The science behind green lending

There is a commonly cited metric in the commercial property market that buildings make up about 40 percent of global carbon emissions. A key question facing lenders and borrowers over the next decade is how to zero that number out, says Breana Wheeler, director of US operations at Building Research Establishment. BRE manages the national development and delivery of BREEAM, the world’s first certification program for sustainable building performance.

BRE, which oversees the BREEAM standards assessing, rating and certifying sustainable performance of commercial and residential properties throughout their entire lifecycle, sees transparent, standardized data on properties as critical to lenders which are now developing sustainable finance  platforms. These lenders will be in the turnkey position to finance the conversion of existing properties or the construction of new assets, Wheeler adds.

“The numbers are staggering when you think about how much investment will be needed for the capital projects to transition buildings,” Wheeler says. “We need lenders who will be able to assess this information and provide financing to get us to this place. Lenders have a very important role to play in this transition and it is in their interest to benchmark what they are doing as part of good risk management and for the long-term health of their portfolios.”

Sustainable finance has long been a part of the firm’s mission. “We have been closely monitoring the development of the EU taxonomy [around green lending] and we are finding that European regulations are setting the bar [for the US],” Wheeler says. “Even as the Securities and Exchange Commission sets its own regulations, investors who want European capital will have to understand and comply with the data requirements.”

The impact of the built enviornment is widely known, with buildings making up 40 percent of carbon dioxide generated annual. Building operations make up 30 percent of emissions, according to Architecture 2030. Moreover, about 75 percent of global greenhouse gas emissions come from the urban built enviornment.

Using science

From its outset more than 30 years ago, BREEAM’s focus has been on applying science to sustainability and working with stakeholders to help stave off climate change. This mission, however, has shifted as the impact of climate change has intensified.

40%
Amount of CO2 generated from
the built environment

30%

Impact of building operations on carbon dioxide emissions, with construction making up another 10%

Source: Architecture 2030

“Over time, our understanding of the impact of climate change has increased and the scale of the challenges has risen. Our standard was built around carbon emissions and how to avoid them but over the past five years, the impact has arrived faster than we anticipated,” Wheeler says. “We have had to pivot around avoiding climate change but also to adapt to manage what is already occurring. One question we ask is, ‘How do we measure this and provide a way for building owners to understand performance and have actionable information to improve it?’”

Transparency around data and science has always been key, with BREEAM working to provide independent ratings. “The market then provides the value around those ratings,” Wheeler adds. “Our view is that the transparency is what really matters. Investors are concerned about what they’re being told and the accuracy of the data that underpins it. Our solution is to provide transparency by offering data verification and other aspects to provide confidence.”

Part of the learning curve is tracking and interpreting data in a standardized format. “In the financial world, we are used to having set methodologies of gathering data and expectation of how to track this. These norms are still evolving in the sustainability world,” Wheeler says. “Without standards, it is not clear if what organizations are reporting is comparable, which makes it difficult to understand risk.”