With the climate-change agenda a high priority, market-led solutions to facilitate green retrofits are beginning to emerge in Europe. A number of private funds have been launched to invest in the upgrade of existing buildings, although a centralized approach to promote improvement works is still to come.

Buildings are responsible for just under half of all carbon emissions in the United Kingdom, although the vast majority of these are more than five years old, with very few being energy efficient, according to law firm Berwin Leighton Paisner. Come 2050, the year by which the European Union (EU) targets to cut greenhouse gas emissions by 80 percent compared with 1990 levels must be met, at least 50 percent of all existing U.K. stock will still be standing.

The market for green retrofits is therefore seen as a major growth area across Europe. EU estimates reckon that €270 billion ($384,259,789,724 U.S.) of additional investment will be required annually over the next 40 years, with the private sector expected to furnish by far the largest share of this capital at around 85 percent.

When it comes to unlocking the funding structures for retrofits, owner-occupiers are likely to be the initial driver because they will reap the benefits of investing in building upgrades through reduced operational costs. Threadneedle is one of the latest fund managers to commit to the sector by teaming up with developer Stanhope and the Carbon Trust to establish the Low Carbon Workplace partnership, which will transform tired buildings into energy-efficient offices.  

“The name of the game is to take something that’s low value and blighted but redeemable, and bring it up to a significantly better standard,” explains Peter Sharratt, global director of energy and sustainability services at consultant WSP, which has itself colaunched Brookfield Green with contractor Brookfield, Mercury Engineering, and Woods Baggott Architects—one of the first green retrofitting businesses in Europe.

Green refurbishment can be very cost effective; for example, three- or four-year pay-back schemes for cooling and heating equipment are not unusual. But one big advantage Brookfield Green can offer is finance-backed guarantees for operational energy performance.

ULI member Sharratt continues: “We find buildings that should be performing better than they are and develop a strategy to deliver efficiency gains and cost savings without disrupting the tenant too much. We also set performance targets, backed up by a warranty for the tenant. There is a financial underwriting in relation to the energy and carbon performance of the building throughout the period of occupation, so there will be a recharge based on a percentage of the projected savings if the building doesn’t perform according to the expectation.”

Well-designed funding mechanisms will be central to achieving the EU targets, and it is evident that the market is already starting to develop solutions for the improvement of existing stock in line with climate change legislation. ULI’s LessEn energy initiative embodies this shift.

There is a clear opportunity for investment by the private sector, although it is crucial that policy creates incentives to support this type of work. There may not yet be a determined financing model in place for green retrofits in Europe, but it is undeniable that the market is set to grow.