Purpose

The report highlights the critical role of sustainable finance in transforming the real estate sector to achieve environmental and social objectives. It outlines how green bonds and loans, coupled with building certifications like BREEAM, LEED, and HQE, can align investment strategies with global climate targets. By providing a clear framework, the report empowers developers, investors, and policymakers to integrate sustainable finance into real estate projects, accelerating decarbonisation and resilience in the built environment.

What is needed for the built environment to succeed

The built environment must reduce its carbon footprint, as it accounts for nearly 40% of global CO₂ emissions. Decarbonisation pathways aligned with science-based targets, improved energy efficiency, and renewable energy adoption are critical to success. However, barriers include high upfront costs, gaps in regulation, and a lack of awareness about sustainable finance opportunities. The report calls for stakeholder collaboration, financial incentives, and wider adoption of green building certifications to ensure sustainability and resilience.

Understanding sustainable finance

Sustainable finance supports environmentally and socially aligned projects through two main mechanisms: Use of Proceeds and General-Purpose financing. Use of Proceeds instruments, such as green bonds and loans, direct funds to specific green building initiatives, ensuring transparency and accountability through frameworks like the ICMA Green Bond Principles. In 2021, real estate accounted for 10% of the global sustainable finance market, equating to USD 178 billion, demonstrating the sector’s significant contribution.

General concepts in the global green building industry

Green building involves reducing environmental impacts across the lifecycle of projects, including operational and embodied carbon. Dual carbon reporting under Scope 2, coupled with a life-cycle emissions approach, is essential for achieving meaningful reductions. Emerging trends include electrification of buildings, adoption of renewable energy systems, and prioritising circular economy principles. Social impacts, such as improved occupant health and enhanced community benefits, are also key outcomes of green building practices.

Real estate rating systems

The report evaluates certifications like BREEAM, LEED, Green Star, and HQE, which ensure projects meet stringent environmental and social standards. Certification systems align with sustainable finance frameworks and foster transparency for investors. Tools such as the Climate Bonds Initiative’s Low-Carbon Building Criteria set benchmarks for emissions reductions and electrification readiness. However, regional differences in certification uptake, especially between Europe and Asia, underscore the need for broader adoption.

Rating tools and sustainable finance frameworks

To align green building projects with financial instruments, the report examines tools like the LEED EU Taxonomy Self-Assessment Tool, the WELL Building Standard, and the ICMA Harmonised Framework for Impact Reporting. These tools measure compliance with climate and social objectives while ensuring transparency. Best practices include annual reporting and third-party verification to enhance credibility. The report also highlights the need for innovation in building technologies to drive down costs and improve accessibility.

Case studies

The report presents case studies illustrating successful applications of sustainable finance. Projects funded by green bonds have achieved significant reductions in operational carbon, energy costs, and water consumption. For instance, one case study demonstrates a 20% reduction in energy use, showcasing tangible benefits. Partnerships with organisations like GRESB and the Climate Bonds Initiative provide credible pathways for achieving decarbonisation targets while delivering financial returns.

Recommendations

The report advocates a multi-stakeholder approach to scaling green building and sustainable finance. Policymakers are urged to incentivise green finance adoption through supportive regulations and frameworks. Investors and developers should prioritise alignment with globally recognised certifications and enhance transparency through robust reporting. Recommendations include leveraging financial incentives to offset upfront costs, integrating innovative technologies, and adopting third-party verification to maintain credibility.