Thursday, 13 August 2015

Green Capital For Greener Buildings

Guest Post By Sara Anzinger 
Manager Real Estate Debt & Fixed Income at GRESB

Green Bond Guidelines for the Real Estate Sector 
The property sector has recently received significant attention related to climate change and sustainability efforts, and rightfully so. Contributing one-third of global carbon emissions and consuming 40% of global energy and resources, 25% of water and 60% of electricity (in Europe and the US, this is even over 80%), the real estate sector constitutes one of the greatest potential opportunities to address environmental issues including climate change. Yet there remains economic opportunity for investors and asset owners too. Market transformation to a more efficient, more sustainable real estate sector will require an astounding amount of capital, and green bonds have emerged as a potential and promising financing source.
In June, GRESB released its Green Bond Guidelines for the Real Estate Sector. These Guidelines are intended to complement the seminal Green Bond Principles through refinement and specification of its four pillars – Use of Proceeds, Process of Project Evaluation and Selection, Management, and Reporting – for the real estate sector. Property company issuers, green bond underwriters and investors can use the Guidelines to identify Eligible Green Projects and specify metrics and reporting constructs that are most appropriate for their particular objectives.
Here’s the why, how, and who on green bonds and the GRESB Guidelines.
In 2014, global corporate bond issuance totalled $3.35 trillion while green bond issuance totalled just $36.6 billion. This equates to approximately 1% of total market volume. While there is certainly significant talk about green bonds, actual transactions to date have been relatively few, particularly within the property sector. 

Notable green bonds issued by property companies include Vasakronan and Unibail-Rodamco in Europe, Regency Centers, Vornado and Digital Realty in the United States, and Stockland in Australia. If we consider the 303 companies included in the FTSE/EPRA NAREIT Global Real Estate Index as representative of the potential property company universe, only 1.7% have issued green bonds to date with only two issuing multiple green bonds.

So what’s the hold-up?  Why aren’t more property companies tapping into the green bond marketplace? The consistent feedback provided to GRESB by key stakeholders, including institutional real estate investors, the most active banks in green bond underwriting, and property companies, is the need for sector-specific guidance detailing:

1) How the Green Bond Principles may be applied and fulfilled in property investment, and;
2) Metrics that can be used to identify eligible green projects and report outcomes to investors
Broad-based issuer and investor uptake requires simple, standardised, streamlined metrics and processes setting the stage for scaling the green property bond market. Unlocking this capital drives further real estate market transformation and the massive potential for positive environmental outcomes hidden in plain sight.

The 2015 Green Bond Principles are explicit in encouraging flexible frameworks allowing property sector practitioners latitude to implement practical strategies that result in increasing both energy and water efficiency, reducing Scope I and Scope II carbon emissions, maintaining biodiversity, and providing resiliency for the future. 

The 2015 Green Bond Principles address eight categories of environmental impact:

·         Renewable energy
·         Energy efficiency (including efficient buildings)
·         Sustainable waste management
·         Sustainable land use (including sustainable forestry and agriculture)
·         Biodiversity conservation
·         Clean transportation
·         Sustainable water management (including clean and/or drinking water)
·         Climate change adaptation

Each of these eight important environmental categories is present within the framework of every rigorous green building rating system in existence worldwide – BREEAMDGNBGreen StarHK-BEAMLEED, and Living Building Challenge to name a few.


Close ties to capital market participants and real estate industry stakeholders motivated and informed the development of the GRESB Real Estate Sector Guidelines. Drawn from recommendations by experienced green property bond originators, underwriters, and investors, these Guidelines provide sector guidance for the full spectrum of real estate investors. Engagement pathways exist for the most environmentally progressive portfolio owners and for those just beginning to consider transitioning their assets to higher levels of sustainability and efficiency.

For further information about GRESB and the Guidelines read more here

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