The Partnership for Energy Efficiency in Buildings is working to put development banks at the center of a transformation of the buildings sector towards energy efficient and resilient buildings. PEEB is developing service offers that help development banks and other finance insitutions to understand the added value in green buildings, and how to capture it. Want to know more? You will find all you need to know in the Q&A below.
Why should public banks invest in green buildings?
Because green buildings offer a unique business argument in terms of combining economic benefits, enhancing energy access and security, and improving people’s lives. And because development banks are uniquely capable of closing the gap in their funding, especially for emerging markets and developing economies. This, however, requires boosting their commitment to building sustainability.
The sector represents whopping 32% of global energy demand, 34% of the world’s energy-related GHG emissions. These numbers are bound to overshoot, as a growing world population adapts to higher temperatures with energy-hungry cooling devices.
Energy efficient and thermally comfortable buildings offer spaces where people can live, work, study, and heal better, with energy bills that households, companies, and business can afford to pay. They also benefit economies through energy security, redirection of resources for productive investments, and therefore job creation. In a sector accounting for about 13% of GDP expenditures, 8% of the workforce, building more and better means prosperity for all.
Yet, finance flows are failing to meet global investment needs. Global investment needs in emerging markets reach USD 1.5 trillion in the next decade, but annual investment in the sector needs to more than double from USD 270 billion to USD 522 billion. More than that, this investment needs to reach the countries that need it the most: only 5% of global sustainable finance was issued in emerging markets.
Development banks have a key role to play in closing the gap and promoting access to finance: with their experience in the specific contexts where buildings are financed, planned, and constructed, they can tackle context-specific challenges and deploy innovative instruments to unlock finance.
But… is the investment worth it?
Yes. Energy efficiency is not only a development case – it is also a business case. Buildings already are one of the largest source of value in the world: real estate property stood at USD 379.7 trillion at the end of 2022. Sustainable buildings add to this number, bringing a series of investment benefits on top social, economic, and environmental ones. Examples from emerging markets and developing economies show:
- High cost-effectiveness: energy efficiency measures can achieve up to 20% resource efficiency at 1% of additional construction costs
- Increased asset value: lower operation costs affect valuation of efficient buildings, resulting in asset values 9% higher than conventional ones
- Short payback periods: payback periods for upfront costs vary depending on building type, but even the longer ones – 4,9 years for residential buildings – are short compared to the asset’s lifetime
- Lower default rates: 32% lower than in conventional buildings, which leads to better portfolios for financial institutions
- Higher returns: green building portfolios can deliver a 0.35% higher quarterly returns – a significant increase in comparison to the mean quarterly return of 1.94% for this type of investment
What about private finance? Don’t they have a role to play?
Yes – private banks are indispensable. To keep the world in line with the Paris Agreement goal, climate finance needs to move from billions to the trillions. This is simply impossible without private finance. However, developing and expanding finance for new markets often requires exploration of these markets by public players.
This is also the case for green buildings. National and sub-national development banks also bridge the gap between public and private actors, especially when they develop innovative instruments and implement evolving sustainability laws and frameworks. This means, for example, blending public funds with private capital, de-risking projects and aligning portfolios with evolving taxonomies and disclosure standards such as those of the ISSB.
Then why are financial institutions not doing it?
In fact, a lot of them are, as PEEB experience and the latest research show. However, the need for scale-up is massive: development banks respond for 10% of global investment but contribute to only 0,1% of energy sector investment (energy efficiency included).
Insufficient policies and capacity needs are among the main barriers to either initial investments in green buildings or the move from individual investments to broader strategies and the structuration of sustainable building portfolios.
On the level of policy, existing regulation still fails to prize sustainable buildings over conventional ones: often, they are insufficient, insufficiently enforced, or disconnected from financial incentives.
On the level of banks’ institutional capacities, the topic of energy efficiency in buildings remains relatively new and unfamiliar. Their lack of a comprehensive understanding of the topic results in high risk perception. Insufficiently equipped to calculate the long-term benefits of efficient buildings and integrate the topic to their investment evaluations, they fail to quantify long-term savings, reduced risk, and property valuation.
Ok, so how can they start doing it – or scale what they are already doing? And how does PEEB help?
Banks need to see the added value in green buildings – and how to capture it. Development banks specifically act as a strategic link between new sustainability regulations, innovation for high-impact financial instruments and private finance and markets. This requires a solid foundational knowledge of building sustainability, going beyond reliance and certification. Robust knowledge empowers banks to mainstream the topic across business operations.
PEEB has a set of resources to address this need. Our training “Financing green buildings: from fundamentals to portfolios” is a comprehensive learning journey based on the needs of development finance institutions from the global south. It was developed to be complete, but modular and adaptable. It goes from fundamentals to evaluations that inform business strategy and product development. It is meant to be tailored for geographic contexts, market maturity, and level of institutional preparedness. With it, PEEB aims at offering development finance institutions on all levels the skills to gain new clients and shape a new market.
How can I know more and access this training?
Training implementation is available for all 11 PEEB Cool partner countries. The First edition will be implemented in Mexico.
The training materials are also available through the Global Alliance for Buildings and Construction’s Finance Hub. Get in touch with PEEB for more information and contact the GlobalABC Secretariat for access to materials.
Alright, but the training is a first step. How can development banks keep learning when they face challenges in practice?
Under the COP30 Presidency’s Plan to Accelerate Solutions, PEEB is proposing a larger capacity building and knowledge exchange initiative. Development banks have a lot to learn from each other, as a PEEB-organised exchange has shown: common needs underlie their specific challenges. By gathering resources and promoting capacity building exchanges, this initiative aims to empower development finance institutions to create solutions tailored to their contexts.
How can I keep up to date about this initiative?
Stay tuned to PEEB’s channels to stay up to date: