New technical guidelines have been released for accounting and reporting real estate’s greenhouse gas emissions.
PCAF (Partnership for Carbon Accounting Financials), CRREM (Carbon Risk Real Estate Monitor) and GRESB (Global Real Estate Sustainability Benchmark) have collaborated to release harmonized technical guidance for the financial industry on Accounting and Reporting of GHG emissions from Real Estate Operations.
The new technical guidance for banks, investors and asset managers is intend to serve as a best practice document with additional specifications to PCAF’s Global GHG Accounting and Reporting Standard for the Financial Industry on a range of technical, data and standards issues relating to operational GHG emissions from real estate.
The guidance sets out recommendations for accounting procedures for both investors and banks, direct and indirect investments, equity and debt, full ownership and joint partnerships, under a variety of consolidation approaches.
Clarifications and key recommendations included in this paper include clear definitions for GHG emissions from real estate and differentiation of various categories, including a review of operational carbon versus embodied carbon in the real estate sector.
It also includes clarification on emissions scope delineation and attribution for various financial actors and boundaries between tenant and landlord emissions.
The document can be accessed here.
Lendlease Global Commercial REIT has announced that it is the first Singapore real estate investment trust to achieve net zero.
L-REIT said the target was achieved "through various carbon reduction strategies including energy efficiency initiatives and reducing energy consumption within its Singapore assets". The REIT cut its electricity consumption by 12%.
Kelvin Chow, CEO of LREIT’s manager, said: “As the first S-REIT to attain net zero carbon status, we are poised to make strides in our decarbonisation journey to achieve absolute zero carbon by 2040. Besides adopting energy efficiency measures, we are actively exploring new ways to reduce our energy consumption.”
LREIT also said it expected to meet its sustainability performance targets under its S$960 million ($688 million) of sustainability-linked loans and S$216 million of sustainability-linked derivatives, triggering reduced interest payments.
The REIT owns S$3.6 billion of real estate and its portfolio comprises a Singapore mall, a Singapore mixed use office and retail asset (pictured above) and a three-building office complex in Milan.
The demands of investors and regulations are pushing commercial real estate lenders into ESG disclosures, a new survey found.
The US-based CRE Finance Council (CREFC), an industry association which represents the $5.1 trillion commercial real estate finance industry, has released its 2022 ESG Survey, regarding members’ sentiment on ESG issues in commercial real estate finance.
Client demand (cited by 58% of respondents) and present or future regulatory pressure (42%) were the two external factors cited by lenders for their ESG disclosure and reporting frameworks.
However, the survey found that, while 55% of industry participants have an ESG framework in place, more than half of those (55%), report that they do not use the ESG disclosure frameworks promoted by policymakers, primarily the Task Force on Climate-Related Financial Disclosures (TCFD). Only 20% overall used TCFD as the basis for disclosure (see above).
“While the CRE industry anticipates increased regulatory oversight of ESG investments and offerings, the lack of standardisation for compliance and disclosure requirements across different sectors, subsectors, and industries creates challenges,” said Sairah Burki, managing director, regulatory affairs & sustainability, CREFC.
The majority (67%) of market participants view property-level data as the most important information when making an investment decision. Tenant data (34%) is also gaining significance, followed by sponsor ESG policies (33%).
New World Development has issued a dual tranche of US dollar green and social bonds, which it claims is a world first.
The Hong Kong-listed developer has raised $200 million from the social bond, which pays a coupon of 5.875% and $500 million from the green bond, with a coupon of 6.15%, both issued under its sustainable finance framework.
New World also said it was the first non-financial corporation in Asia to issue social bonds, where the proceeds must be used for projects with positive social outcomes. The developer has stakeholder wellness and advancing community development as two of the four pillars of its sustainability strategy.
Edward Lau, chief financial officer, said: "We are delighted to be the first corporate in the world to issue a USD-denominated social and green dual tranche offering in the public bond markets. The growth of social bonds is reflecting a diversification of sustainability objectives financed by investors.
"Corporations and financial institutions will become more active in the social bond market as the pandemic accelerates private issuers' interest in social considerations. And, while the recent surge may have been precipitated by Covid-19, the appeal of social bonds as a sustainable finance instrument may endure long after its effects have subsided."
Asia Pacific hotels are lagging the rest of the world when it comes to sustainability, however investors are keen to improve its performance, a JLL report claims.
Following the signing of the Glasgow Climate Pact and by agreeing to the Paris Rulebook by COP26 in November 2021, the sustainable Hospitality Alliance reported that hotels in the world need to reduce carbon emissions by 66% per room by 2030 and by 90% per room by 2050. The hotels sector is also the biggest consumer of energy and water among all real estate sectors, JLL said.
Asia Pacific hotels perform worse than their counterparts in the US and Europe, partially due to the need for more air conditioning in many markets and also due to the higher proportion of full service hotels.
A JLL survey of 168 owners and operators of Asia Pacific hotels found that 75% of investors considered ESG factors are important when deploying capital in the region. However only 25% had tapped sustainability-linked finance for their assets.
Owners and operators were more focused on improving operational ESG performance and more sustainable construction, rather than retrofitting improvements to existing assets, the survey found.
“The hotel industry in Asia Pacific does lag other regions when benchmarked on sustainability factors and practices. However, we do see opportunities for new developments built by local high net worth individuals and local corporates and developers to tap global investors for green funding options,” said Nihat Ercan, senior managing director and head of investment sales, Asia Pacific at JLL Hotels & Hospitality Group.
The report said investors and operators in Asia Pacific found it difficult to secure cheaper sustainability-linked finance, which could help towards retrofitting existing hotels to make them net-zero.
The main challenges cited by investors and operators were lack of consistent data, lack of in-house expertise and the related difficulty of determining the key performance indicators against which to measure success.
A Hong Kong real estate investment trust has secured a second sustainability-linked loan from Bank of China.
Sunlight REIT’s HK$800 million ($100 million) loan follows an earlier HK$500 million loan from Bank of China (Hong Kong). More than 60% of the REIT’s borrowings are now sustainability-linked finance.
This SLL, which is an unsecured loan facility and has a tenure of four years, allows Sunlight REIT interest margin reductions based on achieving environmental sustainability performance targets: reduction in energy consumption and indoor air quality certifications. The proceeds of the loan will be used for refinancing and general working capital.
Frasers Property said its Australian business had secured a A$600 million ($432 million), five-year sustainability-linked term loan and revolving credit facility, the unit's fourth sustainable financing.
Frasers Property Australia’s loan consists of a A$300 million term loan to refinance a maturing loan and a A$300 million revolving credit facility for general corporate purposes under the sustainable finance framework.
The loan has a price reduction structure with interest cost savings from second year onwards if Frasers Property Australia maintains a minimum four-star Global Real Estate Sustainability Benchmark (GRESB) rating.
Singapore-based Frasers has secured S$8 billion ($5.84 billion) of green and sustainability-linked lending since 2018, it said.
ESR has secured a new sustainability-linked loan, its fourth in six months.
The Asia Pacific real estate investment manager has raised S$300 million ($218 million) from a group of Asian banks led by Unite Overseas Bank (UOB). The facility can be enlarged to S$500 million.
The five-year unsecured, committed corporate facility has the same tiered incentive mechanism as ESR’s inaugural $1 billion sustainability-linked loan and the ¥28 billion ($220 million) loan which closed in November 2021 and January 2022, respectively. ESR will be entitled to a reduction of interest rate (currently at Singapore Overnight Rate Average + 1.65%) as it achieves various sustainability targets.
The proceeds will be used to fund the group’s refinancing of existing borrowings, working capital requirements and for general corporate purposes.
Jeffrey Perlman, chairman of ESR, said: “We are committed to leading the industry and investing and operating responsibly by incorporating ESG factors into all aspects of our operations.
“To further such effort, ESR aims to officially become a signatory of the United Nations-supported Principles for Responsible Investment – over the coming months. We remain deeply focused on accelerating our ESG commitments to seek to achieve positive social and environmental impact while creating sustainable values for our stakeholders.”
Aviva Investors has hit its target for real estate sustainable transition loans three years early.
The UK investment manager had committed to £1 billion of sustainable real estate lending by 2025 but has now breached this target with a £227 million loan to Romulus, a London-based investment and development company.
Gregor Bamert, head of real estate debt at Aviva Investors, said: “It is great to have a long-standing borrower client help us reach our £1 billion origination target. When we created the Sustainable Transition Loans Framework, this figure seemed both challenging and substantial, however the reaction and engagement from borrowers has been astounding and we look forward to setting ourselves some even more challenging targets in the next phase of the programme.”
Aviva has extended a ten-year, fixed-rate loan to Romulus, secured against a number of assets located across central London. The full value of the loan will be subject to sustainability-linked KPIs, with more favourable borrowing rates available upon Romulus achieving measurable environmental improvements in the loan portfolio’s assets.
QuadReal Property Group has closed a $2.5 billion credit facility with sustainability-linked performance targets, transitioning an existing facility.
The 3 year senior unsecured credit facility was provided by a consortium of Canadian and international banks, with Bank of Nova Scotia, and Bank of Montreal as co-lead arrangers. It incorporates two sustainability-linked performance targets related to reductions in greenhouse gas intensity and energy usage.
QuadReal CFO Tamara Lawson said, “We’re very pleased to have transitioned our credit facilities into an SLL facility as it reflects the continued growth and evolution of our sustainable financing program. We are able to advance these initiatives because of a demonstrated track work to invest in innovative solutions to reduce our environmental footprint.”
Lawson added, “I thank my colleagues for their day-to-day commitment to reduce our carbon footprint and to support our tenants and residents with tools to achieve their own initiatives. Our clients and colleagues expect nothing but a full out effort to do so.”
