of sustainability-aligned financial instruments. 
  • Improve built environment-specific ESG reporting and research to help foresee, assess and manage transition risks beyond carbon, in order to future-proof the portfolios and align with broader sustainability objectives.
  • Engage with policymakers across key jurisdictions to provide industry-specific perspectives and evidence-based policy asks. With the EU Taxonomy regulation entered into force, the classification for economic activities will provide financial market players the basis to identify which investments are sustainable (such as the measurable criteria for building construction, renovation, and acquisition) and can be marketed as such, increasing transparency.