By Lionella Pezza, Director of Impact Research. Originally published in GreenMoney Journal (February 2026).
Director of Impact Research
According to the UN Environment Programme (UNEP), the buildings and construction sector accounts for roughly 32 percent of global energy consumption and 34 percent of global CO₂ emissions. These numbers reveal a simple truth often overlooked in the climate conversation: if we want to secure a livable future, the built environment must be part of the solution. Every home, office tower, school, hospital, warehouse, and civic space we design, renovate, or operate plays a role in determining whether we accelerate toward climate stability or drift further off course.
The encouraging news is that buildings are among the clearest pathways to immediate climate progress. Unlike many hard-to-abate sectors, this area already has decarbonization tools that are increasingly cost-competitive. Electrified heating and cooling, better insulation and passive design, high-performance windows, rooftop solar, advanced controls, and low-carbon building materials are no longer theoretical concepts — they are widely deployed and economically viable. When integrated thoughtfully, they can transform buildings from major emitters into powerful engines of resilience.
Decarbonizing buildings requires a blend of electrification, efficiency, optimization, low-carbon materials, and on-site renewable energy.
Electrifying heating, cooling, and cooking is foundational, replacing fossil-fuel systems with electric alternatives that become cleaner as the grid adds more renewable power. Improvements in insulation, building envelopes, airtightness, and window performance reduce the energy needed to heat and cool a space.
Passive design strategies, such as reflective roofs or natural ventilation, make buildings more comfortable and efficient without complex technology. Digitalization plays an equally important role: smart thermostats, real-time sensors, and AI-powered building management systems help identify inefficiencies, cut waste, and shift energy loads away from periods when the grid is under strain. Advances in sensors, automation, and artificial intelligence have reshaped our understanding of how buildings can perform when energy use is continuously monitored and optimized. Instead of reacting to inefficiencies months after the fact, building managers can now detect anomalies in real time. They can dynamically adjust systems, preheat or precool during periods of abundant renewable energy, or scale back consumption when the grid is stressed.
The designing phase is also critical: using low-carbon construction materials reduces the embodied carbon associated with the production and transport of cement, steel, and other building components; cement alternatives, recycled steel, and nature-based materials provide tangible ways to reduce emissions long before a building is occupied. When rooftop solar and battery storage are added to the mix, buildings can generate their own clean energy while improving grid resilience.
What ties all of this together is a comprehensive, life-cycle-based approach to design and operation. True climate alignment requires evaluating not only how buildings perform day-to-day but also how they are planned, constructed, renovated, and ultimately decommissioned. It also means recognizing that renovation must be prioritized over new construction whenever feasible; the greenest building is often the one that already exists. Integrating climate resilience, resistance to extreme heat, flooding, storms, and other climate-related risks is equally essential. Only through this holistic perspective can the built environment meaningfully contribute to global net-zero goals.
The scale of the challenge is immense, spanning industries as diverse as real estate, utilities, materials science, capital goods, semiconductors, finance, and municipal governance. Yet the opportunity is just as large, and for many companies and communities, it is already within reach. Costs for heat pumps, smart controls, advanced windows, and clean construction materials are falling, while supportive policies across global markets are accelerating adoption. As economies begin to align with climate goals, the transition becomes not only environmentally necessary but also financially compelling.
Financing and policy frameworks will determine how fast this vision becomes reality. Retrofitting existing buildings, especially older residential stock, remains a major barrier. Upfront costs discourage property owners, while the benefits often accrue to tenants, creating a misalignment of incentives known as the split incentive problem. New models, such as green mortgages, on-bill financing, and energy-as-a-service contracts, are beginning to bridge this divide by spreading costs over time and linking payments more directly to realized savings. Governments, meanwhile, are establishing performance standards, mandating emissions disclosure, offering incentives for electrification, and encouraging the adoption of low-carbon materials. These policies provide essential guardrails that reward climate-aligned design and operation while raising the bar for inefficient or high-emitting buildings.
The pace of building decarbonization will ultimately depend not only on technology and regulation, but on capital allocation.
Directing capital toward scalable climate solutions — and away from high-carbon, high-risk pathways — can dramatically accelerate progress. This is where sustainable equity and fixed-income strategies can play an outsized role.
At Domini, we invest in public companies and municipal issuers that are actively shaping a low-carbon, climate-resilient built environment. In the real estate sector, we seek companies with robust green building certifications, credible emissions-reduction pathways, and strong practices around embodied carbon tracking and reduction. Alexandria Real Estate Equities, for example, maintains a large portfolio of green-certified buildings, finances additional LEED certifications through significant green bond issuances, and uses scenario modeling to evaluate physical environmental risk and implement resilience measures.
We also invest in solution providers like Trane Technologies, whose products range from building controls and smart thermostats to high-efficiency electric heat pumps that replace natural-gas heating systems. Trane has also committed to moving away from global warming potential (GWP) refrigerants well ahead of global policy schedules, demonstrating sector leadership in reducing hidden but potent climate pollutants.
Another example is Owens Corning, a US-based industrial company specializing in insulation, one of the most cost-effective ways to reduce building emissions. Its products drastically reduce buildings’ heating/cooling energy use, and its roofing products are hail and wind-resistant.
Our sustainable fixed-income strategy complements these equity investments by directing capital toward community-level resilience. We invest in municipal bonds issued by states, cities, counties, and companies to help fund infrastructure that protects communities from climate threats, expands renewable energy, deploys energy-efficient upgrades, and builds sustainable urban systems. Issuers like Sunnova Energy support residential solar deployment and financing for solar systems and battery storage. The City of Toronto issued a green bond to finance comprehensive climate mitigation and adaptation projects. By excluding fossil fuel issuers, integrating climate risk analysis, and prioritizing long-term sustainability, we can channel capital into the systems, materials, and public works that will underpin a net-zero building sector.
Green buildings are ultimately about far more than reducing kilowatt-hours. They stand at the intersection of public health, equity, and climate stability. Better-insulated homes reduce families’ energy bills; green schools create healthier environments for children; resilient infrastructure keeps communities safe as storms intensify. When capital is aligned with these outcomes, the benefits ripple well beyond emissions reduction — they strengthen social fabric and enhance economic opportunity.
Decarbonizing the built environment is not a simple technical fix but a profound systems transformation. Architects, engineers, material scientists, utilities, policymakers, and community stakeholders all play essential roles. Investors also play a critical role by redirecting capital away from carbon-intensive industries and toward greener solutions — both by supporting companies that provide sustainable building technologies and by purchasing bonds that finance green infrastructure. The stakes are high: without major shifts in how we design, build, finance, and operate buildings, global net-zero targets will remain beyond reach. Yet with deliberate investment, coordination, and innovation, buildings can become cornerstones of a more resilient, equitable, and sustainable future.
The opportunity before us is clear. We already know what a climate-aligned built environment requires. What remains is the collective will to scale these solutions. The work ahead will demand persistence, creativity, and collaboration across every link in the value chain. But the path is visible, and the tools are in hand.
With thoughtful investment and a commitment to shared progress, we can turn the buildings around us into catalysts for a greener and more just world — one project, one neighborhood, and one community at a time.