Purpose

The report examines the critical role of sustainable finance in Australia’s real estate sector, focusing on its potential to drive decarbonisation, enhance operational efficiency, and meet investor demands for ESG-aligned investments. It serves as a practical guide for stakeholders, outlining tools, frameworks, and actions to integrate sustainable finance into their practices.

The opportunity in numbers

The Australian real estate sector offers significant financial and environmental opportunities through sustainable finance:

• Retrofitting buildings could generate $20 billion in energy savings and avoid 64 million tonnes (MT) of CO2 by 2050.
• Electrification of buildings has the potential to save $49 billion and avert 199MT of emissions over the same period.
• Sustainable finance products, such as green loans and bonds, are increasingly popular. Between 2020 and 2023, sustainable finance loans comprised 25%-44% of total loans issued, while bonds accounted for 1%-6%​.

These figures underscore the financial viability of sustainability-focused investments and the sector’s growing adoption of ESG principles.

Understanding sustainable finance

Sustainable finance encompasses funding mechanisms like green loans, sustainability-linked loans, and bonds tied to measurable ESG outcomes. Two main types of instruments are:

• Use of proceeds instruments: Funds allocated for specific green projects.
• General purpose instruments: Tied to company-wide ESG objectives.

These instruments incentivise organisations to adopt ambitious sustainability targets. For example, companies that achieve high NABERS ratings or Green Star certifications often secure lower financing costs and increased access to capital​.

General concepts for the built environment in Australia

The report identifies the Australian built environment’s unique challenges and opportunities:

• Existing building stock: 80% of buildings expected to exist in 2050 are already built, making retrofitting essential.
• Retrofit rates: To meet net-zero targets, retrofit rates must increase from the current 1% to 3.5% annually. This will require an investment scaling from $500 million to $2 billion annually by 2050​.
• Energy efficiency: High NABERS Energy-rated buildings demonstrate 30%-50% lower operational costs, incentivising broader adoption of sustainable upgrades​.

Case studies

The report features case studies demonstrating the benefits of sustainable finance:

• A large-scale commercial building financed through a green loan achieved a 25% reduction in energy costs and a 34% improvement in emissions performance following energy-efficient retrofits.
• Another case involves Frasers Property, which linked sustainability outcomes to their loan terms, resulting in significant operational savings while achieving NABERS and Green Star certifications​.

These examples illustrate how integrating sustainability into finance can unlock value and improve asset performance.

Real estate verification frameworks

The report analyses key verification frameworks that enhance transparency and standardisation:

• NABERS: Buildings with 5-star or higher ratings emit 34% less carbon compared to lower-rated assets.
• Green star: Certification criteria include energy efficiency, water use, and occupant well-being, providing a holistic approach to sustainability.
• Climate bonds standard: Facilitates access to global capital markets by adhering to international standards​.

These frameworks are essential for meeting investor expectations and enabling comparability across projects.

Recommendations

The report provides practical recommendations for stakeholders:

• Investors: Prioritise assets with verified sustainability certifications, which are linked to long-term financial and environmental benefits.
• Developers: Focus on obtaining high NABERS and Green Star ratings for new projects and retrofits to enhance asset performance.
• Financial institutions: Expand the availability of green financial products and develop standardised KPIs to track progress and performance.

Additionally, the report calls for collaboration across sectors to overcome barriers, such as inconsistent regulations and fragmented data collection processes. Stakeholders are encouraged to adopt digital tools and streamline reporting practices to align with international sustainability standards​.

Conclusion

Sustainable finance is critical to achieving decarbonisation goals in Australia’s real estate sector. The report outlines actionable steps and demonstrates, through case studies and statistics, how stakeholders can unlock financial and environmental value by adopting sustainable finance practices. By addressing key challenges and leveraging established frameworks, the sector can drive long-term resilience and growth.