Green bonds for buildings could have a critical impact on the uptake of sustainability measures by the property sector.
Green property bonds promise to expand the financial channels for sustainable property from equity markets to debt markets – a huge source of capital for sustainable building which until now has remained largely untapped.
The Climate Bond Standards Board is development of new standards for the issuance of climate bonds based on environmental as opposed to credit standards, which will enable investors to be better informed about the environmental integrity of prospective projects.
Its proposed Climate Bond Standard for Green Buildings will impose strict conditions upon qualifying properties, including the requirement that they be within the top 15 per cent of any single market in terms of relative emissions performance.
The introduction of the bonds could give the owners and developers of sustainable, low-carbon properties access to capital for a lower rate, thus heightening incentives on the market for the adoption of green building measures before their merits need to be sold to potential buyers.
The standard will cover three different types of asset pools – commercial buildings, residential buildings and upgrade finance.
Commercial properties will be able to use green building rating schemes such as LEED to prove their eligibility for certified climate bonds. Sustainable building criteria in Australia such as Green Star will be able to incorporate new metrics which compliment the climate bond standards, in order to serve as qualifying benchmarks.
For the residential sector, sound building codes can be used to prove that properties are in the top 15 per cent of the market in terms of emissions performance.
With respect to upgrade financing, any improvements which achieve reductions in greenhouse gas emissions of 30 – 50 per cent from a baseline volume will make a building eligible for the climate bonds.
The climate change bonds could have a transformative impact upon efforts to increase sustainability and green building within the property sector. This is especially the case in Australia, which has long been accustomed to the use of bonds as a financing tool for the property sector. Prior to the Great Financial Crisis, Australia had the most securitised market in the world when it came to debt for its building stock.
Green bonds are already gaining traction around the globe. China’s State Council is working with Climate Bonds to foster the development of capital channels for sustainable projects such as green buildings, while in the EU the European Commission is examining measures for encouraging private finance to pursue climate-friendly investment.