The report highlights the urgent need to decarbonise and enhance resilience across the global built environment, focusing on the 75% of building stock that remains underserved. Achieving this requires sustainable finance to target the broader mass market and address climate risks. The report identifies three critical areas: improving sustainable finance taxonomies, defining credible decarbonisation pathways, and addressing resilience to climate risks. It emphasises scalable and inclusive approaches to transition, offering actionable recommendations for stakeholders.

Investing in the mass market

Green building rating tools, such as NABERS and LEED, have improved performance standards but remain skewed towards high-performing assets, excluding much of the market. For instance, 520,940 homes in Australia are projected to be uninsurable by 2030 due to increasing flood risks. Additionally, the built environment must reduce emissions by 9% annually to align with net-zero targets. Recommendations include developing investment models that support incremental improvements, such as transitioning a NABERS 2-star building to a 4-star rating. Public sector credit enhancements and financing retrofits as-a-service models are proposed to unlock capital for lower-tier assets, fostering equity and inclusivity.

The need for better taxonomies

Sustainable finance taxonomies often favour top-tier green assets, neglecting opportunities for transition in lower-performing buildings. This creates a “stranding” effect, where non-compliant assets are undervalued and neglected. The report highlights the misalignment between taxonomies and existing rating systems like BREEAM and NABERS, which increases compliance costs and discourages smaller market players. It recommends harmonising metrics and adopting tiered definitions of “green” to enable diverse funding opportunities. Resilience-related investments should also be prioritised, with specific guidance on improving grid resilience and retrofitting buildings to support community adaptation.

Defining a credible decarbonisation transition

Decarbonisation is presented as a multi-decade process requiring technical and financial planning. Key strategies include improving energy efficiency, transitioning to electrification, adopting renewable energy sources, and reducing embodied carbon in building materials. For example, transitioning fossil-fuel-based systems to electric alternatives and using materials with lower carbon footprints are emphasised. Regulatory initiatives like New York’s Local Law 97, which imposes annual CO₂ caps, and Singapore’s Mandatory Energy Improvement Regulations are driving this transition. Financial institutions are encouraged to align products with decarbonisation pathways, while building owners are advised to create detailed retrofitting roadmaps.

Adapting to a changing climate

Climate risks are increasingly costly, with 28 US weather disasters in 2023 resulting in over US$1 billion in damages each. Resilient assets can mitigate such risks by reducing costs, improving insurability, and attracting tenant demand. The report notes that less than 10% of climate finance is allocated to resilience, despite its critical importance. It proposes integrating resilience measures into taxonomies, supporting community adaptation, and leveraging public funding to strengthen infrastructure. Case studies, such as Austin’s LEED-certified schools incorporating passive cooling and urban forestry, illustrate the benefits of resilience-oriented investments.

Recommendations

For financial organisations, integrating climate risks into underwriting and supporting transition financing, such as retrofits as-a-service, is critical. Institutions are urged to align their lending criteria with robust rating systems and support clients in navigating climate risks.

For real estate owners, adopting certifications like NABERS, improving efficiency, and prioritising electrification and renewable energy are essential. Owners should also create decarbonisation plans, accounting for lifecycle and financial considerations.
For policymakers, incentivising resilience measures, mandating timebound efficiency improvements, and fostering public-private collaboration are key to accelerating the transition. Addressing gaps in resilience funding through targeted regulations and financial incentives is also crucial.

Invitation

The report concludes with a universal call to align all financial activities with sustainability goals. It advocates for refining taxonomies, standardising reporting frameworks, and increasing engagement with underserved building stock. Collaboration across financial institutions, policymakers, and asset owners is essential to achieve an inclusive, scalable transition to a resilient and decarbonised future.