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The sustainable lending revolution in real estate finance

Sustainable Lending

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​The real estate industry is at a crossroads.

More and more companies are realising the importance of managing our planet’s resources. Real estate lenders have been notoriously slow to incorporate sustainable initiatives, but we are now witnessing a dramatic shift in attitudes towards sustainability. Lenders are exploring new opportunities to cut costs and help ensure we achieve a low carbon economy. Many different factors have created this shift and there are still much more lenders need to do to progress towards sustainability.

Among other factors, the Paris Agreement was one of the key drivers that prompted lenders to start reducing their carbon footprint. For the first time ever, the Paris Agreement ties the majority of the world’s nations to a framework of agreements regarding the lowering of greenhouse gas emissions. This commitment has spurred on lenders to look for ways to combat climate change, as well as to create strategies to help build a sustainable economy. Consumer demand has also played an important in role in this lending revolution. Many customers care about a company’s environmental footprint, so property lenders have been forced to get to grips with sustainability.

A number of banks are revolutionising sustainable real estate lending. Lloyds Bank, for example, launched their Green Lending initiative in March 2016 to support its clients’ sustainability investments and incentivise borrowers to uphold energy efficiency measures. This first-of-its-kind fund also aims to improve data flow and support growing investor demand. John Feeney, Global Head of Commercial Real Estate at Lloyds Bank, has said, “We hope, through taking leading action, others will join us and work together to maximise impact on this issue of generational importance.” Lloyds bank expects their fund for commercial property could ensure carbon savings equivalent to around 110,000 tonnes over the course of the four-year loan tenor.

Dutch bank ING has focused on helping its clients reduce energy costs. They have created a sustainability app to help borrowers quickly identify areas of improvement for their buildings. The tool enables clients to enter information about their buildings. The app scans the property and then reveals how investors can lower energy costs and reduce emissions. ING has also pioneered a new business loan offering, which uses sustainability ratings. ING works with sustainability agency, Eco Vadis to measure performance. With the new loan in place, ING track their client’s sustainability efforts and they adjust the interest rate based their performance. It’s quite simple: when the rating goes up, the interest rate goes down, and vice-versa. The system ultimately encourages people to manage their finances effectively and improve their sustainability.

Sustainability is becoming increasingly central to the real estate finance industry and its plans. A number of organisations are leading the way, having integrated new strategies into their businesses. Real estate lending innovation is extremely important for achieving a sustainable future. The time has come for real estate lenders to take action and accelerate change.

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