Colliers experts respond to announcements emerging from the COP26 conference
Accountability and transparency will be key to advancing investment in sustainable retrofitting solutions in commercial real estate says Colliers’ finance experts.
At today’s UN Conference on Climate Change Chancellor Rishi Sunak announced an intention to mandate UK financial institutions and listed companies to produce net zero “transition plans” by 2023, for decarbonisation by 2025. He also said a taskforce is to be established to develop a “gold standard” of reporting by 2022.
Also agreed by the UK and US at the summit was support for a ‘Climate Investment Funds’ Capital Markets Mechanism’ for investment in clean energy in developing countries. While former Bank of England Governor Mark Carney, now UN special envoy for climate action and finance announced that up to £100 trillion could be released by a coalition 450 banks to help economies transition to net zero.
In a recent research paper Colliers estimated that across Europe some €7 trillion of investment is needed to bring commercial real estate in line with current sustainability frameworks, with £600 billion required in the UK alone.
However many investors will not have the funds available to carry out these major projects and failure to do so will leave them with ‘stranded’ assets no one will want to occupy, curtailing cashflow and driving down valuations.
Adrian Rowland, director in Colliers’ Debt Advisory team said: “Banks will have a role to play in providing investors with the cash to carry out retrofitting works. We have seen a growing number of lenders offering ‘green loans’ or sustainability-linked loans aimed at the consumer market for mortgages or electric car purchases, and increasingly a greater emphasis on lending to the commercial real estate sector.
“While much of the headline announcements have been focused on funding net zero targets in developing countries, we expect a flurry of announcements to follow by lenders around the globe increasing availability and accessibility to green funding, to capitalise on this huge demand once commercial real estate investors understand their ESG responsibilities.
“But we also expect lenders to impose strict criteria on what will qualify as a green project and that will benefit from a discount to the standard lending rate. However, the sustainability angle will be up for constant scrutiny with additional reporting responsibilities imposed on the borrower. Failure to meet these requirements could result in the removal of pricing benefits and potential cost penalties, to avoid ‘greenwashing’ claims against both the borrower and lender.”
Sara Duncan, Head of Valuations & Advisory at the firm added: “To support green lending valuers need access to good quality ESG data on transactions such as building specification, occupational activity, energy performance and other features that may impact on liquidity and pricing. At present there is no standard market approach to collecting, storing and disseminating such ESG data.
“With a huge range of debt providers advocating for change this year, we could be at the tipping point of defining agreed framework of measurable standards. We are supporting our clients to ‘opt in’ to open data and reporting consistency. Transparency is the key to identifying the true value of sustainability investment.”