Real Estate funding and ESG: New report warns real estate projects with poor ESG credentials will find it more difficult to access finance
A new report from Aeon Investments, the London based credit-focused investment company, predicts the gulf between the financing available to real estate projects at either end of the ESG scale is set to rapidly widen. It says those projects with poor ESG credentials will increasingly face issues accessing finance, resulting in limited options and punitive borrowing terms in the medium term.
The report, entitled ESG in ‘Commercial Real Estate Lending’ says lenders are now at the stage of being able to make the shift to rewarding exemplary projects with better terms, rather than just penalising those that clearly don’t follow sustainability principles. However, it says the real estate lending industry needs to do more by placing a greater focus on outcomes beyond performance where the returns to society, the owner, lender, client and the end investor are all considered equally important.
Ben Churchill – chief operating officer Aeon Investments – said: “The lending industry is gradually shifting towards rewarding a ‘green premium’ when financing ESG-led real estate projects. To date, with insufficient evidence to support ESG assets outperforming the rest of the market, the lending industry has largely erred towards imposing stricter borrowing terms on those projects which clearly display limited ESG benefits, rather than rewarding those that do with better lending terms. This ‘brown discount’ approach is now changing with many lenders actively embedding the Loan Market Association’s (LMA) Green and Sustainability-linked Lending Principles in their lending policies, and some taking this further to develop specific green products, enabling them to directly offer better financing options to borrowers whose assets meet ESG principles – a ‘green premium’.”
