Buildings
Index Score
Key index driver:
Residential space heating
The pace of climate action has doubled since 2019, driven by a combination of federal government policies and subsidies programs, residential building retrofits, and new non-residential construction of more energy efficient buildings. Still, the sector is not on track to hit its 2030 target of lowering emissions by 34 megatonnes (Mt). Policy had the biggest impact on the index, tripling since 2019. Consumer climate action and capital mobilization had similar-sized effects.
Index Score
Key index driver:
Residential space heating
The pace of climate action has doubled since 2019, driven by a combination of federal government policies and subsidies programs, residential building retrofits, and new non-residential construction of more energy efficient buildings. Still, the sector is not on track to hit its 2030 target of lowering emissions by 34 megatonnes (Mt). Policy had the biggest impact on the index, tripling since 2019. Consumer climate action and capital mobilization had similar-sized effects.
Policy
Capital
Action
Emissions
Five provinces now have green building requirements. The rules cover various parts of the building value chain, from green procurement to construction. Quebec’s stringent policy includes banning oil-powered furnaces in existing buildings at the start of 2024Endnote 5.
The federal government released its long-awaited Green Building Strategy. Rolled out in June 2024, Ottawa’s roadmap borrows heavily from existing provincial policies but lacks financial commitments. Its key planks include accelerating new green construction and expanding low-carbon district energy systems.
Crediting low carbon district heating and cooling. Global carbon credits for low-carbon district energy systems may be on the rise in 2025, after Tabreed’s Abu Dhabi district cooling plant achieved Verified Carbon Standard and became eligible to trade carbon creditsEndnote 8.
Thematic Breakdown
Policy Score
Policy Score
The federal government’s green building strategy, an increase in the federal benchmark carbon price, and greater number of provincial programs aimed at encouraging residential energy efficiency retrofits contributed to raising the policy score by almost a third from 2023.
Detailed Scorecard
Indexed to 2019
baseline year
Weighted contribution to buildings sector score
Capital Score
Capital Score
Supply-side capital flows to decarbonize the sector continue to fall short of the annual $5.4 billion needed to hit 2030 targets. Annual capital flows have remained largely unchanged, at roughly $2 billion, since 2021Endnote 9. Cumulative capital flows reached $10.2 billion in 2024Endnote 10, shy of the required $32.5 billion. Despite these shortfalls, annual capital flows and the compounding effect of capital spends are recognized and rewarded in the capital score.
Detailed Scorecard
Indexed to 2019
baseline year
Weighted contribution to buildings sector score
Action Score
Action Score
The on-going electrification of residential space heating, via heat pump adoption, continues to dominate and drive up the action score, accounting for four-fifths of the increase in the year. Commercial real estate floor area that is LEED certified energy efficient or zero-carbon is increasingly playing a bigger role on an annual basis, as new supply of low emissions floor space enters service.
Detailed Scorecard
Indexed to 2019
baseline year
Weighted contribution to buildings sector score
Emissions Score
Emissions Score
Emissions peaked in 2019, at 94 Mt, and have fallen 3% annually on averageEndnote 11. Economic growth is also decoupling from emissions, with emissions intensity falling to its lowest level in six years.
Detailed Scorecard
Indexed to 2019
baseline year
Weighted contribution to buildings sector score
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CASE STUDYEndnote 12
CMHC: The new climate code
The Issue
Canada’s buildings sector needs to build more homes to alleviate the housing crisis, while making them energy efficient, low-carbon, and resilient amid a worsening climate crisis. The push could have a big impact as buildings are the country’s third-largest source of greenhouse gas emissions, generating roughly 90 megatonnes, primarily from heating and cooling.
Builders are also facing higher cost of materials and equipment, inflation, and interest rates, compounded by elevated government fees, and a skilled labour shortage. Building to greener standards can be costlier still and require changes in homebuilding in an industry notoriously slow to change. Retrofitting existing buildings could also be cumbersome if tenants need to be displaced. The Canada Mortgage and Housing Corporation (CMHC) forecasts Canada needs 3.5 million additional new homes on top of what’s already being built by 2030 to restore affordability. But as the RBC Climate Action Institute estimates, without changes to existing practices, adding that stock could contribute an additional 18 Mt of emissions annually.
Developing more energy-efficient buildings cost-effectively is going to be critical in meeting Canada’s climate goals.
The Company
CMHC, an 80-year-old federal Crown corporation with a mandate to improving access to housing, is also charged with contributing to two federal programs: the National Housing Strategy that aims to build affordable and sustainable housing, and the Canada Green Buildings Strategy, a federal plan to improve energy efficiency in homes and buildings through funding, financial incentives, and phasing out oil heating systems in new construction. The latter dovetails with the country’s overarching goal to reach net-zero by 2050.
The Opportunity
Canada announced the National Housing Strategy in 2017– the year housing prices rose and then fell rapidly. Responding to the turmoil and rising need for affordability, CMHC launched MLI Flex, a mortgage loan insurance product for affordable multi-unit buildings.
Five years later, CMHC introduced the MLI Select product in 2022, a product evolution that provides developers significantly more borrowing flexibility if they inject sustainable practices in their building blueprints. Given varying standards across Canada’s housing markets, CMHC wanted to incentivize a wider range of builders including those that might be early in their sustainability journey. The Crown corporation was already providing flexibilities for builders who could demonstrate that their properties would be 5% more energy efficient than the provincial/territorial requirements or the National Energy Code for Buildings, by reducing their CMHC premiums by up to 10%. MLI Select incorporated energy efficiency, affordability, and accessibility requirements (to support residents with physical, sensory, and/or cognitive disabilities). The timing was fortuitous–as inflation and interest rates began soaring and taking construction costs higher with them, borrowers flocked to the product to help absorb the higher capex shock.
The Model
MLI Select created different levels across categories of affordability, energy efficiency, and accessibility for borrowers to meet, with a certain number of points awarded based on how energy efficient their building is compared to the National Energy Code for Buildings. For new construction, borrowers would reach Level 1 if they exceeded building code requirements by 20%, Level 2 by 25%, and Level 3 by 40% through a points-based system.
The more points a borrower can rack up, the greater the incentives they can access to reduce the cost of borrowing, including longer amortization periods and higher loan-to-value ratios.
Similar to its other mortgage loan insurance products, MLI Select is facilitated through CMHC’s approved lenders, who are responsible for verifying developers’ commitments.
Borrowers can also MLI Select stack with other programs for which they're eligible—for example, the Apartment Construction Loan Program (ACLP), a financing program from the federal National Housing Strategy that is delivered by CMHC. The ACLP provides favourable terms and low-cost financing to support the construction of rental housing.
The Unlock
CMHC did extensive consultations with the buildings sector before MLI Select’s launch to evolve the MLI Flex product and encourage applicants to achieve greater climate gains.
CMHC’s status as a Crown corporation gives it the leeway to offer products focused on social and environmental good. In delivering its commercial mortgage loan insurance, CMHC can balance risks and return while supporting certain social policy objectives.
The product has been immensely popular with developers, prompting CMHC to adjust its processes to meet the operational demand.
More than 250,000 units have been approved with energy efficiency commitments, with more than 140,000 reaching Level 3 threshold. Over 100,000 of the total approvals are in Quebec alone.
The Lesson
The high uptake of MLI Select surprised even CMHC’s product strategy teams, revealing a change in attitude with the right incentives and supports.
The CMHC team is now exploring ways to improve the product, including tailoring their approach to specific regions as what works well in British Columbia may not in New Brunswick. A test will be to create a model that does not advantage one jurisdiction over another.
The focus on customer experience is serving the agency well, too. In 2023, 39% of all the dwelling units it supports were climate compatible, surpassing its target of 14% – driven by MLI Select.
There’s a recognition that there is a cost to delivering more energy-efficient buildings, there’s recognition of markets being different, of regulations being different. The idea was, recognizing all those things, it was important to give borrowers some choice around what outcomes to pursue and what flexibilities would come with that.
Richard Cho,
Advisor, Risk Management, Strategy, and Products, CMHC