Transition Risk at the Melbourne Town Hall on Tuesday was a standout deep dive on what’s at risk for buildings that don’t electrify and the rewards for those that do.
Let’s say you’ve got a slightly older building that’s none too flash and it’s running on say, 60 per cent gas.
You’ve got tenants, it’s sitting on maybe a 3.5 star NABERS rating. It’s getting a bit of value from the grid because the grid is decarbonising.
In a few years though, your gas dependency could well see your building sink to 1 star rating or so – unless you work very, very hard on efficiency.
It’s round about then that the summers will be even worse than the European summer just ended and the one that’s coming to Aus.
The message has been just slammed home by the reporting you’ve had to do under the Australian Sustainability Reporting Standards that have recently hit smaller companies.
Not many people want to be associated with the built environment’s version of smoking in public – a high emissions polluting asset.
Finance is getting harder to secure, and even harder after the insurance industry tells you your beautiful relationship is all over and it’s no longer willing to play along with your risky irresponsible behaviour. The only tenants you can get are those who don’t care and willing to pay a rent that’s commensurate with that.
What you might be holding here is a stranded asset.
In the opening address to the Transition Risk masterclass at Melbourne Town Hall on Tuesday Melbourne Lord Mayor Nick Reece noted that cities were not only the major cause of our climate and emissions problem but also the source of solutions and innovations.
More than 80 per cent of people live in cities and it’s where 80 per cent of emissions come from, the Lord Mayor said. But it will also be where 90 per cent of growth comes from.
They were the “great powerhouses of innovation and human advancement”.
“So, if we are serious about making our world sustainable it has to happen in cities.”
He cited Cheryl Durrant, a former director of preparedness in the Department of Defence, who said that Australia’s biggest existential threat was not war but climate change.
[“Security is not just about submarines and fighter jets — it’s about food, water, homes, and health,” Durrant told a report published in the Australia Museum.]
“Without climate security there is no national security” Reece said and buildings were key to the energy and sustainability transition. Most needed upgrading.
No-one, he said, would buy a brand new building today and rely on outdated technology for decades to come.”
It was why the City had a target to reach net zero emissions by 2040, and why it also had programs to help owners contribute to the goals.
Jack Blackwell, the City’s zero carbon buildings officer, later ran through some of the details.
“The largest chunk of [carbon] issues within the City of Melbourne municipality comes from offices, very closely followed by residential, mainly apartments, and then other sectors,” said Blackwell whose background is in engineering.
“It makes sense to start with offices first.”
One of the City’s most important programs Retrofit Melbourne, estimated that to achieve its aims, the City needed to retrofit about 80 buildings a year, but that was in 2023. The performance gap meant that number had now jumped to 100 buildings a year.
In recent months the Retrofit Melbourne Financial Incentive Scheme was introduced to help the especially hard to reach and mid tier group of buildings or those below the A and Premium grades.
The first phase of the program was benchmarking, Blackwell said, and it’s clear that the mid tiers were “falling much further behind those A grade and premium buildings” in terms of emissions and need for decarbonisation.
Part of the problem, he said, was that because these buildings were rarely sold or leased, they fell below the threshold for commercial building disclosure (CBD) of their (potential) NABERS energy ratings.
Blackwell urged owners and their consultants to get in touch. The incentive scheme’s activities A and B (benchmarking and action planning) were now open for takers.
The C finance phase of the program offers up to $40,000 or 50 per cent of the cost of completing capital improvements that can lead to NABERS Energy uplift of at least 0.5 stars minimum.
- Listen to our podcast with Lord Mayor Nick Reece, Nick Reece: A lord mayor who understands that liveability has a lot to do with a city’s building quality
NABERS ratings
In two addresses to the masterclass NABERS’ director Carlos Flores ran through plans for the evolution of the rating system and key challenges for the transition in general – buildings in particular.
Nova Franklin, principal strategic designer for NABERS ran through the new energy flex program.
Carlos Flores back in the leadership at NABERS after two years on secondment with the NSW government, urged building owners to electrify as soon as they could or face the consequences of falling NABERS ratings.
As director for the NSW Net Zero Plan 2035 Taskforce, Flores has brought back to the industry a strong understanding of the impact of the state government’s work on how to meet its climate targets.
The NSW government had a public commitment to release the new plan in 2026, but had acknowledged that more action and policies were needed to meet its climate targets, Flores said. That is what the upcoming plan intends to unlock.
For instance, the decarbonisation of transport was among the “most important things” that needed to occur with much of the work to enable that transition – through EV charging for instance – falling on commercial buildings and homes.
In a second presentation Flores focused on the impact of a decarbonising grid.
Electric buildings, he said, will show strong improvements in their NABERS ratings. This is thanks to a planned set of updates the program made to its ratings in 2020 and 2025, and another one coming in 2030, to recognise the strong benefits of electrification in reducing building emissions.
“It’s already beneficial for most buildings to electrify today with current emission factors”, he said.
“Most projects, if you’re electrifying hot water, if you’re electrifying heating, if you’re electrifying vehicles, will deliver immediate emissions reductions. These will grow every year as the grid becomes cleaner.”
The industry was already starting to see market consequences for building electrification – opportunities for those that do and risks for those who do not.
Buildings with major gas usage for instance will need to work “much harder” on their efficiency to maintain the same star rating they have now. Those that are electrified will see their emissions dropping every year.
He gave an example of two buildings in Victoria, both at 3.5 star NABERS today, one fully electric and one 60 per cent gas, (which is the amount of gas the 20 per cent most gas-intensive buildings in Melbourne currently have). By 2030 the rating for the electric building will rise and that of the gas building would fall.
“So, I guess my message to you is that if you own or work with clients that have lots of fossil fuels onsite, those are the buildings that face the largest risk to their NABERS ratings, but also the greatest opportunity to improve them by electrifying.”
Key, he said, was to “electrify at the earliest opportunity”.
Flex energy
Nova Franklin, principal strategic designer for NABERS, told the audience about the organisation’s three-year program working on energy flexibility, funded by the federal government.
NABERS was exploring rule changes to ensure buildings that charge and discharge their batteries to enable a lower-emissions grid can maintain their star ratings. “We want to remove any disincentives for buildings that may be using slightly more energy in service of a more renewable, reliable grid”, Franklin said.
The team is also exploring how to measure and recognise energy flexibility in commercial buildings. By incentivising more commercial buildings to flex, NABERS aimed to reduce emissions for both the building and the grid, in avoided peaker operation and electricity infrastructure development, Franklin said.
“Our NABERS Energy tool looks at decarbonisation at the building level, but, with this work, we’re also interested in grid decarbonisation. If a building, for example, moves its energy to the middle of the day and there’s less curtailment, then emissions are reduced because there’s more clean energy in the grid.”
Engineering
Engineers Brendan Sadler from A.G. Coombs and Wayne Lobo from Arup dug deep into case studies they had worked on and shared details of processes to extract value from efficiencies before capital investments were made.
Michael Snow from Turner and Townsend showed how his team, when he was at RMIT, achieved big savings from a radical re-design of how to meet heating needs on campus.
That was the engineering side of the decarbonisation challenge. Not exactly easy to achieve, not exactly widespread, but since The Fifth Estate has been covering the sector, clearly moving in leaps and bounds in innovation. Just like the Melbourne Lord Mayor said would happen in the close confines of cities, where ideas spread, permeate smart people’s thinking and then get re-engineered for ever better efficiencies.
The funding challenge
What’s missing, nearly always it seems, is how to fund these programs – how to find the commercialisation story that gets the chief financial officer jumping in, ears pinned back.
It’s not easy.
Tim Wheeler from Australia’s so called green bank, the Clean Energy Finance Corporations was upfront about the challenges, but optimistic.
The CEFC had funded some projects that it knew it could recoup as good investments and he shared details of two of these.
But financing such upgrades is not easy. At least in the current market.
A remedy for the finance challenge, he told the audience included taxonomy and green finance. “It’s a sort of shopping list of things that financial institutions can look at and say, ‘if we want to invest in real estate and we want to make it green, the taxonomy gives us a way of doing this’.
“It also gives you access to that international finance through the interoperability, and it delivers growth in issuance,” he said.
But it’s not happening at the speed nor scale we need.
“The good news is that we are seeing a convergence of all the key players on what we need to do in terms of the achievement of zero carbon ready buildings.”
By this he means “they’re highly efficient. They’re all electric. They’re fossil fuel free, and they’re built with a low volume carbon.”
The convergence extended to industry organisations such as the Green Building Council and the Property Council “putting forward their views”, along with government views on sector plans, and “impeccable rating tools, world leading NABERS and Green Star, and then finally we’re also seeing those policy interventions that we need to see and the alignment of the finance.”
Adam Murchie from Forza Capital shared the commercial side of achieving low carbon buildings. Many of the improvements, he told the audience in an onstage interview with The Fifth Estate were low hanging fruit; it was difficult to understand why more people were not doing it. But the inertia he warned was dangerous. Within a few years the prospect could well be stranded assts.
- See an interview with Adam Murchie here. The biggest question is the cost of inaction – Adam Murchie on balancing investor and planetary value
The business case
Julian Sutherland from JLL dived deep into his company’s research that had access to a “a lot of building data” thanks to its property management operations.
Its most recent work was on making the business case for electrification, all freely available, he said. What emerged was a “very large proportion of occupiers in Melbourne, Canberra, and Sydney have net zero targets.
“They are occupiers who are looking for, actively looking for, net zero carbon office space to occupy. It’s part of their corporate governance and obligation.”
In Sydney 85 per cent of occupiers above 5000 square metres have net zero targets, he said.
They include companies such as Deloitte which has 2030 climate targets. By 2040 “you start to see a few more of the larger organisations”. These are companies with “larger footprints, a bit more work to deal with, more suppliers to deal with, and then out of 2050, you see the majority of the of the rest of large occupiers who have probably got very large complex footprints to deal with”
Banks feature strongly in this category. They have “their entire loan portfolio to look after,’ along with “quite large complex footprints to manage, so giving themselves as much time as possible”.
What’s particularly interesting, Sutherland added is when the major “leasing events” were occurring. There were two distinct peaks in the Sydney market, 2028 and 2030.
“That’s a large number of occupiers. That’s where got over 200,000 sq m of space being sorted out in 2028.”
At the same time there was a “very, very limited” amount of electric stock available – 7 per cent available now, 17 per cent “in the wings, “increasing daily” but over three quarters “still not there in in the Melbourne market”.
Robyn Hyslop formerly sustainability director for Collierspointed to the need to understand the profile of a building. “Understand where your carbon liabilities are. If you’ve got gas plant, do you have the right the right waste streams in place? Do you have the right facilities to implement the right sort of waste services within your building?” The electrification journey of the building was key along with potential limitations on tenant leases, Hyslop said.
The meta trends are getting closer
The even bigger picture was covered by Joshua Martin of Foresight Consulting who warned that property companies were generally unprepared for the reporting requirements many of them would need for the Australian Sustainability Reporting Standards about to hit the Group 3 or smaller companies soon.
- See a full interview with Martin here When the CFO asks, ‘where do I even start?’ Joshua Martin on the reporting risks about to hit property
And likewise with Miguel Oyarbide of SLR Consulting who advises major corporates with mid to long term investment horizons on their material and financial risks. Property, he told the audience, was at particular risk of climate impact, if it could not find affordable insurance, a scenario that would affect finance.
- Read an interview with Oyarbide here SLR and what the data and science can tell business about the polycrisis
By the end of the day under the guidance of Steve Ford who structured most of the content and was MC for the day, the audience had a picture of how to understand the major trends about to hit their property assets, the fundamentals of how to structure a plan to electrify plus first create major efficiencies to minimise capital investment – and by doing so hopefully avoid their property becoming a stranded asset.
Huge thanks to our fantastic speakers who were all generous with their time and the information they shared.
And an especially big thanks to our sponsors City of Melbourne, NABERS, Buildings Alive and CBRE.
Huge thanks to our sponsors City of Melbourne, NABERS, Buildings Alive and CBRE.
Transition Risk will be held in Sydney on 22 September at CBRE offices. Book now.
