Australia’s financial institutions have a significant exposure to real estate. The sector is one of the largest contributors to our national emissions. So as financial services firms consider how best to achieve their net zero targets, solutions should include strategies for decarbonising their commercial and residential real estate portfolios.
Governments are also recognizing the strategic importance of this sector in reaching net zero. The Commercial Building Disclosure Program, and the City of Sydney’s Sustainable 2030 Plan, are both examples of government initiatives that target minimum energy efficiency requirements. Some of the measures include:
- A minimum 5.5 NABERS rating for new and redeveloped commercial properties
- A minimum 2-star uplift for low energy rated buildings
- The electrification of all existing gas appliances.
For financial institutions, non-compliant financed assets face threats of stranding, revenue loss and potential impairments, so identifying your impacted pool of assets is a critical first step in risk management.
We’re also seeing legislated incentives, and green finance opportunities in this space. The recent Federal Budget included rewards for buildings that lower energy consumption, and that use energy sources that will progressively decarbonise. These include:
- Tax concessions for energy efficient commercial real estate
- A funding injection for home energy upgrades, passed through private lenders
- An expansion of the Nationwide House Energy Rating Scheme to make energy star ratings more ubiquitous.
110,000 residential premises are expected to be impacted by this legislation. Whilst this is only a small portion of the national housing stock, it highlights the upgrades that will need to be extended across Australia’s residual population of buildings – upgrades that will only be possible with the support of our financial institutions.
So how should financial services organizations respond to the momentum we’re seeing towards greening Australia’s buildings?
Firstly, locate your financial assets and identify the climate risks that impact them. Where are they, what are their energy ratings, and which legislation – federal, state or local – most impacts their operations?
Next, size out the extent of decarbonisation required, and the levers needed to achieve your targets. How much will be done passively as the national grid itself decarbonizes? Use appropriate industry scenarios for net zero modelling to measure the necessary level of steering.
And finally, engage your customers. Understand and facilitate their transitions – whether that’s through green financing of solar, fuel switching or retrofitting energy efficiency projects. Determine the pricing that will most effectively guide customer behavior.
Australia’s journey to net zero won’t be easy. But the emissions intensity and size of our real estate sector makes it a priority for action. At Baringa, we’ve helped financial services clients with their net zero transition programs – from strategy right the way through to execution. With a considered and strategic approach, Australia’s financial institutions can be prepared for the risks and strongly positioned to realize the significant opportunities in this space.
