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Helping your clients fund sustainable building and development projects

The need to tackle climate change has never been stronger. 

Mike Cass Sep 14, 2021

Working to promote long-term sustainability and green policies within the building and property sector should be central to your clients’ property strategy and financing tactics in 2021.

The recent catastrophic rain and flooding in Germany, Belgium and the Netherlands and forest fires in Siberia and Turkey are symptomatic of our warming planet. And action is needed if we are to slow this rise in global temperatures and get in control of climate change.

So, what can you do to help your clients fund a sustainable and green approach to their next building or development project?

 

The need for environmental, social and governance (ESG) considerations

 

Carbon emissions are one of the biggest contributing factors to global warming. The built environment contributes around 40% of the UK’s total carbon footprint, including the use of energy in buildings and the building and repair of these structures. 

Tackling the way in which we build and maintain the UK’s houses, public buildings and commercial premises is long overdue. And it’s this imperative that’s driven the need for greater environmental, social and governance (ESG) considerations in the building sector.

 

But the scale of the problem is not small:

 

  • A large percentage of UK buildings and dwellings are over 50 years old 

  • These older buildings are not energy efficient and have a high carbon footprint

  • Many new building and development projects are not factoring ESG into planning

  • 'Greening’ a project can add to the cost and may reduce margins

  • Additional funding will be needed to meet the green credentials for a project  

 

Two key elements are needed for the UK to properly tackle the problem of high energy use and high carbon emissions within the building sector:

 

  1. The construction industry itself must get on board with the green agenda and make sweeping changes to the way it manages those ESG considerations.

  2. Green and sustainable finance must be made available, to allow developers and construction companies to fund the higher costs of greening their projects.

 

Supporting a more sustainable way of building

 

49% of people looking to buy property said green credentials had become more important, according to a Savills survey in August 2020. If the consumer and commercial markets now expect green credentials on a build as standard then real environment change is needed in the industry, as Michael Cass, ​​Head of Secured & Structured Finance at Capitalise, highlights:

 

"Over time, what consumers and businesses want from their buildings is going to change. And that means more questions being asked of developers. Is the house I’m buying an eco home built with sustainable materials? Is my new factory built in a floodplain? These changes in consumer behaviour and market forces are likely to drive lenders to incentivise green projects. 

As humans, we tend to only think five-to-ten years ahead, but the reality is that the buildings you create as a developer have a lasting life in the environment. You change habitats and environments and we have to think more about that impact and make sustainable decisions. I think the work being done by the The UK Green Building Council (UKGBC) is going a long way to helping builders and developers meet the standards needed for a sustainable build. 

For this green approach to succeed, greater access to green finance is an important and welcome innovation in the market for developers, property investors and construction companies.”

Expanding green and sustainable funding for building projects

 

The UK Government, with support from local government, is driving what it calls the ‘Green Finance Strategy’ (GFS). The GFS aims to align private sector financial flows with clean environmentally sustainable and resilient growth, supported by Government action, and strengthen the competitiveness of the UK financial sector.

 

There are three strategic pillars to the strategy that support these key objectives:

 

  1. Greening finance – which centres on ensuring climate and environmental factors are integrated into mainstream financial decision making.

  2. Financing green – where the focus is on accelerating finance for clean and resilient growth and improving access to finance for green investment.

  3. Capturing the opportunity – which aims to cement the UK’s position as a global leader for green finance and ensure the UK is at the forefront of green financial innovation, data and analytics.

 

ESG lending for building and development purposes

 

When you’re talking to clients about their property plans, the need for sustainability in the project has to be worked carefully into the conversation. But there is ESG lending available to help you provide the funds that will be needed for a truly green project.

 

These ESG loans generally fall into two categories:

 

  1. Sustainability linked loanssustainability-linked loans are any type of loan instrument and/or contingent facility that incentivises the borrower to achieve ambitious, predetermined objectives around the build’s sustainability performance.

  2. Green loansgreen loans are any type of loan instrument made available exclusively to finance or refinance new and/or existing eligible ‘green projects’

 

Exploring the benefits (and challenges) of ESG-linked loans is a key part of offering a property finance service, as Michael Cass explains:

 

"ESG-linked loans do help ensure that buildings will be eco-friendly and energy efficient, and that your development is doing its bit towards meeting the Paris Agreement and stopping global warming. 

 

There are schemes and incentivising structures that are being put in place with many providers to meet this need. These are likely to have covenants in place for meeting the right green standards. You might get a lower rate on your lending if you can meet these standards and do things in a sustainable manner. Plus some lenders have funds that are specifically for green projects, which is another avenue that’s worth exploring.

'Going green’ is quite a shrewd long-term strategy and these trends will only get stronger. That has to underpin everything when it comes to planning, budgeting and fitting out your developments.”

Talk to our property finance specialists

 

At Capitalise, our property finance specialists can help your clients explore the ESG-linked loan options and find the right green funding for your sustainable project

We can offer a range of different routes to property finance, including bridging finance, commercial investment finance, portfolio refinancing and development finance.

If you’d like to talk through how green property finance can be a key part of your practice’s Capital Advisory offering, please do get in touch for a chat.

 

Call us on 020 3696 9700 or email us at support@capitalise.com. 

 

Book in a consultation

 

For any press enquiries, please email paul@capitalise.com

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