Capital Relief for Climate-Aligned Real Estate: A Market-Based Opportunity for Canada
Canada’s housing affordability and supply crisis is colliding with climate and energy pressures at a time when public fiscal capacity is increasingly constrained. Governments across Canada are looking for ways to accelerate housing delivery, reduce emissions, strengthen climate resilience, and improve economic competitiveness - while limiting ongoing subsidy requirements.
A key challenge sits at the centre of all of these priorities: capital allocation.
Delivering large-scale housing construction and building retrofits requires substantial private investment. Yet current financing conditions continue to make many climate-aligned projects difficult to advance at the speed and scale required.
Affine Climate Solutions’ Budget 2026 submission proposes a practical and market-based solution: targeted capital relief for loans financing eligible climate-aligned buildings.
What is Capital Relief?
Capital requirements determine how much capital financial institutions must hold against loans. These rules are designed to protect financial stability by aligning capital reserves with risk exposure.
However, growing evidence shows that climate-aligned buildings consistently demonstrate lower risk profiles than conventional buildings. Research across Canada, the United States, Europe, and Asia has found that high-performance buildings often exhibit:
Lower default risk
Stronger and more stable asset values
Lower operating cost volatility
Improved income stability
Where risk differentials are measurable, prudential frameworks should reflect them.
Targeted capital relief would reduce the amount of capital lenders are required to hold against qualifying climate-aligned real estate loans. This creates additional lending capacity and lowers financing costs, enabling financial institutions to offer more competitive borrowing rates for eligible projects.
Importantly, this approach mobilizes private capital through existing financial system structures rather than creating a large new federal spending program.
Why This Matters Now
Canada’s current policy toolkit for buildings has relied heavily on grants, concessional financing, and tax measures. While these programs are important, they can be fiscally intensive and difficult to scale to the level required to meet housing and climate objectives simultaneously.
Capital relief represents a complementary tool that works through market incentives rather than direct public expenditure.
The potential benefits are significant:
Lower financing costs for climate-aligned housing and retrofit projects
Increased private investment in low-carbon and resilient buildings
Faster housing delivery and rehabilitation activity
Improved energy affordability and resilience outcomes
Stronger alignment between financial regulation and real-world climate risk
The approach also aligns closely with Canada’s evolving sustainable finance and taxonomy work by linking preferential financing conditions to measurable building performance outcomes.
Positive Reception from the Banking Sector
Through Affine’s Banking on Buildings Program, extensive consultations have been conducted with stakeholders across the real estate and financial sectors. Discussions to date have indicated positive reception to the concept of targeted capital relief within the Canadian banking sector, particularly where implementation is grounded in credible standards, measurable outcomes, and prudential integrity.
This reflects growing recognition that financial regulation can play a constructive role in accelerating market transformation while maintaining financial system stability.
What We Recommended in the Federal Pre-Budget Submission
In our submission to the House of Commons Standing Committee on Finance, Affine recommended that the federal government:
Direct federal financial regulators, including OSFI, to explore and implement targeted capital relief mechanisms for climate-aligned real estate lending
Base implementation on measurable building performance outcomes such as energy efficiency, emissions reductions, and climate resilience
Invest in the standards, data infrastructure, and verification systems required to support prudent and scalable implementation
Looking Ahead
Canada has an opportunity to build on its financial sector strength and regulatory credibility to mobilize significantly greater private investment into climate-aligned buildings.
Well-designed capital relief mechanisms could help lower financing barriers, support housing and retrofit activity, improve resilience outcomes, and strengthen economic competitiveness—all while minimizing pressure on public finances.
Affine Climate Solutions will continue advancing this work through research, stakeholder engagement, and collaboration with industry and government partners.
Read the budget submission here