Sustainability Financing: What is It and How Can You Benefit from it?

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Sustainability Financing

The Australian Government is requesting feedback on the proposed Sustainable Finance Strategy, and for this, the Commonwealth Treasury issued a “Sustainable Finance Strategy” consultation paper on 2 November 2023. 

Australian Government has already released many standards and schemes such as NatHERS, BASIX, NABERS, and more to build energy-efficient buildings in the country.  

The proposed Sustainable Finance Strategy further outlines the potential regulatory changes that could affect all Australian investment markets to help the country achieve the net zero goal. 

The consultation period for seeking feedback on this strategy will end on 1 December 2023. After seeking stakeholder feedback, the Government plans to introduce a roadmap to implement the Sustainable Finance Strategy and implement it in 2024. 

This article covers sustainable finance strategy, its benefits, and the reforms required to implement it in Australia. 

What is the Sustainable Finance Strategy?

Sustainable finance for real estate is the use of financial instruments to finance or refinance builsing development projects that have a positive environmental or social impact. This can include projects that:

  • Reduce greenhouse gas emissions
  • Improve energy efficiency
  • Conserve water
  • Create affordable housing
  • Revitalise neighbourhoods

These sustainability targets can be achieved through the NatHERS Assessment, BASIX certificate, NABERS rating, etc.  

What are the Benefits of Sustainable Financing?

Sustainable finance for green projects can offer a plethora of benefits to Australian real estate developers, encompassing both tangible and intangible advantages. 

These benefits can be categorised into three main areas: financial, environmental, and reputational.

Financial Benefits

  • Access to Capital: Sustainable finance instruments, such as green bonds and sustainability-linked loans, provide developers with access to a growing pool of capital specifically earmarked for environmentally friendly projects. This can open up new financing opportunities and lower the cost of capital when you attach BASIX, NABERS or NatHERS certification
  • Improved Risk Management: Sustainable projects often have a lower risk profile due to their resilience against climate change impacts and growing demand for environmentally conscious buildings. This can lead to reduced insurance costs and enhanced investor confidence.
  • Enhanced Property Values: Green buildings tend to command higher rental rates and resale values compared to traditional buildings. This is driven by tenant preferences for energy-efficient and environmentally responsible NatHERS or NABERS-certified spaces.   

Environmental Benefits

  • Reduced Environmental Footprint: Sustainable projects are designed to minimise their environmental impact, leading to lower greenhouse gas emissions, water consumption, and waste generation. This contributes to Australia’s overall sustainability goals and reduces the industry’s environmental footprint.
  • Improved Resource Efficiency: Green buildings incorporate energy-efficient technologies, water conservation measures, and sustainable materials, leading to lower operating costs and resource utilisation. This translates into long-term savings for developers and tenants.
  • Enhanced Livability and Well-being: Sustainable buildings such as NatHERS-certified buildings promote occupant well-being by providing a healthier, more comfortable, and environmentally friendly living environment. This can attract tenants and enhance the overall appeal of the property.    

Reputational Benefits

  • Enhanced Brand Image: Embracing sustainable practices can significantly improve a developer’s brand reputation, positioning them as a leader in environmental responsibility and social consciousness. This can attract investors, tenants, and partners who share similar values.
  • Competitive Advantage: In an increasingly ecologically conscious market, sustainability credentials can give developers a competitive edge, differentiating them from their peers and attracting environmentally conscious buyers and tenants.
  • Social License to Operate: Demonstrating commitment to sustainability through NatHERS assessment can enhance a developer’s social license to operate, fostering positive relationships with communities and stakeholders, leading to smoother project approvals and reduced social risks.               

What are the examples of sustainable finance for real estate in Australia?

There are a number of examples of sustainable finance being used for real estate projects in Australia. These include:

Green bonds

Green bonds are a type of bond that is used to finance building projects that have a positive environmental impact. Australia was one of the first countries in the world to issue a green bond, and the country has since become a major player in the green bond market.

Sustainability-linked loans (SLLs)

SLLs are a type of loan where the interest rate is linked to the borrower’s sustainability performance. This incentivises borrowers to improve their sustainability performance.

Energy efficiency loans

Energy efficiency loans are a type of loan that is used to finance projects that improve the energy efficiency of buildings. This can include a NatHERS Certificate

Concluding Words

Sustainable financing is vital in promoting the transition to a carbon-neutral and sustainable society. 

Supporting developers prioritising resource efficiency and healthy ecosystems and promoting the circular economy will help reduce waste generation, promote recycling and reuse, and protect the ecosystem. 

In addition to sustainable financing, you can also obtain the NatHERS Certificate to indicate the energy efficiency score and performance of your building. Adopting these approaches can make Australia a sustainable and environmentally friendly country. 

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