Green Property Bonds Set to be Game Changers

Monday, October 27th, 2014
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Green property bonds have taken a major step forward with the submission of the final criteria for green property investments by the Climate Bonds Initiative’s Green Property Work Group to the Climate Bond Standards Group for approval.

The Climate Bond Standards for Green Property cover the three asset pools of commercial buildings, residential buildings and upgrade finance, with the goal of providing clarity to investors on the energy efficiency of investments by means of a standard screening tool.

While existing star ratings place emphasis upon the conduct of teams involved in the design, development and construction of projects, the finalised criteria place greater emphasis upon the ongoing performance of a building in order to ensure the long-term sustainability chops of certified assets.

According to members of the drafting subcommittee, the goal is to provide the level of surety enjoyed by wind and solar power projects, whose greenhouse gas emission reductions can be readily quantified, to the green property sector.

Demand for green investment options is rapidly expanding, particularly given the ongoing wave of withdrawal from carbon-heavy assets by major institutional investors. While green-motivated divestment has thus far primarily involved the equity market, its impact upon fixed-income assets is inevitable.

This growing demand will in turn require more thorough and sophisticated tools for ensuring the green credibility of investments.

Green property provides a more solid and reliable option for conscientious investors compared to assets more directly involved in the sustainability sector, such as renewable energy projects.

As a fledgling sector, renewable energy remains highly vulnerable to the whims of policy-makers – as evidenced by the impact of the RET review on new wind and solar projects As an asset class, property is immune to such caprices.

The sustainable operation of buildings and facilities also confers long-term economic benefits to such assets, in the form of increased energy efficiency and attendant declines in utilities costs.

The ongoing nature of the benefits provided by sustainable buildings make them highly suited to fundraising by means of green bonds, given that fixed income assets are generally preferred by investors with a view to the long-term.

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