Financing a net zero built environment

Kelly Clark By Kelly Clark

The climate transition is vital, but the elephant in the room is how we are going to pay for it. There has to be someone who accepts the risk and takes on the cost.

Wednesday marked finance day at COP27 and an opportunity for me to speak about carbon accounting when providing the opening remarks at an event on financing a net zero built environment at the Buildings Pavilion in Sharm-El-Sheik.

Real estate is the largest global asset class, at $228 trillion. It also accounts for nearly 40% of greenhouse gas house emissions. Asset owners, managers and financial institutions (FIs) now have a $24.7 trillion green building investment opportunity, to decarbonise between before 2030, and create a built environment for a net zero future.

At Laudes Foundation we believe decarbonisation needs to become the industry’s new normal, tackling not just energy use, but ‘embodied’ carbon by shifting from extractive fossil-based materials to circular materials and regenerative nature-based solutions like mass timber.

But this industry transformation can only work if finance and investment scale behind it: accounting for the total carbon impacts and social impacts of investments across buildings’ lifetimes.

We work with partners who bring leaders together to agree science-based targets and sector roadmaps; establishing solutions to put in place these at scale, and calling for policymakers to bring the whole market along through regulation.

For example, the Carbon Risk Real Estate Monitor’ - CRREM for short - is the Paris-aligned pathway for real estate investors. It increases transparency, defines measures to speed up decarbonisation on an aggregated level and tracks achievements toward these aims.

The CRREM tool allows asset owners, managers and FIs to assess the carbon and energy performance of buildings and portfolios – benchmark against CRREM pathways and peers – and derive indicators for risk management, reporting, disclosure.

Total funds of more than $500 billion assets under management are now using the CRREM tool. It looks set to break the €1 trillion mark soon.

These are big numbers. Yet despite the built environment containing huge amounts of assets and carbon, it only has voluntary standards. Policymakers must now look at introducing regulatory frameworks which reflect the gravity of the problem. Self-assessment and voluntary standards are not going to help the sector meet net zero. The EU is currently faltering on setting minimum energy performance standards that would put in place mandatory renovations brought in for the worst buildings. The market – built businesses and investors – has a key role in increasing confidence we’re up to the challenge.

Fundamentally our current financial architecture and accompanying legal systems are not allowing us to make appropriate shifts to decarbonisation: working in opposition rather than in alignment.

In order for a just transition the economy, capital markets and legal frameworks must reinforce one another in the interests of people and planet.

We need financial and capital markets to work together within a bold regulatory framework, and there must be mandatory and implemented regulation to uphold the ambitions of the standards we are trying to reach.

About the author

By Kelly Clark

Kelly is the Director of Finance Capital Market Transformation at Laudes Foundation. The love she holds for her twins and concern for future generations motivates her to strive for change in the global economy and the financial system that supports it. She brings a strategic, intersectional view to tackling inequality and the climate crisis, and a deep desire to build bridges and unify perspectives.

Finance and Capital Markets