Green Trees, Green Money, Green Buildings

by | May 20, 2022 | ESG

Buildings with ‘Green’ credentials are financially a better investment (and have been so for some time). Global Brands want to lease them, Real Estate Funds want to own them, and the Bond Market wants to fund them. Tenants, investors and lenders are further realising and accepting the benefits of green buildings for lower cap rates and effectively boosting the prospects of the loan to be refinanced at maturity.

In a report by Moody’s Investors Service, prominent asset classes in which green financing is playing a visible role were discussed. Moody’s report covered green asset-backed securities (ABS) including property assessed clean energy (PACE) ABS, residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and covered bonds. Green securitization makes up a significant proportion of green bond issuance, accounting for 17% of the $110 billion in green bond issuance in the first three quarters of 2018. Moody’s expects the types of collateral, as well as the prospects for issuance, to continue to vary widely across securitization sectors[1].

Standard & Poor’s (S&P) also implements ESG factors into the credit ratings of project finance, most often analysed in the context of a project’s construction and operational phases. S&P states that if;

“ESG factors materially affect funding adequacy, timing of completion, or the budget required to complete the construction on time, we could modify the construction stand-alone credit profile (SACP)”.[3]

The operations phase SACP and forecasting of revenues, operating and maintenance costs, and capital costs may be affected through implementing an efficient set of ESG factors into credit ratings.

Environmental, Social and Governance (ESG) factors are becoming increasingly important for credit rating agencies to recognise in their assessment of green securitization. The Environmental element of ESG is the most significant input into the ratings procedure and the key downgrade risk for an assortment of reasons, predominately due to an increasing ESG-conscious investor base.

In 2008, Singapore Authorities enhanced their Building Control Act by putting in place the Building Control (Environmental Sustainability) Regulations. The Act requires a minimum environmental sustainability standard that is equivalent to the Green Mark Certified Level for new buildings and existing ones that undergo major retrofitting[2]. This action forced stakeholders to think differently about green buildings (also known as Low Carbon Buildings) and provide financial mechanisms and products to support the change in landscape within the Property Development sector.

Though the history of green buildings isn’t long, studies have shown buildings have superior income producing ability. Buildings certified as sustainable were reported to outperform similar non-green buildings on key economic attributes such as rent, occupancy, and lease renewal.[4] The expectation in the future is that green buildings will simply be the norm and eventually the ‘green’ tag will be lost.

Written by ESG Responsible Investments (www.esgi.com) and noted sources.

[1] https://www.moodys.com/research/Moodys-Green-financing-plays-growing-role-in-structured-asset-classes–PBS_1149594 (complete report requires membership access)

[2] https://www.bca.gov.sg/EnvSusLegislation/Environmental_Sustainability_Legislation.html

[3] https://www.spratings.com/en_US/products/-/product-detail/our-approach-to-esg-in-ratings

[4] https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1036329

Contact us to discuss how your organisation can reduce ESG risks, create an effective ESG strategy, reduce their carbon footprint and better manage ESG risk in your supply chain.

Recent Posts

about-esgri

About the ESGRI Academy

by | Jun 21, 2022 | ESG | 0 Comments

ESGRI’s platform provides a wealth of opportunities for employees to learn new skills, advance their careers and instill a strong sense of ESG throughout an...

Supply-Chains

Real-Time Supply Chain ESG management

by | Jun 21, 2022 | ESG | 0 Comments

“Two-thirds of the average company’s environment, social, and governance footprint lies with suppliers. Procurement leaders who take bold action can make a decisive...

Pricing-Benefits-to-both-issuers-and-investors-for-Green-Bonds-Climate-Bonds-Initiative

Pricing Benefits to both issuers and investors for Green Bonds | Climate Bonds Initiative

by | May 20, 2022 | ESG | 0 Comments

The Climate Bonds Initiative recently released the latest Green Bond Pricing report, with an assessment of the performance of issuances in the second half of 2021. The...

ESG-Impact-announces-partnership-with-Ethical-Trade-Alliance

ESG Impact announces partnership with Ethical Trade Alliance

by | May 20, 2022 | ESG | 0 Comments

Media Release – March 2, 2022 ESG Impact (ESGI) is pleased to announce its partnership with Ethical Trade Alliance (ETA). As an alliance partner of the ETA, ESGRI’s...

Australian ESG News – Q3 2021

by | May 20, 2022 | ESG | 0 Comments

Greenpeace Australia Pacific launches Hero to zero: uncovering the truth of corporate Australia's climate action claims, reviewing the targets of 80 of the highest...

Global ESG News – Q3 2021

by | May 20, 2022 | ESG | 0 Comments

The Biden Plan for a clean energy revolution and environmental proposal will make a federal investment of $1.7 trillion over the next ten years, leveraging additional...

Environmental, Social & Governance (ESG) Supply Chain Risk Management

by | May 20, 2022 | ESG | 0 Comments

Modern day supply chains are complex, changing, and fraught with risk management challenges. One scary statistic we hear these days is that over the past 2 two years...

Eden-Towers-Agritech-ESG-Report

Eden Towers – Agritech ESG Report

by | May 20, 2022 | ESG | 0 Comments

Eden Towers completed an Environmental, Social and Governance (ESG) review and first ESG report working with the team from ESG Impact, and key supplier and partner...

ESG-Strategy-and-Reporting-for-global-smart-city

ESG Strategy and Reporting for Global Smart City

by | May 20, 2022 | ESG | 0 Comments

We are very excited to have recently completed the first ESG report for Enyimba Economic City (EEC) in Nigeria. A special economic zone project of a comparable size...