Global green finance: driving the net zero building revolution
Following Simon Wyatt and Richard Twinn’s recent article for Building Magazine, where they discussed how major investors are becoming the driving force behind the UK’s green building revolution, we spoke to leading voices from Cundall’s offices around the globe to find out how the finance industry is influencing the net zero revolution in their regions.
Regions: Asia, Australia, MENA, Romania, Spain
Asia
Iris Chan, Associate Director, Asia
As Asia’s financial hub, green finance is no stranger to the Hong Kong financial market and is at the top agenda of Government policy. Hong Kong was the first signatory in Asia of the Green Bond Pledge in 2019, which provides a platform to issue green bonds for infrastructure. The HKSAR government has also launched Asia’s first sovereign green bond with a borrowing ceiling of HKD 100 billion in November 2018.
In the private sector, green finance has gained momentum among developers and main contractors. Green finance has been used in various dimensions to decarbonise the industry. Apart from new green buildings and existing building energy upgrades, green finance has been used to accelerate renewable installation, off-site prefabrication, and site electrification etc.
Despite the exciting opportunities, there are challenges to be overcome. For example, green finance is still mostly only accessible to large companies due to the high entry barrier. SMEs seeking a smaller loan size may not able to find the right financial product with enough incentive to justify the effort and the cost, and process of third-party verification is also still a major hurdle to applicants. In addition, there is still a knowledge gap that requires much needed capability building for both the financial and construction industry.
Cundall has been working closely with the Construction Industry Council of Hong Kong to develop a sustainable finance scheme specifically for the construction industry. The objective is to make green finance accessible to the construction supply chain and bridge the gap between the financial and construction industry. By diverting finance to the right project and setting appropriate low carbon measures, the scheme is positioned to be one of the key strategies to decarbonise the industry.
Australia
Madlen Jannaschk, Senior Sustainability Consultant, Perth
A 2019 report by Climate Works Australia found that 43% of the largest property companies (those who are listed in the ASX200 plus those who are required to report under the mandatory National Greenhouse and Energy Reporting (NGER) act) have a 2050 net zero target or aspiration. However, many of these commitments are focussed on Scope 1 and 2 emissions only and none of the reviewed companies have targets that address all emissions they are responsible for.
Accordingly, only 15% of the major superannuation funds have a net zero target for 2050 that addresses all emissions across their portfolio.
But Australia is not isolated from the global momentum towards net zero targets. Australian investors and asset owners are increasingly acknowledging the risks associated with climate change through divestment activities and are requesting asset developers, owners and managers to review the environmental performances of their assets. Vicinity, one of Australia’s largest shopping centre owners and third most sustainable real estate investment trust (REIT) in the world (according to the Dow Jones Sustainability Index), has announced that it will reach net zero carbon emissions by 2030, having already generated more than 5,000 MWh solar power across 12 rooftop plants.
The recently released updated version of the Green Star Buildings tool – a rating tool widely required by local governments for mid- and large-scale developments, requires all new buildings rated under the scheme to be net zero in operations from 2026 onwards, with all 6-star ratings already achieving net zero from 2020 onwards.
The global urge for fast and meaningful carbon reductions has also reached Australia. However, economists and climate scientists have repeatedly highlighted the distressing lack of federal government commitment to addressing greenhouse gas emissions, as well as Australia’s dependence on the mining and fossil fuel industry, as major roadblocks to profound climate change mitigation.
Hopefully, the combination of global peer pressure, local government ambitions, customer demand and industry leadership will turn the ‘urge’ into a momentum.
MENA
Mario Saab, Head of Sustainability, MENA
Green finance is relatively new in the MENA region; however, it has grown significantly over the last few years. Both Green Sukuk (Sharia compliant) and classic Green Bond instruments are gaining momentum and slowly maturing as innovative sustainability solutions.
Since 2011 the countries issuing green financial instruments include Lebanon, Morocco, Egypt, the UAE, Saudi Arabia and Qatar. The proceeds from these instruments are destined to finance either the preservation of natural resources, renewable energy projects, or green buildings and technologies.
According to a recent study by the consultancy Strategy&, developing the right structure and mechanisms for green finance will help to unlock a huge opportunity for the MENA region, including $2 trillion in economic growth and more than one million jobs by 2030. If structured correctly, it can accelerate the region’s goals of economic diversification and attracting foreign investment. Over the past decade, investments in low-cost hydrocarbons have declined by about 40% due to increased ESG scrutiny. To counter that, the Gulf Cooperation Council (GCC) will have to capitalise on its new competitive advantage – extremely low-cost renewable resources which are 2.5 to 3 times cheaper in the region compared to global averages.
Romania
Horia Iliescu, Director, Bucharest
Romania is still lagging when it comes to energy efficiency or carbon reductions compared to the UK or other EU countries. Carbon neutrality has not yet become a hot topic in Romania in the press, politics or even among the main investors.
At the EU summit held in Brussels in December 2020, our president committed that Romania will reach the targets for NZC by 2050, but there is still a lot to do and we haven’t seen any legislation to encourage this so far. There are no real actions or targets set yet, but the Government is working on a strategy that would set the scene for the following years.
Our expectation is that the big change in the way we build or the way we maintain our buildings will be driven by legislation and fiscal advantages for those who comply.
Developers that originally were attracted by Green Rating Certification are slowly becoming interested in carbon neutrality. It is expected that the growth seen with tools such as LEED or BREEAM will be replicated in the coming years with regards to zero carbon.
One of our main local clients, Portland Trust is set to start a new development in Bucharest by the end of this year, which will be the first one to incorporate NZC principles in Romania. They have always been leaders in sustainable developments in our country and now we believe that together we will push this forward into the construction market.
Spain
Jose Castilla, Sustainability Consultancy Director, Madrid
Although the noise around pursuing carbon neutrality has increased in Spain in recent weeks, there is no indication on how this is likely to be achieved. Recently, on 21 May 2021, the government approved and published the ‘Global Warming and Green Energy Transition Act’ that will set the basis on how the country will tackle the challenges towards achieving carbon neutrality in 2050. The Act itself doesn’t contain much in relation to things like concrete measures, actions and targets that may lead the market in a certain direction. It seems that more specific pieces of regulation would still have to be issued focussing specifically on what each sector must do to follow the path set in this act.
Spain has traditionally been late when applying EU directives, particularly those involving energy efficiency and carbon emission reduction. It seems that this time is no different.
We do not know how the Green Building Revolution will be achieved in the Spanish industry, however we do know that it will not be driven by the Public Sector or by any sort of regulatory changes.
The growing demand for investment in sustainability has been in place for some time and is starting to filter down the production line. Developers as far back as 2008 that originally were attracted to sustainability by means of a Green Rating Certification are slowly becoming interested in carbon neutrality. It is expected that the growth seen with tools such as LEED or BREEAM will be replicated in the coming years with regards to zero carbon.
