How to Unlock $17.8 Trillion in Green Buildings Investments in Asia-Pacific
A new report by IFC, a member of the World Bank Group, highlights how investors can tap into the enormous potential in green buildings. Asia-Pacific, which will house half the world’s urban population by 2030, is a particularly promising area for investment, with an estimated $17.8 trillion worth of investment opportunities, primarily in residential buildings.
According to Green Buildings—A Finance and Policy Blueprint for Emerging Markets, by 2030, in emerging markets alone, green buildings will offer a $24.7 trillion investment opportunity, which will spur economic growth and accelerate sustainable development. Further, with 80 million people projected to enter Asia’s middle class in the next few years, the demand for housing will continue to rise. India alone needs an estimated 60 million additional housing units between 2018 and 2022 to meet the existing shortfall.
However, though emerging markets have ambitious targets for green buildings, they struggle to put in place effective measures to mandate and incentivize large-scale adoption of green construction practices. Hurdles include low technical capacity, as well as challenges in developing and implementing consistent standards and requirements for green construction across a highly local and decentralized industry.
Despite the challenges, the report highlights that realizing the full investment potential of green buildings is within reach, with established financing models and proven, easy-to-implement technologies that are readily available and continue to decrease in cost with their greater adoption. The report underlines the clear financial benefits investors, banks, developers and owners, including governments, can expect when entering the green building market.
Green buildings command substantially higher sale premiums—up to 31 per cent more—and sell more quickly than traditional buildings. In addition, they maintain higher occupancy rates — up to 23 percent higher — than conventional buildings and offer higher rental income. By consuming less water and electricity, operational costs are up to 37 per cent lower than traditional buildings.
When green features are incorporated early in the building design, the cost of green construction can range from savings of half a per cent to 12 per cent in additional costs. In Indonesia, IFC’s (Excellence in Design for Greater Efficiencies) EDGE-certified development, Citra Maja Raya, reported the additional cost of green measures to be 4.7 per cent, with a payback period of 1.8 years, and the utility savings per year amounting to 30 per cent.
Green buildings can be a strong driver of economic growth, generating upwards of nine million skilled jobs in both the renewables and construction sectors by 2030. Currently, they account for just 8 per cent of the construction and renovation sector, indicating a vast potential for growth.
The report offers a uniquely private sector perspective on the investment potential in emerging markets and how to realize this potential, according to IFC. It draws on IFC’s almost decade-long experience investing $5.5 billion in green buildings, as well as lessons learned helping governments to design and implement building codes to catalyze green building markets.
In Vietnam and Indonesia, IFC helped improve code compliance by training over 1,000 construction industry professionals and monitoring officials in each country. It also created checklists for inspectors and technical guidance for code criteria, making enforcement easier. In addition, IFC’s own certification system designed for emerging markets, EDGE, is available in more than 150 emerging markets. IFC’s Green Buildings program is implemented in partnership with the governments of Austria, Canada, Denmark, Finland, Hungary, Japan, Switzerland, and the UK, as well as with ESMAP, the EU, and GEF.
Best practices are highlighted by and for investors, banks, governments, developers, and owners, and provide an investment blueprint for scaling up green buildings across emerging markets. Shifting lending and investments towards green buildings will allow investors to take advantage of this significant investment opportunity. It will also help build stronger real estate investment portfolios resilient to financial, regulatory, and reputational risks associated with the transition to low-carbon economies.
Governments stand to benefit financially from the transition to green construction, and the shift will also help them meet their social and environmental objectives. Globally, 28 per cent of greenhouse gas emissions come from energy use in buildings, making them an important part of helping governments to achieve their climate change targets.