Since S&P Global Ratings launched its Analytical Approach: Second Party Opinions in 2023, 49% (87 of 179 as of Feb. 1, 2025) of its published second party opinions (SPOs) have included green building projects. Of the 87 issuance frameworks reviewed, 45% were from financial institutions, 31% from nonfinancial corporates, and 24% from governments.

We view climate transition risk (energy use, heating sources, and embodied emissions) and physical climate risk as the most material environmental factors for commercial and residential buildings throughout their life cycle (see "ESG Materiality Map: Real Estate"). In our view, biodiversity and resource use, water, and pollution, are also relevant for some real estate activities.

We apply our Shades of Green approach in the context of our SPOs on sustainable finance frameworks or transactions and in our Climate Transition Assessments (see "Analytical Approach: Climate Transition Assessments," published July 18, 2024). An S&P Global Ratings Shade of Green (shade) represents our qualitative opinion on how consistent an economic activity or financial instrument is with a low-carbon climate resilient future. In this report, we explain how we use our Shades of Green analytical approach to assess a number of activities in the real estate sector and the distribution of shades that result.

Real Estate Is A High Emitting Sector

The real estate sector is responsible for about 36% of the world's greenhouse gas emissions, according to the United Nations Environmental Program; energy use in buildings accounts for about 26% and construction and renovation 10%. In addition, the International Energy Agency (IEA) projects that about half of the buildings currently occupied will still be in use by 2050. It also expects the global floor area to increase by about 15% before the end of this decade (see our "Sustainability Insights Research: Decarbonizing European Real Estate Won’t Be Easy," published Jan. 20, 2025).

Our Shades of Green analytical approach considers an activity's entire value chain, since material climate and environmental risks and benefits can manifest there. To assign a shade, we usually start with an analysis of climate risk, then adjust for other relevant environmental factors. In the case of real estate, both the construction and operational phases can contribute significantly to emissions throughout a building's lifetime (see chart 1).

Chart 1

Four Main Factors Influence Shades In Real Estate Projects

The shade of green we assign in the real estate sector represents our analytical conclusion on how well building projects we review mitigate four main environmental risk factors: energy use, heating source, embodied emissions, and physical climate risk. Because building regulations and physical climate risks vary across regions, we analyze how projects address relevant climate risks, considering their respective context. We take into account that measures to address these risk factors differ depending on whether projects are for new construction, renovation, or management of existing buildings.  

In green financing frameworks, we see all these projects. In our experience, existing buildings frequently receive the majority of financing within the green buildings category. For financial institutions, this often involves refinancing residential mortgage loans rather than actual building projects. For real estate companies, existing buildings typically pertain to the refinancing of loans for asset management portfolios. 

Energy use

Real estate emissions linked to energy use stem from direct sources, typically fossil fuel-powered heating, and from indirect sources, such as the production of electricity and heat/cooling consumed in buildings. Generally, we see space heating accounting for most of the energy use in buildings, particularly in Europe.  

However, more frequent heatwaves and longer warm seasons will lead to increasing demand for cooling and in turn, greater reliance on air conditioning and other cooling technologies. This trend is already visible, with energy use for space cooling more than tripling since 1990, according to the IEA. Reducing the energy use in buildings could cut global carbon dioxide emissions from buildings by up to 50% by 2050 (see avoided consumption in chart 2).  

For buildings to decarbonize, energy efficiency gains are needed, despite a projected increase in total floor area. This underpins the importance of new construction being highly energy efficient as well as the continued investment in decarbonizing existing buildings. We believe buildings can either minimize energy demand through design or improve energy efficiency with upgrades (see Decarbonizing European Real Estate Won't Be Easy). However, decarbonization also requires a shift to renewable energy sources.  

Heating source

Because the heating source has a large impact on buildings' operational emissions, it also has an impact on our Shades of Green assessment. According to the IEA, natural gas for heating accounted for 42% of energy demand in 2022 (see chart 2). Fossil-fuel-based heating emits large amounts of greenhouse gases and are less efficient than low-emission systems, such as heat pumps. The IEA's net zero scenario suggests that, to reach near zero emissions, direct fossil fuel heating needs to be phased out. Low-carbon district heating, heat pumps, and renewable energy are examples of heating systems associated with lower emissions than fossil fuels (see "Decarbonizing European Real Estate Won't Be Easy"). 

Chart 2

Embodied emissions

These can account for 20%-60% of a building's total lifetime emissions (see chart 1). They are mainly associated with the manufacture of building materials, such as cement and steel, as well as fuel use and transport from construction machinery and vehicles. In countries using low-carbon heating sources or with low demand for heating, embodied emissions from construction tend to be larger than those in the building's operation phase.

Although low-carbon materials can significantly reduce emissions, embodied emissions remain a major challenge. Innovative and holistic approaches to address embodied emissions in the construction section are, however, still evolving. Moreover, green solutions for the main building materials (cement and steel) are currently not widely available (see "Sustainability Insights Research: Decarbonizing Metals Part One: A Pressing Issue with Uncertain Fixes," published June 3, 2024, and "Decarbonizing Cement Part One," Oct. 27, 2022).

Physical climate risks

Climate hazards such as wildfires, floods, and storms, are becoming more frequent and severe, as are chronic risks like long-term changes in temperature and precipitation patterns. The co-occurrence of climate hazards is more likely to occur in regions most exposed to physical climate risks, potentially leading to greater impacts, including for the real estate sector, absent adaptation (see "Lost GDP: Potential Impacts Of Physical Climate Risks," Nov. 27, 2023).

Issuers with adaptation plans are likely to be better placed to adapt to and cope with worsening climate hazards, according to "Sustainability Insights Research: Risky Business: Companies' Progress On Adapting To Climate Change," published April 3, 2024.

How Project Activities Relate To The Shade Drivers

We analyze building projects based on their associated activities, since each comes with different risk profiles. Energy use, heating sources, and physical climate risks are behind the shades on all building projects, while the amount of embodied emissions from the value chain is a key determinant of our shade on new construction and renovations.

Physical climate risks and heating sources are relevant considerations for all building projects we assess. Buildings with fossil fuel heating will typically be assigned no higher than a Light green shade. We are likely to flag this reliance on fossil fuels as a weakness in our sustainable finance products, particularly for new construction projects.

For all four shade drivers, the associated key performance indicator depends on the type of project and activities financed (see chart 3).

Chart 3

Climate transition and physical climate risks in the real estate sector 

New construction

We typically expect improvements in energy use that exceed building regulation requirements to achieve a green shade. Due to the long lifetime of buildings, ensuring high energy efficiency at the time of construction is key.

In addition to energy use, embodied emissions are a key shade driver. Reducing embodied emissions requires a comprehensive approach at the design stage, where key choices on buildings are made. Currently, there is no clear way for new construction to achieve a Dark green shade, due to the high impact of embodied emissions from the supply chain. Real estate companies are increasingly setting targets to meet specified levels of carbon per square meter in new buildings and identifying materials for which low-carbon solutions are available. In our view, considerations related to embodied emissions are generally what distinguishes Medium green projects from Light green projects.

New construction projects tend to be more resilient to worsening climate hazards than older buildings. This is because modern, nationally applicable building regulations aim to address exposure to the most material climate hazards in a particular country. However, compliance with regulatory requirements may still leave buildings vulnerable, since increasingly frequent climate hazards, combined with the local context and difficulty in predicting the timing and severity of climate hazards, imply an unknown level of physical risk.

Renovations

For renovation activities, we assess energy use before and after the project. We typically see quantified improvements of 30% compared to the pre-investment level (see Appendix). Renovations offer an opportunity to reduce energy use without the high embodied emissions of new construction, which is why major renovations with a 30% energy performance improvement often receive a Medium green shade. The amount of embodied emissions associated with new builds is about 3x that for renovations, according to research by Ramboll et al.

Renovation projects do not generally receive the bulk of green bond proceeds, but are the only activity where we have assigned a Dark green shade. This relates to the financing framework of Sweden-based Vasakronan (see our SPO on Vasakronan's Green Financing Framework). The company committed to financing renovation projects that achieve at least a 40% energy reduction, meeting quantified reduction targets for embodied emissions, and addressing resilience to physical climate risks.

Existing buildings

Existing buildings to which we have assigned a shade of green demonstrate that they are among the most energy efficient in their local context. Nevertheless, such buildings may be more vulnerable than new construction to physical climate risk. This is due to older building codes and structures that are based on outdated climate parameters. Screening for potential vulnerabilities to physical climate risks is therefore an essential component of our Shades of Green approach.

Assigning Shades In Practice

There are different ways to achieve a green shade, but most buildings with a green shade address at least one of the key shade drivers. There are some common ways through which buildings typically receive a green shade (see tables 1 and 2), but these are not the only way for a building to be considered green. Although energy use may be the main reason for a green shade in most building projects, in some countries or regions, we may view other factors (such as high water scarcity) as material enough to assign a shade of green.

It is difficult for real estate assets to achieve a Dark green shade. We view Dark green buildings as being resilient to physical risks from a changing climate, while also mitigating transition risks. Examples include buildings that have low-carbon energy sources and very low energy use, and for construction activities, projects that generate near-zero greenhouse gas emissions.

Light green is most common among green building projects because green building certification/energy performance criteria imply the building is energy efficient. Generally, the eligibility criteria in issuers' financing frameworks do not include adaptation and resilience to climate change, or a quantified reduction of embodied emissions compared to standard practices. These additional considerations are crucial for new construction projects to achieve a Medium green shade. See how we applied our approach in our SPOs on Feicheng City Assets Management Group Co. Ltd. Green Finance Framework, the North American Development Bank’s Sustainable Financing Framework, and Liven AS Green Finance Framework.

Most existing buildings show relatively high energy use, and construction is emission intensive, leading us to view general real estate activities with no visibility on our shade drivers as Yellow or Orange. Because the real estate sector is not on track to decarbonize or, in our view, sufficiently prepared for the worsening impacts of climate change, we do not expect a typical building to sufficiently address any of the four key shade drivers to achieve a green shade. Real estate activities that fit into those categories generally receive an Orange shade (see our Climate Transition Assessment on PSP Swiss Property). For instance, fossil fuel heating is still widespread, and a high percentage of older buildings, especially those built before the introduction of thermal regulations in the 1980s, have high energy use, with no renovation plans.

For new construction, many countries still lack mandatory building energy codes (122 countries in 2022, according to the IEA). Where building energy regulations exist, they may not necessarily ensure low energy use and, in most cases, do not address embodied emissions. In jurisdictions with stronger building energy codes and minimal use of direct fossil fuel heating, which represent important initial transition steps, we would likely assess general real estate activities as Yellow (see our Climate Transition Assessment on Swedish real estate company, Fabege).

Table 1

Table 2

Editor

Bernadette Stroeder

Digital Design

Tim Hellyer

Jack Karonika

Appendix 1: Frequently Asked Questions

What do green building certifications signify?

Certifications like those under the BREEAM or LEED umbrella use a framework to measure a building's sustainability performance and assign points or scores. Such certifications differ in ambitiousness and scope, which can cover a broad range of topics, from energy and impacts on local biodiversity, to wellness for users and access to public transport. The sustainability criteria for certification differ depending on whether they apply to new construction, renovations, or existing buildings. There are therefore typically multiple certification types under the same umbrella, for example “New Construction” and “In-Use”.

The point-based nature of certifications means a low score on one feature (such as energy) can be compensated by a high score on another feature (like wellness). The higher the total points, the higher the certification level, implying a large amount of sustainability criteria have been met or mitigated. Nevertheless, the flexibility of this system implies that buildings certified to the same level may have very different actual performance, for example on energy and climate resilience.

How do green building certifications influence the shade you assign?

For projects with green building certifications only, we typically assign a Light green shade (see for example our SPO on Bank of America Corp.'s Sustainable Issuance Framework and our SPO on Iccrea’s Sustainable Bond Framework). This is because such certifications vary widely in ambition and scope and may result in diverse outcomes for building performance under the four key shade drivers, such as energy use and physical climate risks.

For a Medium green shade, we would expect to see selection criteria in the financing framework that addresses the four shade drivers, or greater transparency on certification levels and types. The BANE-NOR Eiendom green financing framework is one example where we assessed the specific certification level and version as ensuring that all certified buildings comprehensively address all four shade drivers--energy use, heating source, physical climate risks, and embodied emissions--while still falling short of the ambition level needed for Dark green. See Appendix 2 for examples of certification levels and version, and the associated likely shade assigned.

How do you assess projects with a green building certification?

In our analysis, we would seek to answer two questions: How well the certification addresses our key shade drivers and whether the certification type is relevant for the financed building.

1. To answer the first question, we evaluate which aspects are mandatory, which are optional, and the expected outcomes in terms of energy use, heating sources, embodied emissions, and resilience to physical climate risks. Many certifications address energy use, but few consistently address the other three shade drivers. High certification levels indicate strong sustainability performance, so we typically accept only the two highest certification levels to assign a green shade.

2. Where financing frameworks set different criteria for new and existing buildings, we check the certification's relevance for the type of building project. Using “In-use” certifications for new construction will therefore not qualify a project for a shade of green. Where frameworks use the certification's umbrella name (such as BREEAM or LEED) without specifying the type of certification for new versus existing buildings, we will raise questions, flag the associated risks, and take a conservative approach when assigning a shade (see table 4 in Appendix 2).

How do you analyze frameworks that cite nonstandard, equivalent certifications?

Some financing frameworks may refer to local or international certifications as selection criteria for green buildings, while adding the possibility of relying on “equivalent” certifications. In view of the wide variation in standard, green building certifications' scope and ambition, the inclusion of "equivalent" certifications could result in the use of certifications that do not sufficiently address our four key shade drivers. We may therefore ask issuers questions to find out how they determine equivalence, flag the associated risks, and adopt a more conservative approach when assigning a shade.

How do you analyze energy performance indicators?

In about one in five green financing frameworks we've analyzed, energy performance is the sole indicator for identifying green buildings and is referenced in the majority of building projects. In the green and sustainable financing frameworks we’ve reviewed, five key energy performance metrics are commonly used:

• Energy performance certificates (EPCs), mainly in Europe, based on a ranking system, with classifications typically ranging from class A (most energy efficient) to class G (least energy efficient).
• A certain percentile of the national building stock.
• A percentage improvement over a baseline or building code/regulation.
• A certain score on an energy performance scoring system.
• A quantified threshold for energy use per square meter (expressed in kilowatt hours for instance).

We assess how ambitious energy performance metrics are in their local context, since metrics are currently not comparable across jurisdictions. Specifically, for new construction, we check whether the selected energy performance metric exceeds relevant building code requirements, while for existing buildings, we compare against the performance of the national building stock, reviewing available data.

Different building types, such as offices, residential homes, and shops, have different energy needs, so we analyze the ambition for the specific building type. Access to energy performance data may be challenging, however (see "The real estate data problem," in Decarbonizing European Real Estate Won't Be Easy, published Jan. 20, 2025). Therefore, for a financing framework's building energy performance criteria to lead to a green shade, they need to be supported by sufficient data and information from the local context; otherwise, the shade we assign may be Yellow or Orange.

Because similar energy performance metrics could represent varying ambitions in different jurisdictions, we focus on the basis and requirements of each EPC cited in the financing framework. For example, in Sweden, an EPC with a B classification represents a 25% improvement over the building code, for which we would typically assign a shade of Light green for new construction. By contrast, an EPC with a B classification in the Netherlands represents lower energy performance than required by regulation, and a new building with such an EPC would, if relying only on this criterion, likely not qualify for a green shade. This illustrates that an EPC, which in theory is the same as an EPC in another country or region, can result in a different shade of green.

We take a similar approach to assess quantified thresholds for energy use per square meter, which pose challenges due to inconsistent data, reporting methods, and climate conditions. For instance, buildings with the same characteristics could report different energy use values (kWh/m²) depending on the country. Regional variations in heating and cooling further complicate threshold setting. Without region-specific benchmarks, a single threshold may misrepresent efficiency levels and fail to direct financing toward the best-performing buildings. If this is the case, our assessment may lead to a non-green outcome.

Regarding a certain percentile of the building stock, we typically assess a building in the top 15% as Light green, due to challenges related to the robustness of data and benchmarks. Being among the 15% most energy efficient in the national building stock is the minimum threshold for a substantial contribution to climate change mitigation in the EU Taxonomy. The frequently assigned Light green shade reflects the risk that the 15% benchmark may not be ambitious enough. Where data and a robust benchmark are available, and where no fossil fuel heating is used, we may assign a Medium green shade.

For energy scoring systems, we compare the scores against what is achieved by following the building code (for new construction) or against relevant baselines (for existing buildings). This reflects that using energy scoring systems to label new construction as green can be misleading, since these systems are often based on the existing building stock. Scoring systems (such as the HERS or ENERGY STAR) are typically used to identify energy-efficient existing buildings in the U.S. Hence, a new building could easily achieve a high score, even if it does not represent an improvement over the building code, which may lead to a non-green assessment.

What's your approach to assessing projects when details and data are lacking?

Issuers that facilitate projects, such as financial institutions and government bodies, face greater challenges in identifying the specific characteristics of green buildings in their portfolios. Common information gaps in such issuers' financing frameworks include not specifying the location of eligible buildings, exposure to fossil fuel-powered heating, or the building certification type. Additionally, criteria often fail to specify whether financing applies to new construction, renovations, or existing buildings.

Lower availability of data and information for issuers carrying out green building projects typically constrains our Shades of Green assessment. This reflects our view that lack of visibility on the four key shade drivers implies a higher risk of less sustainable outcomes than expected. We therefore frequently assign a Light green shade to green building project categories where we have limited information, but we think the project- selection criteria support the identification of buildings with environmental performance that exceeds what is typical. For examples of our approach, see our SPOs on Vietnam Technological and Commercial Joint Stock Bank's Green Bond Framework, Credito Agricola's Green, Social, And Sustainability Bond Framework, and The Dominican Republic's Green, Social, and Sustainable Bond Framework.

Appendix 2: Building Certifications And Typical Shades

Table 4

Typical shades by real estate activity
Certification level	Typical shade*	Comment
	New construction	Renovation	Existing building
Building Research Establishment Environmental Assessment Method (BREEAM) “Excellent” or better	Light green	Light green	Light green	When not specified, there are risks that the in-use certification is used for new buildings, which may negatively affect shade outcomes
BREEAM – In use “Excellent” or better	Yellow/orange	Light green	Light green
BREAAM – New construction “Excellent" or better	Light green	Light green	Light green
BREEAM-NOR New Construction V.6 “Excellent” or better	Medium green	Medium green	Medium green	In our view, this version and level ensure that all certified buildings comprehensively address all key shade drivers (energy, physical climate risks, and embodied emissions, required for the Medium green shading
Leadership in Energy Environmental Design (LEED) “Gold” or better	Light green	Light green	Light green	When not specified, there are risks that the LEED “Operations and Management” certification (an “in-use” certification) is used for new buildings, which may negatively affect shade outcomes
LEED – Operations and management “Gold” or better	Yellow/orange	Light green	Light green
LEED – Design and construction “Gold” or better	Light green	Light green	Light green
Haute Qualité Environnementale (HQE) “Très performant” and above	Light green	Light green	Light green
Miljöbyggnad new construction 4.0 “Guld”	Medium green	Medium green	Medium green	In our view, this version and level ensure that all certified buildings comprehensively address all key shade drivers (energy, physical climate risks, and embodied emissions, required for the Medium green shading
ENERGYSTAR score	Yellow/Orange	Light green/Yellow/Orange	Light green/Yellow/Orange	ENERGYSTAR, relevant in the American context, score to compare the energy performance of the building to other similar buildings. The shade outcomes will depend on the chosen score and how it compares to the local building stock /state. If the chosen score does not ensure improvement over the state building code, it will likely receive a non-green shade.
ENERGY STAR Residential New Construction program	Light green	Light green	Light green
EDGE	Light green	Light green	Light green
Chinese Green Building Evaluation Standards (GB/T 50378) “Two stars” or better	Yellow/Orange	Light green	Light green	Without evidence that the certification guarantees new construction will exceed local energy codes, Light green can only be assigned if the issuer confirms the project will achieve energy savings beyond regulations.
the Building and Construction Authority (BCA) of Singapore Green Mark “Gold” Plus /Platinum or better	Light green	Light green	Light green
Hong Kong BEAM Plus – “Gold” or better	Light green	Light green	Light green	When not specified, there are risks that the in-use certification is used for new buildings, which may negatively affect shade outcomes
*The actual shade of green assigned to the activity may vary depending on the context and building characteristics, notably regarding the key shade drivers (see table 1).

Related Research

• Analytical Approach: Second Party Opinions, March 6, 2025
• Sustainability Insights Research: Decarbonizing European Real Estate Won't Be Easy, Jan. 20, 2025
• Analytical Approach: Climate Transition Assessments, July 18, 2024
• Sustainability Insights: Decarbonizing Metals Part One: A Pressing Issue With Uncertain Fixes, June 3, 2024
• Sustainability Insights Research: Risky Business: Companies' Progress On Adapting To Climate Change, April 3, 2024
• Lost GDP: Potential Impacts Of Physical Climate Risks, Nov. 27, 2023
• Analytical Approach: Shades Of Green Assessments, July 27, 2023
• Decarbonizing Cement Part One: How EU Cement Makers Are Reducing Emissions While Building Business Resilience, Oct. 27, 2022
• ESG Materiality Map: Real Estate, July 20, 2022

Primary Contacts:	Maria Knudsen, Oslo 47-9414-3562; maria.knudsen@spglobal.com
	Carina Waag, Oslo 47-9415-5478; carina.waag@spglobal.com
	Bryan Popoola, Washington DC 1-202-615-5962; bryan.popoola@spglobal.com
	Shirley Lui, Hong Kong 852-2912-3063; shirley.lui@spglobal.com