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IFC report explains how to unlock $17.8 trillion in green buildings investments

Fuseworks Media
Fuseworks Media

A new report by IFC, a member of the World Bank Group, highlights how investors can tap into enormous potential in green buildings. The report notes that Asia-Pacific, which will house half the world’s urban population by 2030, is a particularly promising area for investment, with an estimated $17.8 trillion worth of investment opportunities, primarily in residential buildings.

"The floor area of the buildings that dot our skylines is expected to double by 2060," notes Alzbeta Klein, Director of Climate Business at IFC. "The majority of this construction boom will occur in emerging markets, particularly in middle-income countries experiencing high population growth, rapid urbanization, and income growth. Green construction is one of the largest investment opportunities of the next decade that can spur low-carbon economic growth and create skilled jobs for decades to come."

According to the report, Green Buildings: A finance and policy blueprint for emerging markets, by 2030, in emerging markets alone, green buildings will offer a $24.7 trillion investment opportunity, which will spur economic growth and accelerate sustainable development. Further, with 80 million people projected to enter Asia’s middle class in the next few years, the demand for housing will continue to rise. India alone needs an estimated 60 million additional housing units between 2018 and 2022 to meet the existing shortfall.

However, though emerging markets have ambitious targets for green buildings, they struggle to put in place effective measures to mandate and incentivize large-scale adoption of green construction practices. Hurdles include low technical capacity, as well as challenges in developing and implementing consistent standards and requirements for green construction across a highly local and decentralized industry.

Despite the challenges, the report highlights that realizing the full investment potential of green buildings is within reach, with established financing models and proven, easy-to-implement technologies that are readily available and continue to decrease in cost with their greater adoption. The report underlines the clear financial benefits investors, banks, developers and owners, including governments, can expect when entering the green building market.

Green buildings command substantially higher sale premiums - up to 31 percent more - and sell more quickly than traditional buildings. In addition, they maintain higher occupancy rates - up to 23 percent higher - than conventional buildings and offer higher rental income. By consuming less water and electricity, operational costs are up to 37 percent lower than traditional buildings.

When green features are incorporated early in the building design, the cost of green construction can range from savings of half a percent to 12 percent in additional costs. In Indonesia, IFC’s (Excellence in Design for Greater Efficiencies) EDGE-certified development, Citra Maja Raya, reported the additional cost of green measures to be 4.7 percent, with a payback period of 1.8 years, and the utility savings per year amounting to 30 percent.

This new report notes that green buildings can be a strong driver of economic growth, generating upwards of nine million skilled jobs in both the renewables and construction sectors by 2030. Currently, green buildings account for just 8 percent of the construction and renovation sector, indicating a vast potential for growth.

The report offers a uniquely private sector perspective on the investment potential in emerging markets and how to realize this potential, according to IFC. It draws on IFC’s almost decade-long experience investing $5.5 billion in green buildings, as well as lessons learned helping governments to design and implement building codes to catalyze green building markets.

In Vietnam and Indonesia, IFC helped improve code compliance by training over 1,000 construction industry professionals and monitoring officials in each country. It also created checklists for inspectors and technical guidance for code criteria, making enforcement easier.

In the Pacific region, where affordable housing is a challenge, IFC is assisting in Papua New Guinea, Timor Leste and Fiji by working on plans to use resources and expertise of the private sector to develop green, climate-resilient and affordable housing for low-and- middle income earners. The proposals for the affordable housing projects will be developed as public-private partnerships.

In addition, IFC’s own certification system designed for emerging markets, EDGE is now available in more than 150 emerging markets. IFC’s Green Buildings program is implemented in partnership with the governments of Austria, Canada, Denmark, Finland, Hungary, Japan, Switzerland, and the UK, as well as with ESMAP, the EU, and GEF.

IFC’s report highlights best practices by and for investors, banks, governments, developers, and owners, and provides an investment blueprint for scaling up green buildings across emerging markets. Shifting lending and investments towards green buildings will allow investors to take advantage of this significant investment opportunity. It will also help build stronger real estate investment portfolios resilient to financial, regulatory, and reputational risks associated with the transition to low-carbon economies.

Nena Stoiljkovic, Vice-president for Asia and the Pacific at IFC, said, "With rapid urbanization, a growing population, and rising income, Asia needs a more sustainable building solution to address the region’s pressing infrastructure requirements and climate change challenges. This report is timely and shows how green buildings can play a pivotal role in spurring low-carbon economic growth." Stoiljkovic added, "In this context, governments-national, subnational, and local-can create the right conditions for the growth of the green buildings market and provide clarity and policy certainty to the private sector through regulations."

Governments stand to benefit financially from the transition to green construction, and the shift will also help them meet their social and environmental objectives. Globally, 28 percent of greenhouse gas emissions come from energy use in buildings, making them an important part of helping governments to achieve their climate change targets.

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