However, the most interesting aspect of the deal was that it was agreed through Lloyds Bank Commercial Banking Real Estate & Housing’s Green Lending Initiative.
Lloyds led a group of banks to provide a loan which stipulates that Bruntwood SciTech will secure a discount on its cost of borrowing if it achieves a BREEAM Excellent rating for the three new buildings being developed. The JV will also benefit from the loan element secured on the existing properties if it implements certain green initiatives across the portfolio and reduces the energy intensity of its portfolio by more than 10% over the lifetime of the loan.
This form of lending ‘with green strings’ is likely to become far more the norm as assets need to achieve the type of Environmental, Social and Governance (ESG) credentials that are required by major investors.
It’s not uncommon in property to equate ESG solely with the sustainable credentials of a building’s fabric, construction and management. While these largely address the ‘E’ in ESG, there is a much wider frame of reference represented by the ‘S’ and ‘G’. Certainly, there is a growing global movement to invest in assets that are evaluated by ESG performance.
In the US, there were $12trn of ESG-evaluated real estate assets under management by the end of 2018, and $30.7trn worldwide. According to US SIF – a forum for sustainable and responsible investing – this was a 34% increase on 2016 levels.
Institutions and REITS are under increasing pressure to disclose and manage ESG performance. The good news is that there is already evidence that engaging with ESG can produce improved risk-adjusted returns and increase access to a wider pool of investors.
The major UK developer who recently asked me ‘ESG – what does that stand for?’ shall remain nameless, but it seems likely that the UK commercial property sector is going to get very familiar with these initials very soon.