High emitters are recognising an opportunity to address their transition to a low carbon future, through the use of green, social, sustainable and sustainable-linked (GSSS) debt. The real estate sector is taking advantage of the opportunity.
CBRE groups signs a $3.5 billion credit facility based on terms linked to series of its sustainability goals.
The built environment has one of the highest carbon footprints, which will require heavy investment to adapt and mitigate future emissions to meet net-zero goals.
The real estate industry will remain among the major issuers of GSSS debt, driven by the need to accelerate their carbon-reduction efforts amid increasing regulatory and investor pressure.
Commercial real estate services firm CBRE’s new $3.5 billion credit facility highlights the real estate industry’s recognition of the popularity of GSSS debt with investors of all stripes. This is part of a growing corporate interest in accessing large flows of potentially lower cost capital.
Green financing requires CBRE to meet sustainability commitments
CBRE’s new 5-year, $3.5 billion credit facility comes with sustainability goals as covenants. These include an increase in procurement allocated to sustainable suppliers, the conversion of its North American vehicle fleet to electric vehicles, and increasing the number of its offices over 10,000 feet that achieve sustainability certificates.
The company has introduced a science-based target, looking to reduce emissions from a 2019 baseline. Emma Giamartino, Chief Financial and Investment Officer, said: “The new facility enhances our capacity and flexibility to invest in CBRE’s growth while advancing our environmental, social and governance goals, We appreciate this continued vote of confidence from our lenders in our people, platform and strategy.”
Buildings decarbonisation needs rapid and large investments
A building’s entire lifecycle is responsible for 37% of global emissions. The greatest contribution comes from its energy use, followed by the manufacture of construction materials, and the use of fossil fuels in buildings. Investments in the construction of new energy-efficient building takes up half of current investment in energy efficiency, while the other half goes to retrofit and energy efficient measures.
A combination of emissions reduction policies by the industry and stimulus-related government programmes have boosted investment levels to the $200 billion mark, with Europe helping drive an almost double-digit percentage increase. While the sector attracts some of the highest levels of energy efficiency investment it will likely require three times the current levels of investment by 2030, in order to achieve net zero emissions by 2050.
GSSS issuance directed most at buildings, most among heavy emitting sectors
The largest use of proceeds from green bonds, specifically climate bonds, in the US went to the buildings sector in 2021, exceeding that directed at energy and transport. Issuance by real estate investment trusts (REITs) has grown six-fold to $12 billion from 2018, after initially lagging other segments of the industry.
The initial impetus for the increase in bond issuance came from investors in commercial buildings interested in making their buildings more appealing. Proposed ESG disclosure requirements by the Securities and Exchange Commission, and physical risk from climate changes is likely to continue to drive green bond issuance in the near future, and might even raise the level of issuance, given the size of the problem.