Last month Climate Bonds released updated criteria for buildings, further progressing the market understanding of credible green buildings. This update refines the scope of the New Buildings criteria, to include embodied carbon (whole-life carbon) and various aspects of DNSH and substantial contributions. The update brings the criteria into line with the EU Taxonomy. The latest updates of the new buildings criteria (retrofit buildings criteria due in 2024) ensure both 1.5-degree alignment of building and harmonisation with the requirements laid out in the EU Taxonomy (European jurisdiction) for buildings. Let’s dive into what this means and how it has been achieved.

The Low-Carbon Buildings Criteria encompass eligible assets and projects related to building investments and include both commercial and residential properties. Presently, certification for entities is currently exclusively available for Commercial Buildings (including office, retail, hospitals and hotels), with Residential Buildings to be included with the latest New Buildings criteria update (currently under public consultation, and eligible for certification from December 2023).

The Climate Bonds buildings criteria was first published in 2016. Since then, with various subsequent updates including the expansion to be in-line with the EU Taxonomy.

The introduction of latest set of criteria for New Buildings marks a significant milestone in the evolution of the Climate Bonds Initiative’s Buildings Criteria. This development brings several noteworthy advantages:

• Enhanced clarity regarding the utilization of the criteria for new buildings, making it easier for stakeholders to understand and adhere to the standards.
• Technological advancements: By including new buildings, these criteria leverage the latest technological capabilities available in the construction industry, promoting innovation and sustainability.
• Expanded typology coverage: Recognizing that not all building typologies are currently addressed in the Climate Bonds Low-carbon Buildings criteria, this aims to bridge gaps and ensure that a broader spectrum of building typologies and projects can meet these essential sustainability benchmarks.
• More than Building Efficiency: Determining the levels of green in a building has historically used Energy Performance Certificates (EPC) and has now further been expanded to incorporate the imbedded ‘Whole Life Carbon’, of a building asset.
• EU Taxonomy: Achieving certification with Climate Bonds ensures your buildings stock is considered in line with the EU Taxonomy requirements and achieves the following;
• Substantial Contribution to (1) climate change mitigation, and 
• Do No Significant Harm (DNSH) for the remaining five objectives (viz. (2) climate change adaptation, (3) sustainable use and protection of water & marine resources, (4) transition to a circular economy, (5) pollution prevention and control, and (6) protection and restoration of biodiversity and ecosystems).

Building efficiency can go further

Buildings account for almost 40% of the global energy(link is external) consumption and contribute almost the same in total carbon emissions. 

The decarbonisation of buildings is key to meeting global emissions targets, but the process remains complicated. The steady increase in the use of more efficient and renewable energy technologies, and implementation of minimum performance standards and building energy codes are yielding continued improvements in the sector. However, this progress does not yet align(link is external) with 2050 Net Zero Emissions targets.

Around the globe, building efficiency is generally assessed using Performance Tracking guidelines (e.g., energy efficiency ratings) which vary greatly depending on the available data, maturity and relative levels of ambition of each standard developer in the buildings market. In some cases, energy efficiency gains in buildings are approaching a natural ceiling (effort vs return in terms of the maximum achievable gains still achievable). The buildings sector also encompasses various stages of development (design, construction and operational maturity). Climate Bonds has tackled this diversity by developing criteria separate targets for both “new” construction and “retrofitting” of existing building stock. The Climate Bonds Buildings criteria, acknowledges by recognising that applying an overly simplistic one-size-fits-all “mitigation” approach to decarbonising buildings stock, is not fit for purpose, or reflective of the highly complex landscape seen globally.

EU Taxonomy buildings criteria quick recap

The EU Taxonomy is a vital tool in the EU's strategy to transition to a more sustainable and environmentally responsible economy. The buildings components set clear criteria for assessing the environmental impact of building activities, promotes transparency and reporting, and aims to steer investments toward greener, more sustainable building projects that contribute to the EU's climate and environmental goals.

Under the EU Taxonomy, building activities are classified as either: construction of new buildings, renovation of existing buildings or acquisition and ownership of buildings.

The EU Taxonomy for the construction of new buildings requires the disclosure of a building’s primary energy demand (PED) is 10% lower than as specified in the Near-Zero Energy Building (NZEB) requirement. NZEB is the EU definition of very high energy efficiency building but as these are transposed differently into Member States, so requirements differ across the EU depending on the location. 

The renovation of buildings either must improve Primary Energy Demand (PED) by 30% or meet the definition of “major renovation” in the Energy Performance of Buildings Directive (EPBD) which also differs between member states. Meaning the requirements vary and definition of what a “major renovation” differs in each member state. 

Entities, seeking to report their adherence to the EU Taxonomy for building renovations must consult the national regulations governing major renovation as stipulated by the respective Member States where these renovation projects are located. 

Acquisition and ownership of buildings built after December 31st 2020 follows the same rules as of New Buildings (as mentioned above) and for buildings built before December 31st 2020 the building is within the top 15% of the national or regional building stock expressed as operational Primary Energy Demand (PED) or has an Energy Performance Certificate (EPC) of at least A that distinguishes between residential and non-residential buildings.

Climate Bonds Standard: buildings criteria

The Climate Bonds Standard and Certification scheme is an easy-to-use screening tool that provides a clear indicator of positive impact to investors, asset owners, portfolio managers, and intermediaries on the climate (More about Climate Bonds Initiative at the end).

Climate Bonds eligibility criteria allow one of two methodologies for determining energy performance: 

The Absolute Performance method requires meeting a location specific net-zero trajectory over time based on a baseline starting point equal to the top 15% best performing efficient buildings in a region (gCO2/m2). A carbon dioxide target calculator automatically calculates the emissions performance targets for an issuer based on city, building type, bond issuance year and bond term.

The Relative Performance Improvement method is ideally used for retrofitting activities and requires an improvement in emissions intensity against a pre-retrofit baseline level. The subsequent “targeted minimum improvement level” is assessed over the full bond duration. This methodology aids regions where emissions performance data is insufficient or unavailable.

This update to the New Buildings criteria moves beyond energy performance, by incorporating Whole Life Carbon. The methodology is exclusively based on the Green House Gas Protocol (GHG Protocol) and optimised for the building space. Climate Bonds has developed a Guidance note for the market in how this can be achieved and will be verified.

For more information refer to Climate Bonds Buildings Low Carbon Criteria New Buildings criteria and specifically to the Commercial Buildings Calculator and Residential Buildings Calculators.

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