By Ciaran O’Leary, Head of Sustainability at i3PT
Money, money, money …… money makes the world go around. That’s an old saying, which is really applicable to the financial markets. Unfortunately for the sustainability sector, this wasn’t a saying which seemed to apply to them. But along came the ICMA and the Green Bond Principles and something changed in mainstream construction. Suddenly banks were issuing green bonds and green loans, institutions were buying them, and it seemed that there was a real push to make buildings sustainable and resilient.
The real issue was however that the ICMA Green Bond Principles were very aspirational and left for a lot of green washing. This was not the fault of the ICMA, they could cover only so much in 8 pages, and they are a financial body after all. Another body called the Climate Bond Initiative, set up by Irish-born Sean Kidney has also made significant inroads, but again this is hampered by its publications being non-binding. To do this correctly, it needed a state body, and along came the EU and the EU Taxonomy.
Running into several hundreds of pages so far, the Taxonomy details actual maximum values for things like scope 1 GHG emissions, or the amount of fertilizer allowable on agricultural land. Those activities which comply with the Taxonomy can be leveraged as green financial products, those which do not, can’t. And the EU is not finished. They will define more criteria next year, which will outline how many more sectors can be COP21 compliant or Paris proofed.
So how will we see things change in the construction sector?
This is a difficult question to answer. We all know that a central objective of the EU is to increase renovations and specifically energy retrofits. I believe that the Taxonomy as it currently stands will generate significant funds for this activity. The reason is, lending into energy retrofit projects has a relatively low bar in the Taxonomy and is a way to generate debt in order to issue Green Bonds.
Also, in the past it was easier for banks to generate debt for Green Bonds by lending into new projects. This is still possible but in order that a new project is compliant with the Taxonomy it needs to be for example NZEB, and it needs not to be on a green field site. The Taxonomy tries to rebalance the available opportunities for investing into retrofit versus new projects.
Has it succeeded? Only time will tell.
The appetite for Green Bonds cannot be overstated, and investors comfortable with the construction sector will want to stay in the construction sector. Another important factor is that investors genuinely not only want to make money, but also do good. Green Bonds are a lower risk investment as they tend to mitigate the biggest threat to our financial stability, that is climate change. With the Taxonomy, a clearer path for investors is there in order to make an actual difference.
The Taxonomy is the culmination of many years of work, and I’m sure those involved in its production will tell you it’s only a step in the journey. No doubt, it has issues i.e., it doesn’t really take embodied carbon into account, or that it’s not hugely ambitious in some sectors. But compared to its predecessor, the Taxonomy is a game-changer and will change everything in our industry in the coming years.
Heads up from the IGBC team: If you’d like to know more, visit IGBC learning hub to discover webinars, videos and reading material on green finance
in particular the Better Homes 2020 conference on Green Homes Green Finance . IGBC are also part of the EU H2020 SMARTER initiative for Green Homes and Green Mortgage connecting Home Performance Index certification to discounted mortgages.
Are you a developer? Home Building Finance Ireland has just launched Green Funding, a new green loan product offering a discount of up to 0.5% on loans for residential development using Home Performance. Further information here.
Ciaran O’Leary leads the i3PT Sustainability Department and endeavours to deliver tangible results that will have the highest impact in creating a sustainable construction process. He is a structural engineer, certified BREEAM AP and Passivhaus Consultant with over 20 years’ experience in the construction sector both in Ireland and internationally, and his portfolio includes multi-storey residential projects, data centres, and hotels. Ciaran acted as external expert for the European Commission and played a key role in upgrading the Greek government national construction codes in line with EU directive 2010/31/EU and EN15459. He also holds a master’s degree in structural engineering.
i3PT‘s mission is to ensure the delivery of improved quality in construction and culture on sites. i3PT Certification is the leading independent Assigned Certification firm operating in Ireland. The firm employs a multi-disciplinary team who have been trained to audit and certify buildings under their rigorous certification scheme.