Canada Infrastructure Bank uses Investor Confidence "Investor Ready Energy Efficiency" (IREE) certification for $2 billion in energy-efficiency investments
GBCI administers the Investor Confidence Project (ICP), and its Investor Ready Energy Efficiency Certification (IREE). ICP is a global underwriting standard for developing and measuring energy efficiency retrofits for commercial and multifamily residential buildings. Through its IREE certification, ICP aims to standardize energy efficiency upgrades.
As part of its three-year growth plan, the Canada Infrastructure Bank (CIB) has earmarked $2 billion for investments in public and commercial building projects that will achieve significant carbon reductions — the first time the bank will fund building projects, and a huge milestone for the country.
Historically, the relatively small investment size required for building projects had been a barrier for a bank tasked with deploying billions, as it is hard to justify complex bespoke due diligence for each customer in a large portfolio. However, the opportunity for large-scale emissions reductions in the building sector drove the bank to adapt its governance model and develop a solution for funding building energy-efficiency (EE) projects.
IREE certification helped solve a key challenge of unleashing such a large pool of capital for decarbonizing building retrofits: conducting the due diligence necessary to underwrite complicated commercial EE projects in a cost-efficient manner. In the case of the CIB, due diligence is even more important as the CIB’s low cost financing is designed to encourage GHG reductions.
In short, performance matters.
In order to achieve real scale and measurable GHG impacts, the CIB needed a system that could reduce potentially prohibitive transaction costs around complex commercial EE projects for customers, developers and investors — while making sure results at the meter in terms of bill savings and GHG reductions were delivered.
To solve this problem, the CIB adopted IREE certification for technical due diligence of all commercial projects. This ensures that every project follows a common development framework and quality assurance process. This standardization allows owners of real estate portfolios, Energy Service Companies (ESCO), and Super ESCOs to aggregate projects into bundles that meet the bank’s minimum investment threshold of $25 million.
In addition to enabling aggregation, IREE certification provides CIB a cost-effective and scalable approach to validating project quality. IREE certification requires projects to follow industry-developed protocols that standardize the project development workflow. Each project is then reviewed by a third-party Quality Assurance (QA) Assessor that GBCI has vetted. This allows CIB to circumvent developing and maintaining a costly technical due diligence process. It also opens quality assurance up to a market of QA Assessors. This market approach creates downward pressure on quality assurance costs and has a built-in scaling mechanism. As the demand for quality assessments grows, so too does the supply of QA Assessors.
A crucial goal of the CIB’s growth plan is to attract private and institutional capital for infrastructure investments today and in the future. The CIB’s use of IREE certification for technical due diligence on all investments in commercial building EE retrofits will lay the groundwork needed to funnel more private capital to EE projects.
As project developers across Canada follow IREE standards to comply with CIB’s requirements, they will realize that embracing the certification’s protocols improves profitability by increasing project throughput and lowering transaction costs. IREE enables this efficiency by transforming a complex project development process into a series of clearly defined tasks that can be executed by junior staff under the supervision of a professional engineer. These efficiency gains will drive further adoption of IREE’s protocols and therefore greater standardization.
Standardization equips investors with a better understanding of the risks and expected cash flows associated with EE projects, eliminating the need for bespoke diligence processes that come with high underwriting risk and transaction costs. The CIB’s investments in retrofit projects today will do more than directly finance EE improvements. They will seed a more efficient market for EE investments.