Climate Bonds comes in line with the EU Taxonomy on low carbon buildings
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 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 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.
How the Climate Bonds Buildings criteria are in line with and EU Taxonomy
Meeting the Climate Bonds New Buildings criteria ensures that principal requirements in the EU taxonomy screening criteria are met. Demonstration of how various European countries building stock, is considered in line with the EU Taxonomy is provided here.
Companies/issuers can continue to use their current Energy Performance Certificate (EPC) for residential properties as evidence for compliance. Eleven European country’s EPC ratings have been found to be suitably ambitious by meeting the top 15% best performing buildings in that region. This list of 11 countries will continue to be expanded as more detailed information is made publicly available by those EU Member States. The method and extent of comparability between the Climate Bonds standard and the EU taxonomy for commercial and residential buildings are described below.
The EU Taxonomy targets various economic activities, whereas Climate Bonds standard focus on financial tools (such as Use of Proceeds (UoP) bonds/ loans or Sustainability Linked Loan/Bonds (SLL/SLBs) for assets and/or entities). IN the case that a given assets or entity covers one or more economic activities, as defined in the EU Taxonomy, then this comparison can be easily made. Have a look here, so we can see more
Climate Bonds currently only focus on Substantial Contribution criteria for mitigation measures, and not the remaining objectives. The DNSH requirements met by the Climate Bonds New Buildings criteria are expanded on, with motivation here. The Minimum Social Safeguards are currently not addressed in this review. A detailed review of the comparison can be found below.
What’s next?
The latest draft of the Climate Bonds New Buildings criteria is now open for public consultation. Please take a look and let us have your thoughts. The next focus within the buildings space, is to expand our decarbonisation rules for renovation/ retrofit buildings.
Climate Bonds Initiative continues to develop criteria for the hard-to-abate sectors, and this critical piece of work forms a key part of reaching the global goal to decarbonise our impacts to below 1.5-degrees above pre-industrial levels. Other recent criteria published include Steel, Cement, Hydrogen and basic chemicals. Our current and future criteria under development include Critical Raw Materials criteria (CRM), focusing on lithium, copper and nickel, Electrical Utilities criteria, Grids & Storage criteria, Agri-Food (Crop & Livestock production, Deforestation and Conversion Free (DCF), and Commodity Value Chain (CVC)), Intermediate Chemicals criteria (plastics and fertilizers).
Check back soon, for more details and ways that you can contribute to our work.
Detailed comparison with EU aligned Buildings
Substantial Contribution
Key to comparison of EU Taxonomy and Climate Bonds Building Standards
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EU Taxonomy requirements met or exceeded by Climate Bonds standard |
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EU Taxonomy requirements not met by Climate Bonds standard |
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EU Taxonomy requirements partially met by Climate Bonds standard (additional and/or optional requirements specified by Climate Bonds standard required) |
Commercial Buildings (Substantial Contribution)
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Requirement |
Climate Bonds vs. EU Taxonomy |
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Commercial Buildings (Substantial Contribution) |
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Acquisition and ownership of buildings |
Elements of comparison between the Climate Bonds Buildings criteria and the Substantial Contribution criterion for Climate Mitigation under “Acquisition and ownership of buildings”, i.e. buying real estate and exercising ownership of that real estate. |
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Built before 31 Dec 2020 |
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Climate Bonds standard is more demanding than the EU Taxonomy. Climate Bonds criteria of commercial building is based on operating performance, so it is a higher standard |
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Built after 31 Dec 2020 |
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Climate Bonds standard is more demanding than the EU Taxonomy Climate Bonds has same requirements as EU, AND Additional requirements for operational verification of reporting |
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If Effective Rated output is over 290 kW |
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Climate Bonds standard is equivalent to the EU Taxonomy Building must be operated using Energy Performance Monitoring and Assessment ≥290 kW for all major components |
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Construction of New Buildings |
Referring to the development (and construction) of building projects for non-residential buildings for later sale Climate Bonds Standard considers New Building independently from Existing/ Retrofit Building assets when considering net zero trajectories. The New Buildings criteria include requirements that all new buildings be able to operate fully electrically (i.e. only use electricity for normal operational energy requirements). In addition, EU-specific industrial requirements have been adopted for cases when the Climate Bonds standard is applied within the European Union boundary. |
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The PED ≤10% (PED from construction, must be lower than the Nearly Zero-Energy Building (NZEB) threshold) |
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Climate Bonds standard is more demanding than the EU Taxonomy. The energy performance is certified using an as-built Energy Performance Certificate (EPC) All-electric building with all necessary infrastructure for full future e-mobility; and Annual verification of operating performance for the duration of the bond; and In the EU have a PED that is at least 10% lower than the national NZEB threshold. |
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Buildings ≥5,000m2 |
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Climate Bonds standard is more demanding than the EU Taxonomy. Required testing for airtightness and thermal integrity, and any deviation in the levels of performance set at the design stage or defects in the building envelope are disclosed to investors and clients. Annual verification required, for the duration of the bond. |
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Buildings ≥5,000m2 |
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Climate Bonds standard is equivalent to the EU Taxonomy Life-cycle Global Warming Potential has been calculated (including construction) for each stage in the life cycle and is disclosed to investors and clients on demand. |
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Renovation of existing buildings |
Construction and civil engineering works or preparation thereof. An economic activity in this category is a transitional activity as referred to in Article 10(2) of Regulation (EU) 2020/852 where it complies with the technical screening criteria set out in this Section. Climate Bonds has adopted criteria requiring that any financing to upgrade works must not be used for any plant of equipment powered by fossil fuels. |
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PED improvement of ≥30%, OR The building renovation complies with the applicable requirements for major renovations |
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Climate Bonds standard is more demanding than the EU Taxonomy. Buildings renovation at to achieve an Emission reduction (kgCO2e) of not less than 30-50%, depending on the tenor of the bond. Equivalence of emissions (kgCO2e) and Energy demand against PED requirements has been demonstrated, noting the emission reporting used by Climate Bonds is also better in line with the EU Taxonomy objectives than PED |
Residential Buildings (Substantial Contribution)
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Requirement |
Climate Bonds vs. EU Taxonomy |
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Residential Buildings (Substantial Contribution) |
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Acquisition and ownership of buildings |
Elements of comparison between the Climate Bonds Buildings Standard and the Substantial Contribution criterion for Climate Mitigation of the Economic Activity. Buying real estate and exercising ownership of that real estate. |
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Built before 31 Dec 2020 |
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Climate Bonds standard is more demanding than the EU Taxonomy. Climate Bonds criteria of residential building is based on operating performance, so it is a higher standard Fallback position of class A EPC qualification adopted in markets where Climate Bonds has not been able to define a proxy based on proper profiling of the market |
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Built after 31 Dec 2020 |
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Climate Bonds standard is equivalent to the EU Taxonomy PED performance required to be in the Top 15% of national or regional building stock (same requirements as EU requirements). |
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Construction of New Buildings |
Referring to the development (and construction) of building projects for residential buildings for later sale Climate Bonds Standard considers New Building independently from Existing/ Retrofit Building assets when considering net zero trajectories. The New Buildings criteria include requirements that all new buildings be able to operate fully electrically (i.e. only use electricity for normal operational energy requirements). In addition, EU-specific industrial requirements have been adopted for cases when the Climate Bonds standard is applied within the European Union boundary. |
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The PED ≤10% (PED from construction, must be lower than the Nearly Zero-Energy Building (NZEB) threshold) |
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Climate Bonds standard is more demanding than the EU Taxonomy. The energy performance is certified using an as-built Energy Performance Certificate (EPC) All-electric building with all necessary infrastructure for full future e-mobility; and Annual verification of operating performance for the duration of the bond; and In the EU have a PED that is at least 10% lower than the national NZEB threshold. |
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Buildings ≥5,000m2 |
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Climate Bonds standard is more demanding than the EU Taxonomy. Required testing for airtightness and thermal integrity, and any deviation in the levels of performance set at the design stage or defects in the building envelope are disclosed to investors and clients. Annual verification required, for the duration of the bond. |
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Buildings ≥5,000m2 |
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Climate Bonds standard is equivalent to the EU Taxonomy Life-cycle Global Warming Potential has been calculated (including construction) for each stage in the life cycle and is disclosed to investors and clients on demand. Reporting and disclosure of Module A (cradle to key), Module B (operations) and Module C (end of life) GWP. |
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Renovation of existing buildings |
Construction and civil engineering works or preparation thereof. Climate Bonds has adopted new criteria requiring that any financing to upgrade works must not be used for any plant of equipment powered by fossil fuels. |
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Meets local requirements, or 30% PED improvement |
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Climate Bonds standard is more demanding than the EU Taxonomy. Buildings’ renovation is to achieve an Emission reduction (kgCO2e) of not less than 30-50%, depending on the tenor of the bond. Climate Bonds proxies provide that this can be demonstrated by necessary incremental improvements to EPC ratings. Equivalence of emissions (kgCO2e) and Energy demand against PED requirements has been demonstrated, noting the emission reporting used by Climate Bonds is also better in line with the EU’s overarching Taxonomy objectives than PED. |
Do no Significant Harm (DNSH)
The following comparison is a snapshot of the EU Taxonomy DNSH requirements and how to achieve compliance with the EU requirements for the economic activities.
Note: DSNH criteria refer to EU legislation, so primarily relevant to EU buildings stock
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Requirement |
Climate Bonds vs. EU Taxonomy |
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New Buildings (DNSH) |
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Climate adaptation |
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Climate Bonds standard is equivalent to the EU Taxonomy. The physical climate risks that are material to the activity have been identified and recorded (vulnerability assessment requirements and & Climate Risk Register listing all material risks) |
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Sustainable Use and Protection of Water and Marine Resources |
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Climate Bonds standard is equivalent to the EU Taxonomy. BoQ and Design Specification sheets for the pre-issuance requirements Verification of the As-built Specification sheets and procurement for the post-issuance requirements An Environmental Impact Assessment Report to be prepared that sets out the requirement for the Contractor to develop a Construction Environmental Management Plan (CEMP), which should incorporate a Water Use and Protection Management Plan (WUPMP) |
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Transition to a Circular Economy |
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Climate Bonds standard is equivalent to the EU Taxonomy. Site Waste Management Plan (SWMP) following the local/national laws set in that jurisdiction. Life-Cycle Assessment Module D (beyond systems boundary) accounting and report following the Climate Bonds criteria. Disclosure of design specifications to ascertain whether the building design and construction techniques used, support resource efficiency, and result in buildings that are adaptable, flexible and dismantlable to enable future reuse and recycling of resources (codes such as ISO 20887 are considered acceptable proxies) |
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Pollution Prevention and Control |
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Climate Bonds standard is equivalent to the EU Taxonomy. Disclosure of the design specifications in order to assess whether the project meets this criterion. Post-Construction and Pre-Occupancy Air Quality Monitoring and Assessmentfollowing the testing and methodology requirements as per the EUT requirements. Preliminary Site Assessment (PSA) and Detailed Site Assessment (DSA) are required (incl. potential impact of any form of land contamination) Contractor to develop a CEMP, which should incorporate measures to reduce noise, dust and air pollutant emissions protection management plans Construction Initiatives and Schemes or Industry Codes where Air Quality Management and Noise Impact Assessment compliance, during all relevant construction phases are parts of the scheme (and/or the code) can be used as suitable proxies (e.g. Considerate Construction Scheme (CCS)) |
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Protection and Restoration of Biodiversity and Ecosystems |
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Climate Bonds standard is equivalent to the EU Taxonomy. Sites located in sensitive areas under the Habitats Directive, either as Special Area of Conservation (SAC) or Special Protection Area (SPA) require an appropriate assessment and permitting (surveys such as a LUCAS Survey meet the above requirement) |
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Renovation of Existing Buildings (DNSH) |
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Climate adaptation |
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Climate Bonds standard is equivalent to the EU Taxonomy. Climate risk and vulnerability assessment Climate Risk Register material risks The physical risk data for the paths for the RCP 2.6, RCP 4.5, RCP 6.0 and RCP 8.5 risk scenarios should be provided by a mandated third party. The assessment is to be provided for future scenarios of 2030 and 2050 |
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Sustainable Use and Protection of Water and Marine Resources |
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Climate Bonds standard is equivalent to the EU Taxonomy. BoQ and Design Specification sheets for the pre-issuance requirements Verification of the As-built Specification sheets and procurement for the post-issuance requirements |
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Transition to a Circular Economy |
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Climate Bonds standard is equivalent to the EU Taxonomy. SWMP following the local/national laws set in that jurisdiction. Life-Cycle Assessment Module D (beyond systems boundary) accounting and reports Disclosure of design specifications to ascertain whether the building design and construction techniques used, support resource efficiency, and result in buildings that are adaptable, flexible and dismantlable to enable future reuse and recycling of resources |
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Pollution Prevention and Control |
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Climate Bonds standard is equivalent to the EU Taxonomy. Disclosure of the design specifications Materials specifics need to be registered with ECHA central European Authority (e.g. REACH Certificate of Compliance (CLP) Safety Data Sheets (SDS)) Post-Construction and Pre-Occupancy Air Quality Monitoring and Assessment following the testing Developed PSAs and DSAs. Contractor to develop a CEMP (measures to reduce noise, dust and air pollutant emissions protection management plan) Construction Initiatives and Schemes or Industry Codes where Air Quality Management and Noise Impact Assessment compliance, during all relevant construction phases are parts of the scheme (and/or the code) can be used as suitable proxies (e.g. Considerate Construction Scheme (CCS)) |
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Protection and Restoration of Biodiversity and Ecosystems |
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n/a |
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Acquisition and ownership of buildings |
Elements of comparison between the Climate Bonds Buildings criteria and the Substantial Contribution criterion for Climate Mitigation under “Acquisition and ownership of buildings”, i.e. buying real estate and exercising ownership of that real estate. |
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Climate adaptation |
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Climate Bonds standard is equivalent to the EU Taxonomy. Climate risk and vulnerability assessment Climate Risk Register Climate Risk Register material risks The physical risk data for the paths for the RCP 2.6, RCP 4.5, RCP 6.0 and RCP 8.5 risk scenarios should be provided by a mandated third party. The assessment is to be provided for future scenarios of 2030 and 2050 |
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Sustainable Use and Protection of Water and Marine Resources |
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n/a |
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Transition to a Circular Economy |
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n/a |
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Pollution Prevention and Control |
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n/a |
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Protection and Restoration of Biodiversity and Ecosystems |
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n/a |
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DNSH Document Checklist |
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Document Checklist |
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Climate Bonds standard is equivalent to the EU Taxonomy. Climate risk and vulnerability assessment Climate Risk Register BoQ and Design Specification sheets As-built Specification Environmental Impact Assessment Report Post-Construction and Pre-Occupancy Air Quality Monitoring and Assessment Preliminary Site Assessment (“PSA”) and Detailed Site Assessment (“DSA”) Site Waste Management Plan (SWMP) Life-Cycle Assessment Module D (Circular economy) ISO/DIS 59004 – Terminology, principles and guidance for implementation Construction Environmental Management Plan Special Area of Conservation (SAC) or Special Protection Area (SPA) Assessment Local Authority Building Permit |
The Last Word: Climate Bonds Taxonomy and Standard
The Climate Bonds Taxonomy: first developed in 2013, is a guide to climate aligned assets and projects. It serves as a tool for issuers, investors, governments, and municipalities to help them understand which are the key investments that will deliver a low carbon economy. The taxonomy identifies the assets and projects needed to deliver a low carbon economy and gives GHG emission criteria consistent with the 1.5-degree net-zero global warming limit set under the COP 21 Paris Agreement.
The Climate Bonds Taxonomy is developed based on the latest climate science including research from the Intergovernmental Panel on Climate Change (IPCC) and International Energy Agency (IEA) along with the inputs of hundreds of technical experts from around the world. The Taxonomy is regularly updated based on the latest climate science and emergence of new technologies relating to the sector specific criteria. It can be used by suitable entities looking to identify which assets and activities, and associated financial instruments, are compatible with the 1.5-degree net zero trajectory to by 2050.
The Sector Criteria which is a subset of the Climate Bond Taxonomy provides in depth detail on what assets may be financed with Climate Certified Bonds and Loans. Find more information on Climate Bonds Taxonomy here.
The Climate Bonds Standard: aims to ease decision making and focuses attention on credible science-based solutions. The Climate Bonds Standard and Certification Scheme now allows for certification of non-financial corporates (i.e., Corporates providing goods and services in the real economy), assets and sustainability-linked debt instruments.
The EU Taxonomy is a regulation which establishes under which conditions an economic activity is defined in the EU sustainable finance framework as sustainable. The EU Taxonomy underpins mandatory disclosures by financial and non-financial corporates as well as the upcoming EU Green Bond Standard. The EU Taxonomy aims to be a “common language for sustainability” at the heart of the EU Sustainable Finance Action Plan, aimed at reorienting capital flows towards sustainable investments to achieve sustainable and inclusive growth and to help investors, companies and issuers navigate the transition to a low-carbon, resilient and resource efficient economy.
If you have any queries or wish to get Certified under the Climate Bonds Standard for Buildings, please do not hesitate to get in touch.
‘Til next time,
Climate Bonds.
