Recap of our webinar – Beyond profit: Aligning banking and real estate with sustainability

On June 6th, CFP Green Buildings hosted a webinar diving into the worldwide best sustainability practices in banking and real estate operations. Around 250 professionals from over 15 countries and more than 100 financial institutions joined to gain valuable insights. Distinguished speakers from well-known banks shed their light on topics such as green bonds, net zero targets and risk reduction. In this article, we present a concise summary addressing the highlights of the webinar.

Do you want to see more? Watch our 2.5-minute video recap here. 

Moving the real estate sector towards sustainability

The urgency to integrate sustainable practices into banking and real estate has never been more crucial. Webinar host and CFP founder Bram Adema stressed that there are just two types of tools that have been proven successful in retrofitting the build environment. The first are big institutions like banks, who have the means and network to move the sector and the second can be found in internet platforms that engage billions of people to join the transition. The Green Buildings Tool of CFP is an example of such a powerful online tool, which furthermore combines forces with the banking sector, creating a realm of new opportunities. In the hour that followed, David Willock, Grant Cairns and James Riley shared their experiences and thoughts regarding the largest challenges, smart solutions and difficult dilemmas.

Sustainability versus profitability?

One of the key dilemmas when integrating sustainability into banking and real estate operations is finding the balance between sustainability and profitability. The experts agreed that collaboration is required to create a sustainable built environment. Whereas profitability was a leading decisive factor a few years ago, we’re nowadays beyond that. The business case for sustainable improvements is often indisputable, which connects people and creates new opportunities.

David Willock, managing director of ESG Finance & Structuring at Lloyds Banking Group, highlighted that finance and sustainability are not mutually exclusive, but should be treated similarly and maybe even coherently. David always tries to connect people and create new sustainable opportunities. This motivation made him want to even better understand the field of practice, and therefore he started studying with planners and engineers. David just finished his master in Sustainable Finance at Cambridge, enabling him to understand practice even better and to bridge gaps between the banking sector and building owners. In line with this broadened lens, David had Lloyds Banking Group starting to use the CFP Green Buildings Tool because it enabled them to engage all types of clients.

Nowadays, not only financial aspects are driving the choice for sustainable improvements. The physical consequences of climate change such as changes in precipitation, rising sea levels and an increase in the intensity of weather events become more and more prevalent. In Australia, these consequences are having considerable impact. Grant Cairns – head of the Business Lending team at Commonwealth Bank of Australia – explained that these clearly visible effects also impact the vision of the Commonwealth bank, which is now defined as to provide a brighter future for all, where the ecosystem is thriving. Sustainability and profitability have to co-exist and already do so in a certain way, according to Grant. 

Best practices for scaling sustainability

Whereas there are countless initiatives, guidelines, and institutions that are stimulating sustainable improvements in real estate, the big question is which ones are scalable. Where do we find future-proof initiatives that can really make the difference? The experts at the virtual table shared their insights from practice.

UK based David Willock stressed that it is not so much the level of expertise in sustainability that facilitates progress. His experience learns that approachable methods are able to meet actors in all steps of the process: from just starting to create a more sustainable building, to implementing smart solutions to realize that last 10%. For this, it is however crucial that scalability of the methods is guaranteed.

Lloyds Banking Group first started with a green lending initiative that supported 10 to 20 clients that were most ready to start implementing sustainable improvements. They partnered with CFP to pivot it the other way around: from working with the best in class to providing solutions for all. The Green Buildings Tool enabled them to connect with all kind of building owners to provide sustainable solutions: from coffee shop owners to the largest real estate owners. Because the tool is able to engage clients regardless of readiness, it has proven very successful.

“We made the CFP Green Buildings Tool freely available for everybody and this really helped meeting our clients where they’re at. One of our metrics is client engagement and these tools definitely make us achieve that.”

– David Willock, Lloyds Banking Group

For Grant Cairns, developing scalable solutions for the clients of the Commonwealth Bank is the main focus. In 2021, the retail bank launched an upgrade loan for home owners, to upgrade their property with solar panels and electric vehicle charging stations. Because of their reliable return on investment, the loan was very attractive. David: “We wanted to provide the opportunity to our real estate clients to have access to a similar sort of property upgrade loan. Late 2021 we launched this, essentially enabling property owners to invest in upgrades to their buildings.”

In Australia, the small and medium enterprises in particular are in need of easy-to-use tools. To take their range of offered solutions to the next level, the Commonwealth Bank also partnered with CFP and now uses the Green Buildings Tool to enable clients to estimate the impact of certain sustainable improvements like solar panels beforehand. Solar panels in particular are very interesting for Australian buildings, because the potential of solar energy is enormous given the number of sunshine hours each month.

Collaboration is key

Grant Cairns also stressed the importance of the banks working together. The Lloyds Bank and the Commonwealth Bank are for example already having conversations with each other, to exchange ideas and challenges. Rather than seeing each other as competitors, they try to collectively come up with solutions for the global challenges we’re facing. James Riley,  Director of Sustainable Capital Markets at ING Bank, also stressed that collaboration between banks is key to make real impact. The ING Bank is therefore increasingly teaming up with other banks to take the lead in the global real estate sector.

Green bonds: always a financial advantage?

Sometimes, people question whether issuing assets in a green bond is an advantage for the bank. James Riley explained that ultimately there is always an advantage. The demand for investing in green bonds is namely rapidly growing and therefore the price of green bonds increases. Riley: “In Europe, more than 50% of all funds are classified as so-called Article 8 or 9 funds, meaning that they’re incorporating elements of sustainability in their investment decisions. This really drives demand, and therefore we see the price increasing.” From experience at ING, James could tell that green bonds on average receive around five points extra, resulting in 500 million extra benefit. “No, we’re not talking about Mickey Mouse sums here indeed.”

“When you talk about a bank financing itself, we’re not talking Mickey Mouse sums here.”

– James Riley, ING

Knowing what is the right thing to do

Knowing what is the best thing to do from sustainability perspective is challenging for the clients of banks. The different types of certifications and rating systems don’t make it any easier.

Jasper Wong, head of Real Estate at UOB, recognizes this completely and explained that the different certification labels are obstructing the creation of viable pathways to net zero. Wong therefore strongly supports the idea of more alignment between countries and certifications, in order to take the next step and really take action.

David Willock recognizes the confusion caused by different standards in the UK. The complexity that comes along prevents building owners to implement sustainable practices, because they simply don’t know what is best to do. A solution here is to create collectively shared standards, as has been done in the UK in the field of social housing and construction. Clear standards are one of the accelerators for sustainable real estate.

In Australia, a well-functioning standard regarding energy efficiency of buildings is now moved from just office buildings to retail and wholesale as well. Using the same well-understood standard in different sectors can also take away confusion and the complexity of adjusting.

Regarding knowing what is best to do next or where to start, David Willock advises banks to start focusing on materiality. This area is most easy to engage stakeholders, and you need others to get things moving. “From there, start building coalitions internally. Make an effort to deeply understand all the different perspectives and start moving from there. It is very important to see it as a collective journey: you can’t do everything at once.”

Biggest bottlenecks for banks

In promoting sustainable finance and sustainability amongst clients, banks face different challenges. In the webinar, the speakers were asked about the biggest bottlenecks.

According to David Willock, one of the biggest bottlenecks can be found in the circle of blame that seems to exist in the real estate sector. “There are so many different actors that the question pops up who is responsible. The answer is probably everyone, but there is not one person to come and sort it all out. Instead, we all look at other stakeholders to resolve it.”

Another bottleneck that both David and Grant perceive in their country is capacity. A lack of capacity in teams, in financial means and in skills is crucial for implementation of sustainability plans. Whereas the tight labour market can delay the installation of a heat pump, a lack of bandwidth in teams causes scattered attention from the CFO who has to manage both financial and sustainable targets.

Financial capacity also is a highly relevant topic for Australian farmers, who substantially suffer from the physical consequences of climate change. Grant sees that on the one hand, the business case and return on investment should be really convincing given their sometimes unstable financial situation. However, on the other hand, because climate change is so clearly visible for these farmers, implementing sustainable solutions is and has been even more important.

All stories shared by the speakers showed that the role of the government is crucial. Not only because of the incentive that legislation creates for the ones that stay behind regarding sustainability. Also, and maybe more importantly: for real estate owners that are performing above the minimum, the government can play a role in aligning standards and providing a clear policy outlook. This would take away the uncertainty regarding what is best to do from a sustainability perspective.

The social dilemma of sustainable real estate

The webinar also touched upon some social and ethical aspects and the speakers were posed the following dilemma: what if affordability, sustainability, and profitability do not go hand in hand: what to do then?

According to James Riley from ING, we should differentiate between different type of building owners. Businesses or owners of commercial buildings on average have more financial means than home owners. From social perspective, it therefore makes more sense to compel commercial owners to retrofit their home, than to place an obligation on home owners.

Grant followed to share that at Commonwealth bank they are used to putting on the hat of all different actors, from the regulator to their customers and the involved communities when facing difficult decisions. “I agree with James that banks should not be the ones to force people, but we can create incentives.”

David zoomed out a little and clarified that detailed data and numbers are not always the best guideline. “Maybe when all data is put together, variable X seems the most profitable and brings the highest return on investment. However, variable X then appears to apply to the part of population that is the least able or willing to pay.” David used this example to show that not only financial numbers should guide sustainable policy. Social and ethical factors should be included as well.

Engage with the speakers 

Our speakers are enthusiastic about answering any additional questions you may have. We are also keen to explore how CFP Green Buildings can collaborate with you to support your sustainability goals in banking and real estate. Please feel free to contact us with any questions or for further discussion on how we can assist you in your sustainability journey.