_Is green finance a deal breaker for investors?
Finance and investment have a key role to play in ensuring that our net zero ambitions are supported. As a result, green finance is becoming an essential aspect of investment strategies in real estate, driven by stricter ESG requirements and a growing demand for sustainable buildings.
To better understand these trends and the implications for investors, at 博鱼体育集团 Frank, shares her insights on green finance and its impact on the real estate sector.
The rise of green finance in real estate
Green finance, in its simplest form, refers to financial products and investments that support projects and initiatives with environmental benefits. In real estate, this often involves ensuring that properties meet sustainability criteria to access financing or investment opportunities. As Marina explains, the push towards green credentials is not just about complying with regulations, but also about future-proofing investments and buildings.
"For larger investors, meeting certain green credentials is essential when securing finance for both existing buildings and developments," says Marina. "When it comes to developments, the expectations are even higher, as you have more control over design and materials." This means that developers must be more proactive in incorporating energy-efficient technologies, sustainable materials, and low-carbon solutions into their projects.
Green building certifications like BREEAM and NABERS, are becoming standard requirements. "Investors now need to have proof of a building’s green credentials before making any investment decisions," Marina highlights, “it’s not just about ticking boxes; they represent tangible energy savings and lower operating costs, which make properties more attractive in the long term.”
Ultimately, creating a more sustainable building opens up interest rate advantages as lenders and investors may offer better pricing, i.e. tighter debt margins, for greener, more sustainable projects. This is due to the growing demand for ESG-aligned assets from financial institutions such as banks and funds, and institutional investors in general.
Green credentials: A deal breaker for investors
No longer an optional preference, green finance has become a deal breaker for many investors. Marina notes that the EU’s regulatory framework, particularly the EU Taxonomy, plays a significant role in this shift. These regulations define what constitutes an environmentally sustainable investment, and investors are increasingly looking for properties that align with these standards.
"European buyers in particular are very focused on meeting these criteria," she says. "If a building doesn’t meet the required standards, it will be instantly discounted." This focus on ESG compliance is driven by both regulatory pressures and the desire to future-proof investments. Without meeting these standards, a property risks being left out of the competitive pool of desirable real estate assets – investors will avoid assets that don’t meet ESG standards because they won't be able to secure funding or attract buyers.
Energy efficiency and carbon metrics: Key focus areas
Energy efficiency remains a top priority for investors, Marina explains: "The 'E' in ESG is particularly important because energy usage is easier to measure. EPC ratings, green certifications, and carbon metrics are all vital data points that investors use to assess a building’s environmental impact."
Energy performance provides a clear metric for investors to gauge the sustainability of a building. "Thanks to technology, it's becoming clearer how energy-efficient a building is, both from the landlord’s and the tenant’s perspective," Marina explains. This quantifiable data makes energy efficiency an easy sell for investors looking to assess the environmental performance of properties quickly.
Embodied carbon, the carbon emissions associated with the materials and construction processes used throughout a building’s lifecycle, is another key consideration. "If you're undertaking a refurbishment or a new build, it's important to understand the embodied carbon implications," Marina advises. This metric is gaining traction in the industry, particularly for developers focused on reducing the overall carbon impact of their projects.
Guiding clients through the green finance landscape
Marina explains how we work with clients to help navigate the complexities of green finance: "Education is the first step," she says. "A lot of clients aren't aware of the specific ESG requirements they need to meet, so we help them align with the right standards."
This process involves reviewing the building's ESG credentials, from EPC ratings to more specific carbon metrics, and ensuring that these align with investor requirements. "The next step is to make improvements where necessary," Marina explains. "If clients don’t meet the required standards, we work with them to improve energy efficiency or reduce carbon emissions." This helps clients avoid the risk of their property being devalued due to non-compliance with legal and market standards.
The future of green finance in real estate
Looking ahead, Marina believes that green finance will continue to play a pivotal role in shaping the future of the real estate sector. "We're seeing ESG-focused investment strategies becoming the norm. It’s no longer about just evaluating a building's capital expenditure or its future plans; it's essential to consider its sustainability credentials," she says.
This shift reflects a broader trend within the real estate market, where sustainability is becoming a core component of investment strategies. Investors now expect to see clear ESG metrics before making decisions, and those who fail to incorporate sustainability into their portfolios risk falling behind. This aligns with findings from our recent , which highlighted that investors are leveraging ESG strategies to create and preserve long term value.
Marina concludes, "The industry is moving towards a more sustainable future, and the demand for green finance is only going to increase. It's not just a trend; it's the future of real estate investing."
To find out more about our services, or to discuss the specific requirements for your next investment, contact our ESG Consulting team.