Lenders can make an environmental impact

The sector must shift toward a more sustainable future, say the fund managers at Brunswick Real Estate, Aksel Lundquist and Annina Salakka, and together borrowers and lenders can drive progress.

Aksel Lundquist

Climate change is an acute topic now, as it becomes ever clearer that mankind has overused the world’s finite resources and may have caused irreparable damage to the ecosystem. According to research by the International Energy Agency, the buildings and construction sectors combined are responsible for 36 percent of global energy consumption and nearly 40 percent of total direct and indirect CO2 emissions. Cooling, in particular, is an energy-intensive area accounting for 10 percent of the world’s energy consumption, and according to the IEA, global energy demand from air conditioners alone is expected to triple by 2050, which will require new electricity capacity equivalent to the combined capacity of the US, the EU and Japan today.

Regulations and energy standards are being implemented at varying speed across jurisdictions. Despite this being a pressing concern, it may take a significant amount of time before more stringent energy standards are implemented on a global level. As private enterprises, we have the ability to start making a change and contributing immediately, while we wait for these regulations to be implemented.

The benefits of working actively with sustainability are expected to grow over time. Tenants, investors and lenders are all highlighting sustainability as a major area of concern and are implementing new standards ahead of regulation.

In Sweden, we are seeing the percentage of green financing continue to grow. However, the levels remain low in relation to the total loan stock. To illustrate, as of Q2 2019, green bonds and green loans accounted for just 6 percent and 5 percent, respectively, for the 26 listed real estate companies in Sweden.

For owners, sustainability can, in some cases, have a direct correlation with shareholder returns as well as underlying asset values. Investors are also putting more pressure on managers and companies to ensure buildings are sustainable and resilient in the long term.

Making an impact

Annina Salakka

Lenders are often perceived as more passive than borrowers and sponsors, but by having a stringent investment process they can select which deals to finance, and as significant capital providers make a real impact to driving sustainability in the sector.

In Q1 2019, Brunswick’s debt fund provided an SKr1.6 billion ($170 million; €150 million) green loan to Fabege AB, a leader in Sweden with 77 percent of their financing being green as of Q2 2019. This was the first green loan for the fund as well as the first green bilateral loan to be provided by a debt fund in Sweden. Our approach to green financing focuses on two main themes: loans backed by certified green buildings, and loans back by buildings that are being transformed toward being greener.

One of the most effective ways of making an impact is when property owners and lenders work together. Multiple green loan frameworks focus on the already existing environmental attributes of a property instead of considering what environmental upgrades can be made during the loan term. The key to making an impact lies in the ways we can improve the existing real estate stock together with the borrowers and sponsors.

During the summer, Brunswick’s Green Loan Framework was reviewed by a third party, and it is now possible for the fund to provide green as well as greening loans based on this framework. This new approach to green financing, together with the Green Loan Framework, enables us to be at the forefront of driving these initiatives in the sector. It is a process that will take time, but by having a long-term commitment and working together with borrowers, lenders can make a positive environmental impact.