As corporations try to meet 2030 emission targets, there is a multi-billion-dollar opportunity for green finance in Australia’s relatively untapped commercial property sector.
While green loans presently account for only three per cent of commercial real estate debt in Australia, a new CBRE Green Finance analysis indicates that up to $15 billion of the approximately $75 billion in debt refinanced yearly may be connected to energy efficient properties.
CBRE’s Asia Pacific Head of ESG Research, Sameer Chopra, said there was also a lesser – but arguably more climate relevant – potential to fund new projects by tapping into Australia’s “big four” banks’ combined $200 billion green financing pledges.
“While green loans currently account for just $10 billion of Australia’s commercial real estate debt, refinancing presents significant opportunities given the country’s high volume of NABERS rated property stock,” Chopra said.
“In 2021, green bonds accounted for 16% of the capital raised by US real estate firms. So, if we were to match those levels in Australia this would provide an opportunity for $10 billion to $15 billion of green refinancing.”
According to the CBRE analysis, an additional $500 million to $600 million in loans might be applied each year to upgrading or retrofitting commercial real estate to increase energy efficiency, with possibilities particularly common in the industrial sector.
Oxford/Investa, Brookfield, Charter Hall, Frasers Property, GPT, Ingenia, Lendlease Mirvac, QIC, Quintessential, and Stockland are among the many Australian corporations that have conducted green financing projects.
ING Australia recently acted as Joint Global Coordinator and Bookrunner on Goodman Group’s issuance of a US$500m Sustainability Linked Bond in the US market while Charter Hall recently announced a further $1 billion in sustainability-linked loans, lifting total sustainable finance transactions across the Group to $2.4 billion, up from $1.4 billion at 31 December 2021.
According to CBRE’s analysis, the office sector accounted for half of all green finance transactions in Australia, followed by the industrial and retail sectors at roughly 18 per cent – 19 per cent apiece.
Charter Hall’s Head of Treasury & Group Planning, Phil Schretzmeyer said sustainable finance offers another opportunity for the business to integrate ESG objectives throughout its operations to deliver long term, risk adjusted returns for investors, and lower operational costs.
“What we’ve found in particularly the past 12 months, is that there’s now this increasing pool of funding for the green projects and for sustainable financing,” he said.
Sustainability linked loans, a loan in which companies can receive a margin benefit for meeting set environment targets, makes up roughly $1.4 billion of Charter Hall’s $2.4 billion. The remainder is with green use of proceeds.
“For us, it’s really been about looking at all the great things that we [are] already doing from a sustainability perspective across the portfolio, we’re building these assets to a high environmental standard already,” Schretzmeyer said.
“That’s something that our tenants and our investor customers were really keen to see. And then looking at kind of wrapping the financing around that and matching the assets that we’re already producing to this quite high standard with the financing.”
Charter Hall’s Group Head of ESG, Andrew Cole, said these types of partnerships drive environmental and social value alongside better financial outcomes.
“It has been well understood the role of buildings, and the way that they can play in helping to decarbonise society,” he said. “Pleasingly what we’re now seeing is organisations and the sectors’ ESG commitments and attributes are now starting to align with financing and funding frameworks.”
Coles said over one-third of green bond use globally were flowing into real estate due to the availability of voluntary and mandatory independent rating tools which provide investors with look through into underlying portfolio of a fund or portfolio.
“It feels like property is well placed to catalyse on this thematic and really drive strong impact in their portfolios and it is timely recognition for a lot of the work that our sector has done for a number of years and integrating sustainability into built form,” he said.
Schretzmeyer said we have already seen momentum shift in the green financing space in commercial real estate, with industry bodies that provide guidelines around how to document and structure green financing helping to boost engagement.
“If you were doing green financing, say two years ago, you were creating the structure and the systems yourself, because they just didn’t exist,” he said.
“So the fact that these things are now available to people, and I can now go and look at that and look at benchmarks and look at what others are doing in the market, I think we’ve got the trajectory there to kind of keep growing.”