Image from Sharvain Projects

As more and more investors realise, it’s good to have a nice clean, green loan in your portfolio, paying healthy returns while keeping shareholders and the public happy. 

But if that loan is funding a project that would have gone ahead in the same timeframe and with the same sustainable outcomes whether the loan was labelled “green” or not, how much benefit are shareholders and the community really getting?

Last week Commonwealth Bank announced it would lend Charter Hall $202 million towards the construction of its new Australian Post headquarters in Melbourne, in what was believed to be Australia’s first-ever Climate Bond Initiative (CBI) certified “green development loan.”

The building itself is targeting a 6-star Green Star rating and 5-star NABERS Energy rating and planning for a carbon-neutral construction. 

It’s a great example of the country’s largest bank continuing to take a lead on sustainability and keeping pace with the growing global green finance movement. 

But unlike past Sustainability Linked Loans (SLL) CBA has been involved with, the terms of this development loan aren’t actually linked to the green outcomes of the project, with no incentives built in either to encourage more green buildings or discourage lowering standards.

Real estate giant ISPT commits to $2.8 billion sustainability linked loan

“This particular loan is not structured any differently than how we would otherwise structure a loan for a commercial office development,” CBA’s managing director, real estate and future cities, Michael Thorpe told The Fifth Estate.

“The difference here is that this particular office development has a particularly low carbon intensity, and we’ve gone and had that verified by a third party.” 

So while the loan is technically green, in itself it is actually no different to the numerous other loans CBA has given for new commercial office developments over the years.

While it’s clear what the bank gets out of the deal — positive press and a $200 million richer sustainable lending portfolio —  not so much Charter Hall which have been far quieter about the loan than CBA. 

Perhaps the more interesting aspect of the deal is the involvement of CBI in verifying the project prior to construction, apparently at the behest of CBA. 

CBI is an international not for profit, that among other things, runs a certification scheme for loans and bonds, based on science and aimed at aligning with Paris Agreement net zero targets.

Widely considered the “gold standard” of green certification, CBI has around $50 billion of certified debt in the building sector — although in Australia the idea of certifying a building prior to construction is very fresh. 

CBI senior advisor and country manager for Australia, Haran Siva explained that by CBI’s verification standards, buildings must be in the top 15 per cent of stock in terms of emissions performance and align with, or surpass a trajectory of net zero by 2050. 

Verification is conducted by third party assessors such as EY, PwC and others, before being handed back to CBI for the final word. 

No need for CBA to wait for construction to wrap up to get a green stamp certification on their loan. But will this ultimately mean a better deal for developers that go green on new projects? Siva thinks so. 

“It’s hard to see that pricing benefit in something that’s at an early stage of the product. In some ways you need more competition. You need all the other banks offering these green development loans and then you’re going to get a competitive tension to drive pricing,” he said. 

Competition already exists for banks, under considerable shareholder pressure, to increase the amount of sustainable debt they hold, as Mr Thorpe explained.

“With all the capital that’s pursuing low carbon intensive industries and opportunities…there’s a lot of competition for loans like these. They are very competitively sought,” he said. 

Perhaps it was a case of CBA getting ahead of the game by seeking verification itself.

CBA’s new Property Sustainability Upgrade Loan

At the start of this month, CBA launched a new Property Sustainability Upgrade Loan, offering zero fees for eligible businesses to increase their Commercial Property Investment Loan by up to 20 per cent to complete sustainability upgrades that achieve a NABERS rating improvement or reduce the property’s carbon emissions.

NABERS’ head of market development Magali Wardle said the organisations had worked together to design an offer that, “incentivises building upgrades that will result in real and measurable sustainability outcomes.”

CBA also has a Green Home Loan program, offering a fixed rate of 0.99 per cent a year on loans between $5000 and $20,000 for sustainable upgrades such as solar panels, batteries and electric hot water systems. 

The offer is only available to Commbank customers with an existing home loan balance of over $150,000.

Clearly finance will play a major role in Australia’s decarbonisation so it’s great to see a leader in the field stepping up to its responsibility — if still with plenty of caveats. Banks will be banks after all.

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