Which ‘Green Property’ to invest in?
On Thursday 29 May 2014, a webinar on Bonds Standards for Green Property eligibility criteria prepared and organized by the ‘Climate Bonds Initiative’ and co-hosted with the PRI Initiative (Principles for Responsible Investment) took place. After receiving a positive feedback from the industry, the bonds’ standard will go into the final phase – a public consultation which will last for 30 days (to start this week (16-20 June) before being released on the market.
A Growing Market
The market for green buildings has been rapidly growing in recent years and it is estimated to hit $40bn by the end of this year and $100bn in 2015, (Financial Times, ‘Climate change is a business problem’, Mike Scott). Undoubtedly, investors identified ‘green bonds’ as an opportunity for portfolio diversification and socially responsible investing. However, there is no standardized understanding of what does a ‘green bond’ actually encompass and there is an existing gap as to what are the ‘hurdle rates’ necessary to really build a greener future. And this is where Climate Bonds Initiative jumps in to direct investment to a tangible low –carbon economy.
Deep Carbon Cuts needed
In order to keep to below two-degrees scenario, green buildings investments need to be directed to projects which can achieve substantial improvement of efficiency upgrade is the argument of the organization. Therefore, to make investments in small efficiency upgrades (let us take the example of Climate Bonds Initiative- 20 percent) while actually bigger ones (40 percent) are needed to overturn the process does not make sense- both from societal and investors’ perspective. The danger is to fall into a dreadlock in weak level of performance.
The International Energy Agency shared in its special report on energy investment outlook last week that the spending on energy efficiency, measured against a 2012 baseline, needs to rise from $130 billion today to more than $550 billion by 2035. But what if the spending takes the wrong direction? At the end it is up to investors to decide what is green enough for them.
The project started by ‘Climate Bonds Initiative’ aims to develop a Standard that ensures the low carbon credibility of certified climate bonds issued for “Green Buildings.” The standard incorporating three distinct methodologies for verified property, deemed property and upgrade finance will provide clarity to investors as to the integrity of energy efficiency investments through a standardized screening tool. It also aims creating a lasting change through deep cuts and by avoiding shallow cut diversions (e.g. EE retrofits in buildings with low abatement outcomes). To learn more, access Climate Bonds Standard for Green Buildings.
To go back to the online webinar, the UK-based not-for-profit ‘Climate Bonds Initiative’ organized this event to cater to the Australian market in terms of time zone, but was open to the rest of the markets interested in joining. The webinar was the last part of the industry consultation phase which included three other internal webinars organized prior to the final forth one.
The development of eligibility criteria for commercial and residential buildings and upgrade finance in the development markets took Climate Bonds’ Working Group around eight to nine months. While in most cases the process takes up to six months, “Energy efficiency in buildings is a more complex space then other areas of the taxonomy (climate green definitions) hence it took longer to ensure we developed something robust and practical” – explained Justine Leigh-Bell, Manager of the Standards and Certification Scheme.
Public consultation on the bond standard
The open consultation which will run for 30 days is expected to start this week and material will be open for comment on the Climate Bonds Initiative website or through email via the specified address email@example.com.
Two more webinars will take place in June to address the US market and the European one. The exact dates remain to be confirmed but can be expected after the middle of June.
Additional public consultations to come are the Bus Rapid Transit as part of the Climate Bonds Initiative’s work on low carbon transport. Rail and EVs are next in line. In the UK, France, Germany and Denmark there are some residential codes which set ambitions around energy/carbon performance of buildings. The Climate Bonds Initiative is currently working on an assessment methodology that will provide them with a list of codes we can use. At the moment, the UK´s sustainable homes building code level six is an example of one that we could leverage- explained Justine Leigh-Bell. In the meanwhile in the US, California definitely has pretty tough building codes.
“We don’t want to miss anything on the market that has potential”- finally explained Leigh- Bell.
Photo Credit: Methody Methodieff