How green finance bridges the gap between ESG policy and construction practice
If we needed any proof that climate change has shifted to the centre of financial sector strategy, we need look no further than the rise and rise of green or sustainable finance as a capital source. ESG (environment, social and governance) is now mainstream across global property, investment, insurance and corporate strategy, and climate change adaptation and mitigation is one of the main areas where ambition is being matched by action.
We see this as the result of climate change having direct impacts on nations and communities – heatwaves, wildfires, catastrophic flooding, sea level rise and more frequent and more intense storm events have been causing damage, loss of life and hardship in many countries around the world.
Green and sustainable finance makes action to address climate change a priority by providing the necessary financial resources for achieving sustainability outcomes to businesses, developers, asset owners and public bodies such as local governments.
It ensures results are achieved by having clear definitions of the types of activities that can be funded. For example, the Hong Kong Construction Industry Council (CIC) commissioned Cundall to help develop a Sustainable Finance Certification Scheme (SFCS). This scheme gives developers, builders and other industry participants clear guidance on the types of finance available and what kind of evidence an applicant will need to provide to obtain it. The scheme also defines what types of finance are available for 10 different categories of activity, project or asset.
The categories include:
- Renewable energy
- Energy efficiency
- Pollution prevention and control
- Environmentally sustainable management of living natural resources and land use
- Terrestrial and aquatic biodiversity conservation
- Clean transportation
- Sustainable water and wastewater management
- Climate change adaptation
- Eco-efficient and / circular economy adapted products, production technologies and processes
- Green building
The types of financial instruments that will be most beneficial for an applicant do depend on the nature of the end use.
Green loans for example are suited to green buildings, development of renewable energy assets, clean transport infrastructure and for some cases, such as a product manufacturer, circular economy product development. They are generally obtained by the party responsible for making a development or initiative happen, much like green bonds or climate bonds are often obtained by a party such as a municipal authority, or a not-for-profit agency or a government to fund a tangible program of works or a program with high social value outcomes and specific, measurable and time-bound goals to achieve them.
Sustainability-linked loans (SLL) are often obtained by applicants who hold a portfolio of existing assets they plan to upgrade, for example through deep energy efficiency retrofit or electrification with renewable energy procurement.
