What is a Green Building?
Green buildings reduce or eliminate negative impacts on the environment and climate. Definitions of green buildings vary. They can be tied to carbon and energy objectives such as net zero emissions or 1.5°C-compliant, as well as considerations for people’s health and wellbeing. While green buildings differ across local contexts and exhibit different green features, it is important to have an agreed on and comparable set of metrics that measure the most material characteristics of what makes a building green.
Clear and agreed on definitions of what constitutes these material characteristics, accompanied by relevant metrics to measure and verify a green building’s performance, accounting for local variations, are important for market growth. Definitions and metrics are essential for:
• Industry policymakers to establish minimum requirements for compliance, as well as provide incentives for private sector innovation to raise the standard.
• Developers to build green buildings and get recognition from buyers for their superior quality.
• Financial regulators to develop market rules for green assets.
• Financiers and developers to gain access to capital markets for their green building portfolios.
Standardized metrics and clear reporting requirements are essential to catalyze investment at the scale required to green the new construction market. They will help investors assess green buildings for their financial viability, sustainability credentials, and alignment with portfolio strategies.
Standards provide the necessary definitions while certifications such as BCA Green Mark, BREEAM, LEED, and others can offer an asset rating to help investors define, measure, and verify their green buildings investments. This facilitates the issuance of green bonds and other forms of green finance, which can increase capital flows to the sector.
IFC’s definition of green buildings
From almost 15 years of investing in green buildings, IFC has learned that green buildings should be:
• Certified as green under one of the internationally recognized certification standards or an approved national standard.
• At least 20 percent more energy efficient than a baseline building without energy-efficient design.
• Able to quantitatively report impact metrics, such as energy and water savings, and greenhouse-gas emissions reductions.
When IFC provides credit lines to its client banks and other financial intermediaries for on-lending for green building projects, it requires eligible projects to be certified and at least 20 percent more energy efficient than the benchmark.
When IFC uses the proceeds of green bonds to finance green buildings, it reports on the following metrics: the type of green certification system applied; green floor space; reductions in energy, water, and energy embodied in materials against a benchmark; and reductions in carbon emissions. For residential projects such as low-income housing, additional metrics include the number of households or people served. In addition, it is best practice for green bond issuers to report on
quantifiable green building performance to bond holders.
The focus on operational energy efficiency and the resulting reduction in greenhouse-gas emissions aligns with what large commercial banks consider to be the most material characteristics for their green real estate portfolios. Energy use can be measured and verified; however, focusing on this alone disregards the other benefits of green buildings, namely water-use efficiency and reduced embodied carbon in building materials. Unlike most certification systems, IFC’s EDGE incorporates these parameters, and ways to quantify them, into its definition of a green building, which requires a minimum of 20 percent greater water and energy efficiency, and 20 percent less embodied energy in building materials compared to a local business-as-usual benchmark.
IFC is leading discussions with other multilateral development banks to agree on a common definition of green buildings.