IFC's Blended Finance Climate Partners: Spotlight on the United Kingdom
To reach its ambitions to channel more finance toward the #greentransition in emerging markets, IFC - International Finance Corporation works with development partners and governments around the world. Their support – through blended finance, convening power and thought leadership – is critical to The World Bank Group . In the inaugural series of Partner Spotlight profiles, we’ve interviewed Peter Batten, Head of Capability Building and Action, International Climate Finance (ICF), Department for Energy Security and Net Zero (ESNZ) , United Kingdom, to highlight the partnership between the UK and IFC, through a blended finance program designed to support the acceleration of certified green construction lending across emerging markets.
Tell us a little about the UK’s ambitions when it comes to climate action.
The UK is committed to supporting high-impact climate projects that help reduce carbon emissions or avoid future emissions. This includes our support for low-carbon climate resilient infrastructure through programmes such as the Market Accelerator for Green Construction (MAGC) Program, as well as for nature-rich countries that play a role as major carbon sinks to reduce future climate impacts. Our mitigation activities are aligned with the Paris Agreement and seek to limit global warming to 1.5°C or less.
Why did the UK decide to partner with IFC?
IFC has a strong track record in promoting green construction globally, including through the globally recognised EDGE certification standard designed specifically for emerging markets. IFC also has great experience in working with governments and industry on strengthening and improving building codes, a critical precursor to driving transformational and sustainable sector change.
Why did you decide to focus on green buildings in emerging markets and developing economies?
Two-thirds of the global stock of buildings that will be standing in 2060 will have been built by 2035. What we build in the next decade will determine how quickly, effectively, and efficiently the buildings sector can limit global emissions and climbing temperatures. This is particularly relevant in EMDEs where economic growth and development usually goes alongside significant new building activity.
The high upfront capital cost associated with buildings creates an incentive to seek cost savings, which have often been at the expense of both more sustainable construction methods, and the energy efficiency of the building over its operational life. Because a typical lifespan of a building lasts many decades, failure to act now will result in buildings that will be energy inefficient and more expensive to maintain in the future than they need to be.
Contrary to popular belief, green construction does not have to be expensive, so there is an important social equity angle at play. In fact, energy efficient buildings have lower maintenance costs for the homeowner and tenant over the lifecycle. IFC’s EDGE standard for energy efficiency, which underpins the MAGC programme, is a highly accessible tool that demonstrates the benefits of green construction to builders, mortgage providers, and building users. To date, buildings with a cumulative floorspace of over 60 million m2 have been certified as EDGE compliant, and in Colombia, 23% of buildings completed in 2022 met the EDGE standard.
What were the challenges and barriers MAGC encountered?
As a hard-to-abate sector, construction has not yet received the level of international attention comparable to sectors like energy generation. MAGC is a pioneering approach for this sector, but due to the Covid-19 pandemic, early stages of the program faced severe delivery headwinds. However, the subsequent rebound, coupled with the build back better agenda, has enabled MAGC to surge ahead of expectations, with 18 investments closed to date and a total investment value of nearly $50 million. Since MAGC's inception in 2018, to June 2023, cumulatively over 1 million tCO2e are expected to be avoided from Preliminary EDGE certified buildings.
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What are some of the results and projects you’re most proud of under MAGC?
We are incredibly proud that the first $75 million of UK investment into MAGC projects has already mobilized nearly $1.5 billion from IFC and other investors. In addition, EDGE adoption is growing every year, providing real world proof that policymakers, the construction industry, and homeowners and tenants all see the value and benefits of greener buildings.
For example, the introduction of a mandatory Green Building Code in Colombia, the first country in Latin America to do so, has introduced green construction tax incentives which, alongside the engagement work of IFC with the banks and construction industry, have accelerated the transformational change of the sector.
What are you looking forward to? What does the future look like for the partnership?
We’re just getting started! The results to date have been especially encouraging in terms of growing market appetite and responsiveness to the opportunity to build green. IFC has proved to be an innovative and adaptive delivery partner, using performance-based incentives to help offset the costs of building green and therefore accelerating the green construction markets.
With the private sector increasingly recognising the importance of low-carbon resilient construction and in some instances acting ahead of regulatory changes and signals, I’m hopeful for further developments, including the wider application of EDGE within the sector, including to self-build homes, and the increased adoption of the zero emission EDGE standard.
What difference are you hoping programs like MAGC will have in the global fight against climate change?
Keeping global warming within 1.5°C will require innovative action across all sectors of the global economy, including harder to abate sectors such as construction. MAGC and innovative climate programs that green our infrastructure is a critical first mover. I hope this program will be a powerful demonstrator that raises ambition and significantly lowers the barriers to green construction globally.
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Erin Baldwin