EUAs get a new name and go national – at last 
Photo by Adrien Olichon on Unsplash

Bank Australia has partnered with Sustainable Melbourne Fund to take the original environmental upgrade agreement (EUAs) program for buildings national. 

The new iteration of the fund has been named the Sustainable Australia Fund and will be headed by Scott Bocskay, who headed SMF.

Customer-owned Bank Australia has committed $200 million in financing for a whole range of environmental upgrades for businesses such as installing onsite renewables or high-performance windows.

“I think the time is right, we have the available capital, and we’re looking forward to working with businesses to unlock capital for these types of upgrades,” Mr Bocskay told The Fifth Estate.

A loan with a big difference

“It’s a unique form of finance that customers need to wrap their head around. 

“It’s a loan you don’t need to repay if you sell your building.”

Known as environmental upgrade finance, the fixed-rate, long-term loans of up to 20 years cover up to 100 per cent of the capital needed for energy efficiency upgrades. 

Critically, loans are repaid quarterly through council rates, meaning the chief financial beneficiary of the upgrade – the tenant – absorbs the cost of the upgrades rather than the landlord, solving the split incentive problem that’s often a barrier to these types of building upgrades.

The payback for tenants is savings on energy costs.

“It’s essentially taking money already being wasted on energy into upgrading their building.”

The road to national expansion

The innovative financing model started life as a revolving loan fund established by the City of Melbourne in 2002.

This led to the creation of Australia’s first Environmental Upgrade Agreement legislation in Victoria in 2010, which is necessary for repayments to be administered through local government rates. 

This legislation has been more-or-less replicated in South Australia and NSW, according to Mr Bocskay, with discussions underway in Tasmania and Western Australia. The fund will initially target these jurisdictions but is “happy to open up discussions” with other states and territories. 

The fund is prepped and ready

Since the legislation came in almost 10 years ago, the fund’s focus has been on “mobilising more and more capital” and educating the market about EUAs. And now, according to Mr Bocskay, it’s time for deployment. 

It’s been a long road to get to this point, and he said some reluctance is to be expected from customers when a third party is intervening in what is traditionally a two-party transaction. He says this is why a fair bit of time and energy has been spent simplifying the process of applying for a loan.

To put this into context, Mr Bosckay was involved with The Fifth Estate when it wrote its 100-page ebook on environmental upgrade agreements in 2013, which also covered a roundtable of industry and local government leaders to discuss how the program could work and what were the barriers and opportunities. 

Since then, the team has managed to condense this message onto a single page, he said.

“At the end of the day it’s just a loan that’s repaid through council rates. It’s about educating the marketplace and understanding how to use that tool.”

Shifting the focus to helping customers finance the upgrades they want rather than getting bogged down in the details has also helped build momentum.

“You never talk about the mortgage before you chose the home.”

Mr Bocskay said the fund finances a variety of projects, including the waste and water solutions and solar, with batteries becoming “increasingly attractive for a certain type of business.”

The loans are available to any type of business operating on non-residential property on rateable land, with the organisation focusing on agriculture, commercial office buildings, tourism and commercial and industrial properties. 

Financial markets are now more open to innovation 

It also helps that the national expansion is happening in a post-banking Royal Commission world where the main banks are lending to small to medium enterprises, and this form of capital is readily available. 

There’s also a general trend towards more innovative forms of financing in the market, which is also helping the financing model gain traction.

The City of Melbourne is divesting from the fund to allow it to scale up. Following finalisation of the recapitalisation agreement, the fund has now repaid $15.6 million to the city council.

The council’s support over the years has unlocked more than $30 million in environmental infrastructure upgrades for Victorian businesses and the abatement of more than 300,000 tonnes of greenhouse gas emissions.

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