Supporting our new 2030 sustainability strategy, we’ve introduced three sustainable finance initiatives – our Sustainable Finance Framework, a £450m ESG Revolving Credit Facility and a new Transition Vehicle. These initiatives will help us push ourselves even further on our sustainability achievements while potentially enabling us to access lower costs of capital, moving faster towards a net zero carbon future.
Raising finance from the market
Bank and capital markets’ interest in sustainability has been growing in recent years, with more and more investors and lenders who want to achieve sustainable, as well as financial, returns from their capital. One way they look to achieve this is by providing funds to support sustainable projects and businesses.
Through our Sustainable Finance Framework, we’re taking a portfolio approach to sustainable finance, bringing together a collection of our most sustainable developments and buildings to create a Sustainable Portfolio. This allows us to demonstrate to lenders and investors that their capital has been, or will be, invested in financing our sustainable projects. This should help us access a wider variety of capital. And when you’ve got access to wider forms of capital, this tends to contribute to better pricing.
We’ve already got a good proportion of assets that have achieved BREEAM ratings sufficient to qualify for our Sustainable Finance Framework. This is a result of the consistent implementation of our Sustainability Brief for Developments, which has underpinned our activity for more than 15 years. This Brief has challenged our teams to achieve top certifications for sustainability performance on our significant development projects. The new Framework gives us an opportunity to gain greater recognition and benefit for the hard work we’ve already done and challenges us to improve sustainability performance further.
Through our recently completed £450m ESG Revolving Credit Facility, we’ve created a direct financial incentive for our business to operate even more sustainably. The facility includes an adjustment for the interest payable based on our annual performance relative to agreed sustainability KPI targets; if we outperform the targets, the interest payable reduces, and if we don’t hit the targets then the cost increases. The targets have been set at a challenging level and they increase each year to push us to keep improving.
The KPI targets agreed incentivise our business to further increase the coverage and improve the quality of sustainability certifications across our entire portfolio – setting the standard of BREEAM Excellent or above for developments and BREEAM In-Use Very Good or above for assets under management. High sustainability ratings are particularly challenging for assets under management, which may have older façades, plant and equipment, and sometimes restricted access to occupier energy and water data. Achieving certifications across these assets supports our leadership goal to improve our GRESB rating to 5* and will play a key role in highlighting improvement opportunities for our net zero carbon future.
Financing our transition to net zero
Our third initiative is an innovative Transition Vehicle that is financed using an internal carbon price per tonne of embodied emissions on our future developments. These ring-fenced funds will be used to finance our transition to net zero carbon operations by 2030.
This will include forward funding projects, such as plant replacement and energy efficient lighting, so they can be delivered sooner, and our stakeholders can start realising sustainability benefits earlier. We also expect the improvements to deliver operational cost savings to our customers.
The Vehicle is a great way of reserving capital for our property teams to improve environmental performance across our portfolio. It also demonstrates that we are listening and responding to what our customers want, which is even greater sustainability performance across their units, and faster replacement of older, less efficient plant to deliver that performance sooner, if it results in a reduction of carbon. This builds on a decade of energy reduction work across our portfolio, through which we have more than halved energy intensity versus 2009.
We will also use our Transition Vehicle to finance research and development into more sustainable ways of building, and materials innovation to further reduce embodied emissions, as we work to reduce these to 500kg CO2e per m2. It will be a robustly governed funding vehicle, with a formal process to identify the right projects to support.
Joined up approach
As we expand our joined-up approach to sustainability across our business, it’s clear that finance has an important role to play, both in improving the sustainability performance of our portfolio and in showcasing our achievements.
I’m excited to see the impacts of our sustainable finance initiatives over the coming years. As our sustainable portfolio grows, it would be great if we can increase the proportion of sustainable finance raised. That’s probably the way that the whole market will go eventually, and it’s good to be ahead of the curve!