Why Sustainability is the Key to Cheaper Capital

Thursday, December 3rd, 2015
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In the last month we got a new Prime Minister who has given cities a voice in his Cabinet, declaring urban planning a matter of quality of life.

China committed to a landmark carbon cap-and-trade, space explorers ate food they grew in space, The German car giant has admitted cheating emissions tests and the Climate Conference of the Parties to UNFCCC (COP-21) in Paris will include a ‘Buildings Day.’

What if I told you that if you transform your relationship with sustainability, you would get access to cheaper capital?

Essentially, stop eyeing your competitor; instead make the pie bigger. Very often people in our industry see themselves as trying to get some advantage – some gain from someone in an adjacent business. We are always looking to see whose lunch we can take. To me, we always seem to be scrapping over the crumbs so to speak.

Ask instead ‘how can I make the pie bigger?’

The obvious answer is simple – we make it bigger by making the cost of capital smaller.

And how do we do that?

There is a lot of money – green money if you like – chasing a home. Until recently there were basically two ways to get this green capital, the first of which is the under-handed way, which is a bit like studying the answers to the exam rather than understanding the subject. It’s playing the system and you can qualify for cheaper capital. It will work for you now, but it won’t work for much longer.

I’m not really interested in doing that model. I’m not into playing the credit game to paint the brown building green. This dirty-green way is not really going to work for much longer. And then there is the other way – a much more ‘zen’ way of greening buildings, towns and cities.

If we are honest with those sorts of approaches, it’s easy to come up with a sort of change in your organisational being that will help you get access to cheaper capital – and that is really my secret sauce for the industry as a whole. Essentially changing the relationship to sustainability as an industry equals gaining access to cheaper capital and that’s going to make the pie bigger.

So that you’re still with me, let’s trigger something from our childhood.

Benefits come from going from a mindset of being forced to be green, much like being told we have to ‘eat our greens.’ You may have fed them to the dog, or hidden them in your palm and flushed them down the toilet when no one was watching.

Let’s flip the tables for a minute and look at the world from the point of view of the money people.  They have a tranche of investors who have specifically labelled money they want to give if the ‘project’ speaks to a green audience. That’s where the money is coming from. It’s coming from your 21-year-old daughter and your 30-year-old son and your mother-in-law, who want to guarantee a planet for the future. These are the people who are looking at the world differently – they are the ones going on the marches and wanting to see that social impact and economy are linked. They are using their pension schemes – their superannuation funds – to impact change.

There is a lot of money labelled for green purposes.

So as an industry how do we get this money?

I believe the future of green investment is when the sophisticated market will want to give money to projects that transform entire cities, delivering measurable social and environmental benefits.

You have to do the real thing – the market is awash with a new type of capital – and to get that you have to be green.

So in other words, don’t spit your greens out because I’m pretty sure mum and dad will find out.

Agreement over ‘What makes a bond green?’ is emerging. Groups giving opinions and forming partnerships to increase capacity and set standards for compliance have been established.

Climate bonds, or green bonds, are specifically issued in order to raise finance for climate change solutions. What’s important for you to know is that investors representing US$43 trillion worth of assets under management have made public commitments to climate related investments.

The huge opportunity for the property sector is for energy efficiency in buildings to be the guarantee for the green bond discounted capital.

So, how do you qualify?

Well, to qualify for a climate bond ‘Certification for Low Carbon Green Buildings,’ proceeds must be dedicated to buildings that are able to demonstrate very low carbon emissions in operation for the life of the bond. Specifically, these buildings must be in the best 15 per cent of buildings in a local market when it comes to carbon intensity or kgCO2e/m2.

The Climate Bonds Standard for Low Carbon Buildings is leveraging suitable building standards and performance data where it is available and requiring benchmarking where it is not. There are guidelines available for you to download from their website.

It’s an opportunity is to transform the economics and impact of the entire sector.

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