Third-party certification schemes such as BREEAM can give ESG investors and lenders more confidence that real estate projects are as sustainable as they claim.
In last weeks edition of The Sunday Times (7 November 2021) BRE’s Head of building performance services Dr Shamir Ghumra, discussed how following the recent spike in gas prices, real estate investors and lenders are increasingly scrutinising the resiliency of their portfolios to the potential impacts of climate change.
“That has been a stark reminder of the social dimension of this: are we really preparing ourselves such that the infrastructure is ready to cope with changes in the fuel mix?” asks Ghumra.
That backdrop is prompting property owners to look at ways to make their buildings greener, particularly by focusing on resource efficiency – through reducing waste or cutting energy use – and using data and technology to optimise how those buildings are used and occupied.
This rush to improve the energy efficiency of buildings means property developers and home owners are increasingly turning to green finance to bankroll projects.
“Green finance is going to be vital both for financing net-zero new builds but also for the significantly larger challenge of financing the retrofitting of the UK’s existing building stock,” says Emma Harvey, programme director at the Green Finance Institute.
At the same time, investors and lenders require reliable data to verify that the money is being deployed according to the terms agreed. For instance, green bonds and green mortgages are typically used to finance specific projects, whereas sustainability-linked loans can be used for broader purposes on the condition that predetermined sustainability targets are met. This underscores the need for robust data.
Take Lloyds Bank. In September it launched a green commercial mortgage product for its large real estate clients. This complements its existing sustainable development loan programme, both of which offer cheaper loan rates if the borrower’s buildings or developments meet certain environmental, social and governance (ESG) criteria.
“In terms of what is ‘green’ or ‘sustainable’, certification such as BREEAM plays a central role in ensuring that funded real estate assets under these propositions meet the right standards,” says David Willock, a managing director and head of ESG finance, corporate and institutional coverage at Lloyds Bank.
In other words, using a certification scheme like BREEAM can help borrowers unlock access to a greater range of green financing options, while giving investors the confidence that the underlying data is sound.
The rapid growth of the wider ESG market is also making it harder for investors to make sense of the abundance of green products that are now available.
“As a general rule, if it’s easy, it probably means it’s greenwashing,” says Derk Welling, senior responsible investment and governance specialist at APG Asset Management.
“But at the other end of the spectrum, too much time-consuming data collection to demonstrate sustainability is not the solution either. This is where a holistic scheme like BREEAM proves its worth. It covers a broad range of environmental, social and governance issues at individual building level and, as it is monitored by a third party, it helps to make assessments credible and to verify sustainability claims…”
Ultimately, that third-party verification is a critical component of maintaining the integrity of the green finance market.
To discuss how BREEAM can unlock green finance options for your projects, arrange a call with James Fisher, Key Account Manager – Real Estate; [email protected]
Image: Shopping City Galati, Romania. Certified BREEAM International In-Use 2015 ‘Excellent’ in 2018, 2019 and 2020. Owned and operated by NEPI Rockastle, achieved green bonds as a result of BREEAM Certification