sintali-web-logo-black-1sintali-web-logo-black-1sintali-web-logo-black-1sintali-web-logo-black-1
  • About Sintali
    • About Us
    • Careers
    • Our Services
    • Our Partners
    • Sustainability
  • EDGE Certification
      • EDGE
      • About EDGE
      • Our Approach
      • Zero Carbon Portfolio
      • Pricing
      • Technical Queries
      • Expedited Reviews
      • Get a Quote
      • EDGE Training
      • EDGE Experts Training
      • Book Training
      • Request Training
      • Resources
      • Case Studies
      • FAQs
      • List of Banks
  • Green Finance
  • Training program
    • EDGE Experts Training
    • Book Training
    • Request Training
  • Resources
    • Blog
    • News
    • Webinars
CONTACT US

What is Green Finance and How Does it Apply to Buildings?

Published by Eleni Polychroniadou on January 5, 2022
Categories
  • Blog
Tags

Green finance is now playing a pivotal role in the race to net zero for buildings – it’s fair to say, in fact, that we won’t be able to achieve net zero in the built environment without it. As well as wanting to be socially responsible, lenders and investors are acutely aware that green buildings mitigate their risk and create better long-term value. Green buildings will be more marketable in future and are designed to be resilient to the damaging effects of climate change. Financiers are also very aware that buildings that don’t put green at the forefront could become ‘stranded’ assets in future. As legislation becomes more stringent, poorly performing buildings could become unlettable or unusable in future.

This has led to most lenders and investors now creating strong ESG agendas, developing dedicated sustainability teams to help meet climate challenges and put together new forms of finance that puts green at the forefront.

‘Green Finance’ is now a well-used term referring to a loan or a bond that is marketed or drafted specifically to be environmentally friendly, but what forms does this take?

In our previous blog, we looked at the typical challenges investors face when trying to lend into the green building market. Today, we will delve into what green finance actually is and how it can be used for buildings.

Put simply, green finance either entails proceeds being used to fund green projects or an income stream being generated by green assets. It typically comes in two main forms: green loans and green bonds.

Green Loans

Green loans are any type of loan instrument made available to finance new or existing green projects. These projects should provide clear environmental benefits, which need to be initially quantified and assessed, then measured and reported on by the borrower. Lenders are increasingly requiring independent verification of the sustainability performance of a project, and verification throughout its life cycle that green ambitions are being realised.

Compared to green bonds (see next section), green loans are available to a broad range of borrowers and will reward the borrower with a lower cost of funding or more advantageous repayment terms. If needed, most corporates can access green loan facilities by separating out green improvement expenditure from general expenditure: for example, itemising the installation of more energy-efficient heating or cooling equipment.

Other types of greening loan facilities – or sustainability-linked loans – can be used by companies which are introducing sustainability targets or policies, such as installing energy saving lighting. And a growing trend is for credit facilities to be bound to a set of targets for reducing greenhouse gas emissions. Under these facilities – the so-called ‘positive incentive loans’ – a company’s cost of borrowing can vary depending on whether they hit pre-determined goals linked to pre-agreed targets and Key Performance Indicators.

On the personal finance front, green loans also extend to home ownership with green mortgages providing incentives for borrowers to improve the energy efficiency of a building or home, with mortgage rates discounted over a period of time based on the achievement of recognised performance standards. This can be particularly advantageous when taking on a green retrofit, whereby the costs of investing in green technology can be offset against reduced interest payments. It also means the homeowner benefits from lower running costs, making them a safer and more investable proposition for a mortgage lender.

Green Bonds

Green bonds, along with their close cousins, social and sustainability bonds, are one of the most visible market-based initiatives in green finance. Their origins can be traced back to bond issues by the European Investment Bank (EIB) in 2007 and the World Bank in 2008. The innovative 2007 Climate Awareness Bond, issued by EIB, was linked to the equity performance of a FTSE4Good Environmental European Leaders Index and raised over half a billion Euros from retail investors.

Since that time specific standards have been developed that have come to define green bonds. These have more recently been followed by sustainability and social bonds. Now becoming an established asset class with institutional investors, they have significant potential and growth with the scope and scale of green bonds issued in 2020 exceeding that of the same period in 2019, despite a temporary slowdown due to the pandemic. Green bonds are on track for setting new records in 2021.

A green, sustainability or social bond ‘ring fences’ the use of proceeds for specific activities with clear rules maintained by independent standards bodies, such as the International Capital Markets Association (ICMA), which oversees the Green, Social and Sustainability Bond Principles and the Climate Bonds Initiative. Whilst the framework and the use of proceeds information for individual bonds can be self-certified, the best practice is to have this certified by an independent third party, along with annual reporting on the impact of capital deployed.

This certification is also a requirement for inclusion in the London Stock Exchange’s Sustainable Bond Market, for example, which in 2019 launched a dedicated Sustainable Bond Market to cater for growing demand.

Green bonds are a way to tap into investors that wish to achieve green financing impact through the bonds that they invest in, allowing investors to climate and sustainable investment approaches into their portfolios. Indeed, a growing number of organisations whose business activity drives positive environmental outcomes are choosing to issue all of their bonds under a green, social or sustainability bond framework.  

Transparency and Reporting

At both international and national level, demand has grown for greater transparency and reporting around the extent to which companies and investors are exposed to climate-related financial risks and opportunities, and how they manage these risks.

In 2015, the industry-led Task Force on Climate-related Financial Disclosures (TCFD) was established to develop voluntary and consistent climate-related financial risk disclosures for use by companies providing information to investors, lenders, insurers and other stakeholders. Its rationale was that appropriate disclosures were needed for the financial community to manage and price climate risks and to take lending and investment decisions based on their view of low carbon economy transition scenarios.  

TCFD participants include three-quarters of the world’s banks and eight of the top ten global asset managers. It has developed a set of recommendations that aim to support consistent, comparable and reliable climate-related disclosures by financial and non-financial companies. Similarly, the Partnership for Carbon Accounting Financials (PCAF) is enabling financial institutions to assess and disclose greenhouse gas emissions of loans and investments, and working on harmonising the assessment and disclosure of carbon emissions that are associated with financial instruments.

So, the message is clear, green finance is providing a way forward to help the building sector decarbonise, and helping to power the transition to net zero in buildings and society as a whole. However, for buildings, like all asset classes, it is vital for net zero ambitions to be quantified in a clear and transparent way, and for progress and achievement to be monitored and verified through certification.  

You can view the recent Sintali webinar “Funding the Net Zero Transition – What Financiers Look For In Green Real Estate Investment” here

Share
1
Eleni Polychroniadou
Eleni Polychroniadou
Eleni Polychroniadou is the Commercial Director and a Co-Founder at Sintali. In her role, Eleni leads the commercial division of the organisation and drives business development activities to help the EDGE market grow internationally.

Related posts

January 31, 2023

Green Building: A portfolio approach


Read more
December 15, 2022

Sintali brings you a Year in Review


Read more
November 4, 2022

How to make infrastructure projects bankable in Africa


Read more


Recent News

  • ProCredit bank Kosovo – the first institution in Kosovo to achieve EDGE Advanced Certification for its Head Office Building
  • Green Building: A portfolio approach
  • Sintali Co-Founder named one of 2023’s most inspiring female entrepreneurs
  • Sintali brings you a Year in Review
  • Sintali partners with consulting company Zero Energy Building to accelerate the uptake of EDGE in Greece

Blog Archive

  • March 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • July 2020

Categories

  • Blog
  • Events
  • Knowledge Hub
  • News
  • Uncategorized
CONTACT US

Sintali Limited
Cardinal Point Park Road
Rickmansworth, Hertfordshire
WD3 1RE, United Kingdom

Tel: +44 (0)204 5342514

sales@sintali.com
STAY CONNECTED

Follow us on social media and get updates in real time


JOIN THE COMMUNITY

Stay up to date with the latest from Sintali

© 2022 Sintali Limited
Website design by Create + Deploy
  • Home
  • Privacy Policy
  • Cookie Policy
  • Terms and Conditions
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Cookie settingsACCEPT ALL
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.

CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-advertisement1 yearThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Advertisement".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.

Functional

Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.

Performance

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

Analytics

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.

CookieDurationDescription
_ga2 yearsThis cookie is installed by Google Analytics. The cookie is used to calculate visitor, session, campaign data and keep track of site usage for the site's analytics report. The cookies store information anonymously and assign a randomly generated number to identify unique visitors.
_gid1 dayThis cookie is installed by Google Analytics. The cookie is used to store information of how visitors use a website and helps in creating an analytics report of how the website is doing. The data collected including the number visitors, the source where they have come from, and the pages visted in an anonymous form.

Advertisement

Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.

Others

Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.

CookieDurationDescription
_gat_gtag_UA_176578450_11 minuteNo description
asp_transient_idsessionNo description

SAVE & ACCEPT
Powered by CookieYes Logo