JAKARTA (TheInsiderStories) – Asia-Pacific, which will house half the world’ urban population by 2030, has potential to grab US$17.8 trillion worth of opportunities investment, primarily in residential buildings, International Finance Corporation (IFC) reported today (12/04). A member of the World Bank Group highlighted how investors can tap into enormous potential in green buildings.
“The floor area of the buildings that dot our skylines is expected to double by 2060. The majority of this construction boom will occur in emerging markets, particularly in middle – income countries experiencing high population growth, rapid urbanization, and income growth,” noted by Alzbeta Klein, Director of Climate Business at IFC.
He continued, “Green construction is one of the largest investment opportunities of the next decade that can spur low-carbon economic growth and create skilled jobs for decades to come.”
Based on the report, 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’ 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. IFC also underlined 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 percent 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 percent 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 percent to 12 percent in additional costs. In Indonesia, IFC’ (Excellence in Design for Greater Efficiencies) EDGE-certified development, PT Citra Maja Raya, reported the additional cost of green measures to be 4.7 percent, with a payback period of 1.8 years, and the utility savings per year amounting to 30 percent.
This new report notes that 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, green buildings account for just 8 percent of the construction and renovation sector, indicating a vast potential for growth.
Almost decade-long experience IFC has investing $5.5 billion in green buildings. IFC’ 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 European Union, and GEF.
Globally, 28 percent of greenhouse gas emissions come from energy use in buildings, making them an important part of helping governments to achieve their climate change targets.
Azam Khan, IFC’ Country Manager for Indonesia, Malaysia and Timor Leste, remarked, “There is a strong business case for the private sector, financiers and governments to invest in green buildings.”
IFC has been supporting Jakarta, Bandung, Semarang and public works and public housing on Green Buildings program since 2011, he adds. The impact of Indonesia’ green building codes as of June 2019 reached more than 25 million square meters of floor space from over six thousand buildings in Jakarta and Bandung, the pioneer cities in the implementation of green building codes.
The potential CO2 emissions reduction reached more than 1 million metric tons while potential energy savings reached almost 1.5 million MwH which helped residents and businesses save over $120 million in energy bills.
Recently, Indonesia’ Financial Services Authority has issued a national regulation that requires banks to report annually on their green financing products and services, growth in green finance portfolios, organizational, governance, and risk management changes to ensure their compliance with ESG norms, and internal capacity building related to sustainable finance.
The regulation has pushed banks to recognize green assets as a separate asset class and develop green growth strategies. A second regulation which defined green bonds in terms of eligible use of proceeds, reporting requirements, and obligatory third-party verification, included certified green buildings as an eligible use of funds.
Building on this foundation, policymakers are exploring how lower mortgage rates could be made available for green homes. The Bank of Indonesia has announced a 5 percent increase in the maximum loan-to-value ratio for green property.
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