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Green Property definitions for the Climate Bond Standards out for comment. Involves market specific benchmarks, esp. useful for property portfolios in big cities, driving $150bn p.a. mkt

London: the Climate Bonds Green Property Working Group of international experts today published their proposed rules as to what buildings can be used to issue Certified Climate Bonds. Climate Bonds and Green Bonds are where the bond proceeds go to assets important to addressing climate change. The new rules will help investors better understand the low carbon integrity of green building investments. They are part of the Climate Bonds Standard, a FairTrade-like labelling scheme for bonds.

The rules require buildings for Climate Bonds to be in the top 15% of performers when it comes to emissions, or to achieve deep cuts in emissions when energy efficiency investments are made. Click for more details.

The International Energy Agency (IEA) warns that deep cuts in building emissions are needed to head off catastrophic climate change. The IEA’s modelling allocates some 40% to emissions avoided from reduced energy consumption; buildings are the largest consumers of energy worldwide and so the biggest contributors to emissions from energy.

The IEA says:Deep renovation of inefficient existing buildings is a crucial way to achieve a much more sustainable future […] about 1% of buildings are renovated each year, but the overwhelming majority of these renovations do not lead to deep energy-use reduction”.

Sean Kidney, CEO of the Climate Bonds Initiative, adds “If we’re going to avoid catastrophic climate change we need to make deep cuts in our emissions from buildings; these new rules help investors identify green bonds that make a difference from paler green bonds, where the ambition levels are too low to make a real contribution to tackling climate change.”

Tatiana Bosteels, Head of Responsible Property Investment, Hermes Real Estate and Chair of the Property Working Group of the Institutional Investor Group on Climate Change (IIGCC) says: “There is a huge opportunity to unlock the potential of energy efficiency in the built environment. But to do this effectively and at scale will require more confidence in the tools, standards and models available to measure green buildings and their financial performance”.

She added: “The Climate Bonds Standard for Green Buildings through its standardized measurement, reporting and verification procedure, provides investors with a more accurate understanding of the investment risks for energy efficient buildings - setting the stage for best practice in the market.”

Green property bonds have already been issued in France, Sweden and the USA. However, uncertainty remains about the level of energy efficiency that needs to be achieved to qualify a building as genuinely green.

Buildings that qualify under the Standard

The Climate Bond Standard for Green Buildings covers three different types of assets pools:

  1. Commercial buildings: Bonds can be issued against the whole value of a commercial building, or a portfolio of commercial buildings. The buildings must be in the top 15% in any one market, in terms of relative emissions performance. The “hurdle rate” ratchets down until 2050, when buildings are expected to be net zero carbon. Property portfolio owners planning to upgrade can also get certification as long as they report on improvements each year.

Green building ratings schemes will be used as proxies for eligibility wherever possible. For example, a LEED Certified building that achieves the 30% energy efficiency design goal relative to ASHRAE 90.1, as used in LEED v2009, would meet Climate Bonds Green Property criteria and be eligible for a certified climate bond. A similar situation applies with BREEAM building performance standards.

  1. Residential buildings: In the residential sector good building codes will be able to be used as proxys for the 15% hurdle rate. Home mortgages for buildings in the higher levels of current rating systems, such as the “Code for Sustainable Homes Level 6 in the UK”, Energy Commission Title 24 Building code in California and the BASIX tool in Australia, will qualify.   
  2. Upgrade finance: Building improvements that achieve emission reductions of 30- 50% from a baseline would comply, for example LED lighting schemes.

Sean Kidney, CEO of the Climate Bonds Initiative: “In the long run we expect green property and urban improvement bonds to be more than 50% of the green bonds market - which we expect to be worth $300 billion a year globally by 2018. But this will depend on confidence among investors that the buildings are making a genuine contribution to the transition to a green economy we need to head off catastrophic climate change.”

All widely used rating systems have prerequisites that require projects to break away from business-as-usual and go beyond code requirements for energy efficiency.  The Climate Bonds Standard seeks to prioritize emissions performance efficiency above other factors and recognize the top performers across major markets.   

Opportunities for Certified Climate Bond issuance

Key markets for roll out are major cities such as of New York, Paris, San Francisco, Tokyo, Melbourne and London where a large pool of property already sits in the top percentile and so will qualify and where emissions performance reporting for buildings is well established.

The Green Property criteria are now subject to a 30 day period of consultation - if you are interested, please comment on this page (see below) or at standards@climatebonds.net.  After 30 days, the criteria will be submitted to the Climate Bond Standards Board for confirmation.

A number of webinars will be help to explain the criteria. The next one is 1 July 2014 at 17:00 New York time. Email info(at)climatebonds.net for details.

International expert group reports to Investor-led Supervisory Board

Climate Bonds Standard Board members comprise representatives form CalSTRS, the (US) Investor Network on Climate Risk, the (EU) Institutional Investor Group on Climate Change, the (Australian) Investor Group on Climate Change, NRDC, CDP (formerly known as the Carbon Disclosure Project), and the State Treasurer of California, Bill Lockyer.

Members of the Green Property Technical Working Group are:

  • Che Wall, CEO 'Flux', former President World Green Building Council (primary author), Sydney
  • Oliver Rapf, Buildings Performance Institute, Brussels
  • Yamina Saheb, European Commission, Milan
  • Peter Sweatman, Climate Strategy & Partners, Madrid
  • Tatiana Bosteels, Hermes Real Estate, Brussels
  • Chris Pyke, U.S. Green Building Council, Washington DC
  • Maggie Comstock, U.S. Green Building Council, Washington DC
  • Bettina Redway, Deputy Treasurer, California State Treasurer’s Office, Sacramento
  • Brian Rice, California State Teachers Retirement System, Sacramento
  • Tooraj Arvajeh, Arup, New York
  • Jonathan Pressman, Markit, New York
  • Jacob Halcomb, Ecofys, Amsterdam
  • Asari Efiong, European Bank of Reconstruction and Development, London
  • Cath Bremmer, ANZ Bank, Sydney
  • Bart Adams, DNV-GL Environmental Services, Antwerp
  • Niall McCarthy, Investor Group on Climate Change & Eureka Funds Management, Sydney
  • Simon Brooker, Clean Energy Finance Corporation (Australia), Sydney

The work involved in development of Green Property eligibility criteria has been kindly funded by the Bank of America Foundation, the Sainsbury Family Charitable Trusts and Flux.