The Clean Energy Finance Corporation wants to unlock some of the big opportunities emerging alongside Australia’s growing appetite for sustainable mass timber construction. It recently announced a new $300 million program of investment in this construction material known for its ability to slash embodied carbon in buildings.

For the property industry and its institutional investors, cutting embodied carbon is an emerging priority in the environmental, social and governance (ESG) frameworks that increasingly drive investment criteria.

Operational carbon, at least at the premium end of commercial property, is a battle that’s at least part won. But this means the pressure’s on to look at how building materials can be improved to do their part to reduce the overall emissions profile of a building.

But adopting new materials in a largely traditional construction sector is challenging.

The ambition of the CEFC mass timber construction program is to smooth some of the friction that typically surrounds decision making around construction.

According to Ryan Rathborne, co-lead for property at the CEFC, what’s particularly interesting is the “dual track” process that tends to influence whether a project will opt for a timber or traditional build.

“The developers we have spoken to are all really eager to do it,” Rathborne says.

“The challenge comes in converting to mass timber when you’ve got a very well tested traditional construction approach, with known builders, supply chains, and compliance requirements.”

The “friction of change” towards committing to a mass timber building is seen when a decision needs to be made within the time and cost pressures of delivering a project.

Ryan Rathborne, co-lead for property, CEFC

“So we saw the opportunity to try and maybe tip the scales towards using engineered wood products at scale to provide a greener alternative to conventional construction materials..”

Rathborne agrees that mass timber is already emerging as a sustainable building option, but most of the larger timber buildings so far, he says, have tended to be public projects or pilot commercial buildings to prove up concepts.

“What we’re trying to do is create momentum in the decision-making to go through with mass timber construction, create capability in the market, to actually, look at the architecture, the engineering and the compliance of these buildings so that developers feel more comfortable to deliver them.”

The stimulus to the demand side might also help strengthen the supply side that’s been a bit rocky in recent years.

“If you’ve got high throughput and high demand, it helps to underwrite the business case for all those timber supply chain businesses.”

And there’s no need to rush.

Stepping into the design process with some help early might just tip the scales

The CEFC wants to be involved very early in the design process. “So, if it takes a couple of years to progressively deploy the capital then that’s okay for us, because we can’t change things overnight with the role that we play, as a debt investor rather than a developer.”

He’s confident the program will work.

“We saw momentum building in embodied carbon considerations. We’ve seen some of the studies out of some of the great projects that have been built out of engineered wood products in Australia.

“And after discussing these with some industry participants, we got the feeling that there was momentum for timber-based construction in more high-density uses, and that this area of the market was ready for that stimulus.”

The CEFC strategy was to create a capital allocation “specifically for this type of construction and take a broad approach to the market”. It sees very broad application for mass timber – from commercial offices to retail, industrial, healthcare and education developments.

In addition, there is likely to be scope for a new ESG-focused approach in multi-residential apartments, retirement living, aged care, hotel and student accommodation developments.

And it’s now looking for people to “come forward and discuss their projects” so that they can lock in a low carbon timber design from the start, rather than one using traditional steel and concrete.

No silver bullet in construction materials – but reducing embodied carbon is key

This doesn’t mean there’s a lack of interest in helping lower the embodied carbon in existing materials such as concrete and steel.

Rathborne points to projects such as with Hesperia, a large property developer in Perth and with Metro in Melbourne, where the CEFC has helped bring low carbon concrete into projects.

“The whole embodied carbon role is really interesting to us.

“I think it’s going to be a theme that investors are going to be very focused on. I think they’re going to be very keen on how embodied carbon and Scope 3 emissions are reported and measured and ultimately minimised as part of the transition to net zero emissions.”

In Europe, there have been instances where pension funds have appointed climate physicists and meteorologists to help inform their decision making in regard to climate risk, he says.

“The level of sophistication is ramping up extremely fast.

“It’s a true financial risk, especially for those very long term investors. They can’t afford not to think about it anymore.”

“So yes, there is the project side, but also the capital side. And I think that the capital side is going to be a huge driving force as we go into the next 30 years.

“It’s often industry that leads the way and these large investors are certainly showing they’re capable of doing that.

“We’re actively looking for people to come forward and discuss their low carbon timber projects with us on the basis that we can lock in the early decision to go with a timber design and build in the more sustainable approach right from the start.”

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