[NEW YORK] Property-linked finance, a market that in the US is currently worth about US$18 billion, is being targeted for significant growth by groups looking to decarbonise commercial and residential real estate.
The Climate Bonds Initiative (CBI) and the Green Finance Institute (GFI) are launching the Global Property Linked Finance Initiative (GPLFI), they said on Tuesday (Sep 23).
The goal is to “scale property linked finance into a globally recognised asset class capable of unlocking billions in private capital for net zero and climate resilient buildings,” they said. That includes offering technical assistance and financial tools such as derisking options to help the asset class take off.
Property-linked finance, which exists in the US through Property Assessed Clean Energy programmes, is typically used to cover the cost of things like rooftop solar panels or better insulation. But instead of the loan being attached to the property owner, it’s attached directly to the property. Proponents argue it can support long-term, affordable finance and address the risk of owners selling a property before an investment has been recovered, for example through reduced utility bills.
It’s a model that CBI and GFI say has the potential to jumpstart the decarbonisation of the buildings sector, which the International Energy Agency says accounts for more than a third of global carbon emissions and energy consumption. Annual investments in buildings must more than double from 2022 levels to about US$574 billion by the end of the decade, in order to avoid the worst impacts of global warming, the IEA estimates.
Property-linked finance can tackle “one of the largest challenges” toward meeting net zero, Emma Harvey-Smith, managing director at GFI and co-chair of GPLFI, said in an interview. “We’ve got an urgent challenge and we need an urgent solution to address this.”
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Outside the US, property-linked finance also exists in Canada and Australia, albeit on a smaller scale. The initiative launched on Tuesday offers a roadmap to unifying existing markets and creating new platforms. That includes structuring property-linked finance so that it can be bundled and sold off to investors through securitisation. So far, the market has attracted interest from Nuveen Green Capital, an affiliate of TIAA subsidiary Nuveen, as well as Amalgamated Bank, Harvey-Smith said.
“There’s a real treasure trove of knowledge across these countries, but no shared understanding, and this means that the development timescales for property-linked finance markets can be in excess of five years,” she said. “We need to accelerate this.”
Lloyds Banking Group, Amalgamated Bank and the Institutional Investors Group on Climate Change are part of the new initiative’s advisory group. A public consultation on the initiative’s new principles was launched on Tuesday, and closes at the end of October. BLOOMBERG
