2024 Green Finance Report for Sustainable Real Estate

Introduction

Did you know buildings account for around 25% of all issued green bonds? Our Green Real Estate Financing Market Report 2024 offers key insights into the rapidly evolving sector of green real estate financing, highlighting trends, challenges, and opportunities beyond green bonds. The comprehensive report, conducted in fruitful collaboration with RMIT University and Australian Catholic University, offers valuable guidance for various stakeholders across the industry.

Key Findings

• From a Fragmented Landscape to Standardisation: Even though the green real estate landscape remains highly fragmented with several different green metrics, frameworks, and debt products, there is a clear trend towards greater standardization and global alignment. Efforts toward standardization are starting to create a more unified approach to green finance.
• Change of Policy Focus: The policy focus has been moving enormously, among other things, from the metrics of energy efficiency at the level of individual properties to total emissions that include embodied emissions from the construction. This has given a broader perspective on overall environmental impact and, therefore, provided a very complete assessment.
• From Low-Carbon to Carbon-Positive Targets: Deep green performance now seeks always to be better for the environment. New sustainability benchmarks are set in real estate with targets of deep green performance, evolving from carbon-low to carbon-positive ones.
• Climate Change Adaptation: Floods, hurricanes, and fires are increasing physical risks in the real estate sector due to climate change. Assessing such physical risks has crucial implications for financing, insurance, and asset values.
• From 'Greenium' to Brown Discounts: The debate on real estate has now shifted from "greenium" (the premium or additional cost that investors are willing to pay for green bonds or sustainable investments compared to traditional) to "brown discounts"—the financial penalties applied to unsustainable buildings. It now focuses on the advantages of green financing instruments, such as lowering default rates.
• Green Mortgages and Loans: Since green bonds are limited by investment size, scaling up green mortgages and loans is significant to real estate decarbonisation. Ireland is outstandingly fast in adopting green mortgages.
• Standardisation and Data Availability: This is recognised as one of the most essential steps in upscaling green mortgages and loans. This would also foster the development of green residential securitisation backed by the asset-level information that green mortgages would create.
• Sovereign Green Bonds: The sovereign green bonds issued by AAA-rated sovereign countries might, in turn, encourage more significant investments in the green finance markets, particularly those that are designed for state-owned property. These AAA-rated sovereign green bonds are likely to draw massive foreign investment and spur the development of green finance markets.
• Green Residential Securitization: Bundling small projects together in bankable green finance products can release the private capital needed to decarbonise the residential stock. Therefore, transition finance is crucial in renovating buildings to achieve net-zero carbon emissions by 2050.

Insights into Action 

Our report sheds insight on the industry for practitioners who want to navigate through the labyrinth of green finance:

1. Collaboration: Form collaborations with stakeholders across the financial value chain—banks, investors, policymakers, and industry associations—to share best practices and cooperate on initiatives to jointly raise industry standards in green finance.
2. Adapt to Regulatory Changes: Monitor changes in the regulatory environment and adapt your business practice accordingly. Understanding new regulations and compliance gives businesses an edge over others in green finance.
3. Leverage Financial Instruments: Use green financial instruments like green bonds, loans, and mortgages to support initiatives around sustainability. These instruments will provide a stable source of capital for commitments to projects with clear intentions of changing the environment.
4. Proper Assessment of Environmental Risks: Proper evaluation of environmental risks, including climate change, and working out the risks involved is required. This can further maintain asset values and long-term financial soundness.

Conclusion 

The Green Real Estate Financing Market Report 2024 is an essential resource for anyone involved in real estate and finance. This comprehensive guide maps out the current landscape and anticipates future trends, providing a clear pathway for integrating sustainability into financial practices. We encourage you to explore our report's full findings and insights and join us in the journey towards a more sustainable and profitable real estate market.