Canada Infrastructure Bank (CIB) is aiming to foster trend and attract more private capital to the possibilities of low-carbon investment.
Green bonds have already proved to be a good fit for commercial real estate and, along with other emergent sustainable finance products, are expected to increasingly come into play as owners/managers pursue decarbonization and look to bolster the climate resiliency of their properties.
Beyond spurring reductions in greenhouse gas (GHG) emissions through the $2-billion building retrofits initiative, the Canada Infrastructure Bank (CIB) also aims to foster that trend and attract more private capital to the possibilities of low-carbon investment.
“Our primary mandate is to catalyze and help transform the market for building upgrades and decarbonization retrofits. We don’t intend, nor will we be allowed to stay in the market in perpetuity,” Aaron Berg, CIB’s director of energy efficiency investments, observed during a recent webinar sponsored by REALPAC.
“As we accelerate the volume of decarbonization and retrofits, we hope the broader awareness of the dynamics for doing retrofits increases, and that increased awareness and knowledge enables the market to function better. Then we will begin to exit the market in terms of our level of participation.”
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Also joining the conversation, two well-versed financiers charted the momentum of the labelled sustainable finance market and underscored its relatively strong performance in the current economic volatility.
Fanny Doucet, managing director and head of sustainable finance with Scotiabank, and Susan Thompson, director of ESG solutions with TD Securities, sketched out the two broad instruments available to investors and seekers of capital, both of which are tied to rigorous environmental and/or social criteria.
The most common of these is categorized as use-of-proceeds, in which funds raised through the instrument would be directed to specified types of eligible projects.
In a real estate application that could be green building development or acquisitions, energy efficiency upgrades or improvements related to climate change adaptation.
Sustainability-linked products are a newer arrival in the market, allowing for funds to be raised for general corporate purposes. However, borrowers are tied to a sustainability target with the loan rate or payout to investors adjusted upward if they fail to meet that target. For commercial real estate, those targets might be tied to energy performance or reductions in GHG emissions.
“Broadly, the sustainable finance market in Canada has been about $50 billion of issuance annually so it is quite a large market,” Doucet reported. “The use-of-proceeds part of that — whether it’s bonds or loans or other instruments — makes up a large portion of that market, about 80 per cent of it.”
