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UNEP FI Report Explores Financing for Green Building

A report on finance for sustainable building addresses the growth of housing stock and the expected need for more housing in the future amid population growth and urbanization trends. Housing growth affects material use, energy and water consumption, waste, and carbon emissions, pointing to the need for green building finance. 

The publication from the UN Environment Programme's Finance Initiative (UNEP FI) focuses on Sri Lanka, where housing stock increased by 19% from 2001 to 2012. The report provides ways that banks and other industry actors can adjust lending practices to result in more credit flows to green buildings. It also highlights examples of financial regulators and actors in Sri Lanka acting to shift the financial system to embed sustainability in finance decision making. 

 The guide addresses:

  • the state of green construction practices and related beliefs in Sri Lanka, green certifications and eco-labelling, and green building knowledge and attitudes;
  • barriers and benefits of green buildings, with a review of international evidence on the financial value of green buildings;
  • information needs in Sri Lanka to prepare preliminary green finance models; and
  • strategies for integrating green finance practices.

More specifically, it explores: green mortgage modeling and approaches to green lending: green mortgage underwriting, including the role of green building standards and data monitoring, valuation practices, and lender terms and prudential standards; and developing green property finance products, including concessional construction finance, potential capital and project finance resources, underwriting practices, and a framework for capacity and market development.

The report contends that modest adjustments to lending criteria and practices can result in more credit flows to green buildings.

The report discusses barriers that prevent greater investment in green buildings and energy efficiency. It notes that while green buildings are often more costly and, thus, affect upfront affordability, evidence suggests only modest cost premiums to design and build green, and finds that green buildings create financial benefits exceeding their costs. Still, the guide recommends developing a green construction loan product whereby project debt is provided at concessional interest rates to balance out any increase in project capital expenditures compared to non-green buildings. Green finance products must also consider local conditions, such as interest rates, building energy consumption features, and depth of capital markets.

UNEP prepared this guidance under the framework of the SAICM GEF 9771 project, which focuses on two Emerging Policy Issues (EPIs), namely: lead in paint and chemicals in products that generate environmental and health challenges. The project helps track and control chemicals along the value chains of the building and construction sector. A UNEP team has been working with stakeholders in Sri Lanka to identify chemicals of concern in the construction material value chain and with manufacturers on end-product reformulations and alternatives. [Publication: Sustainable Building Finance: Supporting Green Mortgage Development in Sri Lanka]