Finance can be a key enabler for many transformations in the world. The built environment offers opportunities for major transformations and is certainly ripe for investment. Climate finance is the investment toward solutions that address climate change including loans, grants, and budget allocations. Estimates project between $2 to $4 trillion annual investment needed toward climate action in buildings. What are the key drivers in the built environment that will attract such climate finance?

Now: Risk management

Globally, over 10,000 cities and municipalities have climate commitments and a growing list of cities have climate action plans with regulations that mandate electrification, energy efficiency, low-embodied carbon materials, renewable energy and resilience of buildings. State and non-state asset owners must manage physical, transitional and reputational risks stemming not only from stranded and high-carbon assets but also from extreme weather events. The physical place-based nature of the building sector makes it one of the high-risk sectors driving unpredictability in insurance rates, operational costs, lost earnings and loss and damage costs. Both public sector and multi-lateral development banks can de-risk private investment by assuming risk for low-carbon and resilient buildings, effectively removing uncertainty and building stability around technologies and practices to manage risk.

Near: Technology adoption

The construction industry is fragmented in sourcing and supplying goods and services throughout the life cycle of buildings. However, commitments such as the recent Buildings Breakthrough – a global push for net-zero emission and resilient buildings unveiled at COP28, catalyze collaborative opportunities for market transformation. Technology will play a vital role in such a transformation for removing such fragmentation. Technology in design services, smart buildings, facilities management, modular and offsite construction and building material efficiency can attract private venture capital investors as there are proven adjacent market adoption opportunities such as 3D printing, IoT, robotics, autonomous equipment, cybersecurity, AI, etc.

Next: Innovation

Urgency breeds innovation. The time value of carbon emphasizes the critical need to reduce embodied carbon rapidly within the built environment. Current, extractive and exhaustive building material use will drive innovation in new low-carbon and regenerative building materials. While policies and financial pressures for re-use of existing assets will drive innovative retrofit technologies. Philanthropic funds and mission driven grant agencies can catalyze such innovation, attracting private capital. Innovations around technologies and materials will also open new opportunities for buildings in the carbon trading market.

These key drivers position buildings as attractive opportunities for climate finance. Although access to climate finance is not inclusive, public sector investment with environmental justice commitments begin to address equity in climate finance. Buildings can play an important role in mitigating climate change. Climate finance in the built environment can create long-lasting social, economic and environmental benefits.