Our debt & structured finance expert Anne Laukia and sustainability expert Niklas Wiik share their insights on green financing and green building certifications BREEAM and LEED.
Green financing can increase investor returns and reduce exit risks
An intelligent use of the debt financing always plays a key role in investors’ IRR calculations (internal rate of return). Sustainability in the real estate segment is also about debt financing, i.e. if you have a strong enough sustainability assessment for your asset/building, you can possibly get "green financing" from the banks. Green financing can be easier to accessand sometimes pricing of a green loan can be lower than "plain vanilla" debt financing.
Green financing can also increase your company’s visibility in the market and support communication about your sustainability goals. It will bring many internal teams and business units together to implement the sustainability strategy, when you are issuing a green bond or arranging a green loan. Sustainable properties might be easier to sell and diminish exit-related risks (timing, price). Sustainability is often analyzed via Environmental, Social and Governance (ESG) strategies of a company.
According to EFFAS*, decade-long academic research find, at least, a non-negative ESG-Corporate Financial Performance (CFP) relation, while many studies suggest that good ESG performance can actually lead to better CFP.
Different kind of green financing products available
In Europe, green financing started after supranationals’ green bond issues in 2007 and World Bank, European Investment Bank and Nordic Investment Bank, to name a few, have been playing important role in establishing the market for green bonds. They were followed by wholesale banks, real estate firms and corporates.
The Swedish banks, especially SEB and Handelsbanken, have been forerunners in the market and not only in the Nordics, as SEB was actually kicking off the green bond market globally by acting as a lead manager of World Bank’s first ever Green Bond. The bond markets continue to develop; today there are blue bonds, sustainability bonds, SDG bonds (Sustainable Development Goals), etc. And today most banks can create green bond frameworks and arrange green bonds for their clients.
Furthermore, simultaneously the banks’ loan originators continue to develop their balance sheet loan products to be used for sustainability purposes of their clients, e.g. green RCFs (revolving credit facilities) are available with tightening pricing structures when certain sustainability-linked targets are met.
Requirements for green financing in real estate
How green building certification logic works
*) The European Federation of Financial Analysts Societies (EFFAS)