As more legislation is adopted to enable a net zero emissions society, investors are seeking projects within sustainable infrastructure – the built environment, from transportation to energy generation and distribution, to the buildings we live and work in. While investors traditionally focus on large renewable energy projects or transportation-related projects, the hidden opportunity for investment is the green building sector.
Green buildings have always had investment potential, but scale has typically been a limiting factor. The International Finance Corporation estimates that there is potential worth $24.7 trillion for investment in new green buildings across emerging economies, while Europe’s building stock needs to be updated to meet the EU’s climate neutrality target, presenting a much more compelling case for the financial community.
Natalia Korchakova-Heeb, Managing Director, SDG.17 GmbH, takes a closer look at this subject with Harry Fernau, Global Product Manager for Energy and Green Building at SGS, and Tom Saunders, Managing Director at Sintali.
How You See the Zero-carbon Economy Fitting into Sustainable Infrastructure?
Tom: All sustainable infrastructure will need to shift to zero carbon for us to meet the Paris Agreement and the EU’s target of becoming a climate-neutral continent. If we look at the green building segment of the sustainable infrastructure market in particular, the technology to develop or retrofit buildings to zero carbon already exists. What has been missing so far is a tool to do this effectively and verify the results. That is what is exciting about the new EDGE Zero Carbon accreditation. IFC, who operates the EDGE green building standard, launched EDGE Zero Carbon at last year’s Climate Week in response to the need for a third-party verified standard to meet net zero buildings. So far, it has had really positive uptake in the market.
How Does Edge Zero Carbon Help Building Owners and Developers Transition to Net Zero Buildings?
Tom: To get EDGE Zero Carbon, a building must reach at minimum 40 percent energy efficiency, before supplementing with on-site/off-site renewable energy. All of this is done through the free EDGE App, which allows anyone, to map out the transition to zero carbon for their building. Companies that want to verify that achievement come to us at Sintali and SGS for accreditation. What makes EDGE Zero Carbon unique is the software tool, which allows companies to prepare a roadmap with efficiency measures they need to take, along with an initial assessment of the incremental cost and return on investment for each measure, to reach zero carbon. This becomes very powerful when applied across a portfolio of buildings. We work with property owners who are looking at this scale and support them in the development of zero carbon portfolio strategies. We provide them with the framework and tools they need to evaluate their entire building stock, so they can identify the practical steps they need to take to transition the stock to zero carbon.
Are Companies Using Edge for Portfolio-scale Certifications?
Harry: Absolutely. More and more companies are making commitments to having a green-certified portfolio around the world and EDGE is a great tool to make that a reality. To name a few examples: Acorn Group in Kenya launched a green bond late last year on its student housing portfolio that will be EDGE-certified, Imperial Homes announced a commitment to certifying its pipeline of homes with EDGE, and Lidl Lithuania has certified all of its stores in the country using EDGE. The breadth of the types of companies that are engaging with portfolio certification, as well as the geographic spread, point to an important trend. Building owners are thinking bigger than just certifying their new flagship headquarters. And now, with the important transition to net zero emissions, it’s about taking those certified portfolios and mapping out a strategy on how to turn each building, and all future buildings, zero carbon.
How Does Portfolio Certification Work?
Harry: We have developed a process alongside Sintali that allows portfolio owners to assess and certify all their buildings in a cost- and resource-effective manner. The EDGE App plays an important role, but we also have our own processes to help building owners categorize their portfolios, find efficiencies of scale, and resource the project to get the results they desire. Portfolio certification has been incredibly useful for clients looking to access finance, because it allows companies to aggregate their assets and look at a sustainable portfolio investment strategy. As Tom mentioned, we already have clients doing this and feedback has been very positive. As more investors look at green-certified real estate to channel green finance and support the transition to a net zero economy, portfolio certification will continue to grow over the next few years.
How Has Edge Enabled Developers to Access More Sources of Investment?
Tom: Companies are using EDGE to develop a sustainable portfolio investment strategy and going to investors to access finance for the refurbishment or development of multiple buildings. Investors are interested in these projects because EDGE gives them the quantifiable data they need to understand the environmental impact of their investments. We have spoken with investors around the world and they all echo the same sentiments – they are very interested in investing in green buildings but have struggled to identify project, to understand what is green and what isn’t, and to identify projects at the scale required. This is a key reason why green buildings have not played a key role in the development of the sustainable infrastructure market. EDGE changes this market landscape because the data is in a format that the investment community can understand – percentage improvements over a local baseline and carbon emissions savings. By aggregating projects into a bigger portfolio, they scale to a deal that can be financed by large players in the market.
So, the Financial Community Is Adopting Edge as a Recognized Standard?
Harry: Absolutely, and in many cases, EDGE is being embedded into the lending process. We have been working with banks and funds to help them use EDGE as part of their eligibility criteria for releasing funds, and in some cases as part of their technical assistance programs. EDGE certified projects need to be 20 percent more efficient than the local baseline, which aligns well with many financial lending programs. In these cases, investors use EDGE certification as a way for clients to prove compliance with this requirement. Many investors have also certified their own portfolios as a proof of concept and a way to generate interest.
2020 Has Been a Pivotal Year, with COVID-19 Changing Business Fundamentals. How Do You See the Sustainable Infrastructure Market Changing and What Does the Current Landscape Look Like?
Tom: The real estate and construction sectors have changed significantly in the last few months. Construction projects froze or experienced delays during periods of lockdown and the pace of recovery has varied across the world. This has presented challenges to the industry as it has all sectors, but innovation and adaptation are crucial. Significant attention is being paid to real estate as stakeholders become more aware of their built environment. Property owners are looking at refurbishing properties and evaluating the efficiency of buildings to reduce operational costs and make improvements, while governments are looking at major construction projects to stimulate the economy.
Has COVID-19 Affected Your Green Building Certification Work?
Harry: No, because SGS launched remote auditing back in 2018, so we were prepared to shift from on-site to remote audits. Oftentimes there are tight project and construction deadlines, and things change quite quickly, so having the ability to conduct an audit on the customer’s timeline as opposed to needing to schedule an on-site visit can be incredibly powerful. SGS has developed its own tool that allows anyone to visit the site and work with an auditor, while ensuring the same quality audit is delivered. Now, with COVID, we are very glad to have had two years’ experience running remote audits because the process is seamless and has not disrupted business. Our clients have been very satisfied too, which tells us that the market is ready for this solution.
Earlier This Year, SDG17 Launched a Global Platform Called PPPHealth4All to Facilitate the Development of Sustainable Public-private Partnerships in the Healthcare Sector. Are Green Building Principles Applicable to the Healthcare Sector?
Tom: Certainly. The more use cases for applying green building principles and the more carbon emissions are reduced, the better for the people and the planet. We recently certified the Ghana Infectious Disease Centre (GIDC) which has been developed in response to the COVID-19 pandemic. Another example of the value of a certified hospital is the Mother and Baby Unit at the Komfo Anokye Teaching Hospital (KATH) in Kumasi. This 160-bed facility built by Africa Building Partners has been able to use the savings from operating an efficient hospital to pay for additional staff and equipment. The healthcare sector has much to gain from shifting towards resource-efficient, green buildings and with the sudden focus on healthcare due to COVID, we are certain that things will continue to move that way.
For more information on Sintali-SGS offerings, download a copy of the brochure.
Natalia Korchakova-Heeb is the Managing Director at SDG.17 Consulting GmbH. SDG.17 Consulting is a company operating from Frankfurt am Main, Germany.
SGS is the world's leading inspection, verification, testing and certification company. SGS is recognized as the global benchmark for quality and integrity. With more than 89,000 employees, SGS operates a network of over 2,600 offices and laboratories around the world.