Leading Lenders Driving Sustainability Through Innovation In Real Estate Finance

Written by David Short Chair @ BBP Commercial Real Estate

Timing is everything” — as we are reminded by Mission2020. This initiative was recently launched by former UN climate chief Christiana Figueres to drive home the message that bold action from government and business is needed to reach critical milestones in 2020 that will deliver a climate safe world with development gains for all. The campaign demonstrates that reducing global GHG emissions by 2020 is not only necessary, but also desirable and achievable. It sets out 6 milestones around the topics of energy, infrastructure, transport, land use, industry and finance. Commercial real estate finance has a crucial role to play in achieving at least 3 of them. So how are we doing?

Whilst real estate lenders may have been slower than the equity investors when it comes to incorporating sustainability into business strategy, we are now witnessing a marked change in the uptake and action from a number of leading lenders. To achieve the transition to a low carbon economy the world needs real estate finance innovation. For instance, mobile apps that highlight energy improvement opportunities across real estate portfolios and provide finance to fund them. Or cheaper financing products for demonstrably sustainable companies and buildings.

These ideas may sound like a treehugger’s dream, but in fact they are already a reality and based on solid business foundations. Let me explain.

I chair a working group for the Better Buildings Partnership that brings together leading banks and alternative lenders to facilitate collaboration and knowledge-sharing on sustainability for the real estate lending sector. Whilst our initial focus was on managing sustainability risks, we are now seeing great strides being made in addressing sustainability opportunities through innovation.

To disseminate progress so far and issue a call for action we have launched an industry insight paper “Beyond Risk Management: How sustainability is driving innovation in commercial real estate finance”. In it we examine the business drivers for lenders to integrate innovative sustainability strategies into their core business and highlight pioneering work being carried out by leading lenders through case studies from ABN AMRO, Hermes Investment Management, ING Bank, Lloyds Bank and TH Real Estate.

Photo Credit: Karsten Wurth

The case studies demonstrate that innovative action on sustainability within commercial real estate lending is not only good for the planet, but also the bottom line — driving new business, strengthening customer relationships and greatly improving the quantity and quality of information lenders hold about the buildings in which they have an interest. Furthermore, for many financial institutions that saw their brands damaged in the financial crisis, a focus on sustainability can help transform how they are perceived not only by customers, but also by investors and policymakers.

The time has now come for the commercial real estate lending sector to fulfil its potential when it comes to tackling climate change and promoting sustainable development. We need to accelerate the pace of change. To learn more you can read the industry insight paper here.

Oh … and if you are involved in real estate lending then #2020DontBeLate.