Buildings are responsible for a significant portion of global greenhouse gas (GHG) emissions, contributing approximately 40% of energy-related CO2 emissions worldwide. This substantial contribution is driven by the energy consumption in heating, cooling & lighting as well as the emissions associated with construction materials and processes. Carbon abatement curves, which plot the cost of reducing GHG emissions per ton, consistently demonstrate that building retrofits offer one of the most cost-effective means of achieving emissions reductions.
Financing – a key factor hindering the momentum
Although contribution of efficient building operations to achieve GHG reduction is increasingly recognized, most efforts in this area, especially in the developing world, are still limited to large corporations, major developers and select communities or towns. While several factors are contributing to the lack of momentum in this sector, in my view one of the primary challenges is the lack of tailored financing products and efficient business models in this space across all geographies.
Despite various initiatives from banks and multilateral institutions to finance sustainable and green projects, the focus still lies mostly on large-scale, ring-fenced, greenfield projects with proven technologies. Retrofit projects, on the other hand, are in brownfield, typically smaller in size & lack standardization; therefore fail to secure funding due to the financing industry's focus on large projects, risk management policies and limited understanding.
Compounding this issue is limited financial capacity, motivation & bankability of building operators, such as owners' associations, strata companies & community management, which often operate on a receipt-and-payments basis, collecting contributions from homeowners and making payments for specific expenditures. This inadequate fiscal space, lack of drive and limited capacity hinder their ability to get financed for structured retrofitting projects.
Furthermore, banks are generally risk-averse when it comes to financing SMEs in brownfield projects, further restricting access to capital for building retrofits.
Some of the ideas to address this gap can be as follows:
Targeted Financing Mechanisms:
Develop specialized financing products explicitly tailored for building retrofits, considering their requirements, diversity and scale.
Integrate innovative payback & securitization models, for e.g. inclusion in utilities bills or property tax, instill investor confidence and streamline financing processes.
Technical Expertise and Capacity Building:
Provide support to Small and Medium Enterprises (SMEs) and building operators for improving their technical expertise, competence & capacity.
Comprehensive support in technical intricacies of retrofit projects, empowering operators to confidently initiate and execute successful initiatives to Bridge the knowledge gap.
Awareness and Outreach:
Improve understanding of retrofitting options and their associated benefits among building operators, residents, and the broader community.
Targeted campaigns to highlight potential for GHG reduction and cost savings through retrofits, improving demand for such initiatives.
Policy Framework:
Setup & formulate a policy framework that supports, incentivizes and facilitates financing for building retrofits.
Governments/ Central banks can play a pivotal role by developing implementing policies that encourage financial institutions to invest in brownfield projects & building retrofits.
By addressing the technical capacity and awareness gaps, and using financing as a catalyst, the vast potential of building efficiency to reduce GHG emissions and enhance the sustainability of our built environment can be unlocked, especially in the developing world. This can not only create momentum in the market, drive modernization & innovation but also addresses multiple UN SDGs, as follows:
SDG 7 (Affordable and Clean Energy)
Retrofitting enhances energy efficiency, promoting cleaner and more affordable energy.
SDG 9 (Industry, Innovation, and Infrastructure)
Innovative financing and retrofit technologies showcase sustainable industry practices.
SDG 11 (Sustainable Cities and Communities)
Retrofitting significantly contributes to urban sustainability, aligning with SDG objectives.
SDG 12 (Responsible Consumption and Production)
Retrofitting optimizes existing resources, promoting responsible consumption.
SDG 13 (Climate Action)
Building retrofits are frontline strategies in climate action, reducing GHG emissions.
Use-cases & examples
Stakeholders worldwide are implementing various programs and driving initiatives to fast-track & enable building retrofits, some examples are as follows:
The New York City Accelerator Program is decarbonizing the city’s building stock to help city’s achieve carbon neutrality by 2050. Since 2015, the team of experts has provided free assistance to over 9,000 buildings.
Melbourne, Australia: The Victorian Energy Efficiency Target requires energy providers to reduce greenhouse gas emissions from their customers' energy use. The Victorian Government's Energy Efficiency Fund provides financial assistance to building owners for retrofits.
The London Retrofit Accelerator was developed to help make London's non-domestic public buildings and assets more energy efficient, lowering emissions and saving public money on energy spending.
The state of California has adopted a number of policies to promote building retrofits, including the California Green Building Standards Code, which requires all new construction and major renovations to meet certain energy efficiency standards.
The City of Amsterdam has launched the Retrofit for Circularity program, which provides financial and technical support to building owners who implement circular retrofitting measures, such as using recycled materials and designing buildings for disassembly.
The European Union has proposed a new Energy Efficiency Directive that would set binding targets for building renovation rates and require all public buildings to be energy efficient by 2050.
Conclusion & way forward
In conclusion, integrating targeted financing, technical expertise, awareness campaigns, and supportive policies creates a formidable strategy for overcoming challenges in building retrofits. This transformative journey not only addresses environmental concerns but aligns with broader sustainable development objectives. The stage is set for a future where building retrofits are the cornerstone of responsible urban development, paving the way for a more sustainable and resilient world.
Author: Rehan Razzak Muhammad, Student of MBA Sustainability Management Class 1 (2023-2025)