Matters relating to decarbonisation, sustainability and the wider world of environmental, social and governance considerations (whether or not described using the sometimes controversial "ESG" label) remain popular and important. We routinely participate in groups organised by others in the industry or from the policy world, as the iterative dance to agree common definitions and standards and internalise longer-term risk factors into how transactions are analysed.
In late 2019 we formed a working group comprising only representatives from lending institutions to consider how we might usefully support the sustainability agenda from the CRE lending perspective. In this initial phase of its existence, the working group was co-chaired by Kate Drew (then at LGIM, now at Birchwood REC) and Vincent Nobel (Federated Hermes). An anonymised survey provides a snapshot of the state of green lending approaches across participating lenders in early 2021.
In May 2021, the group's first output was published - a climate-related due diligence guide for CRE lenders to help them evaluate CRE lending collateral from the sustainability perspective. The guide should support lender conversations with borrowers about asset-level climate resilience and climate impact, as well as sponsor management and governance of environmental and sustainability matters generally and in relation to the relevant collateral. Please feel free to download and use the guide, which is a PDF form that allows scores and notes to be entered, and give us your feedback.
In June 2021, the group was reconstituted with a broader ESG focus and a mandate to promote learning and development and the adoption of more objective approaches to ESG disclosures and data across the CRE finance market.
The group has a collaborative relationship with the LMA and Better Buildings Partnership, whose Sustainability for Lenders working group was an excellent group and resource in previous years - see for example its Insights paper, Beyond Risk Management. CREFC Europe also participates in the Green Property Alliance and other ESG related conversations with various industry bodies.
In late 2023 we collaborated with the BBP to ensure that lender perspectives are covered in the update of their acquisitions sustainability toolkit. It has now been launched and we encourage lenders to use it.
In late 2021, mindful of the need for real estate lenders to be informed about (and perhaps have some influence regarding) the development of science-based approaches to assessing carbon and energy performance of buildings and portfolios and indicators for risk management, reporting and disclosure, we were delighted to join the Global Scientific & Investor Committee (GSIC) of CRREM, a project seeking to develop tools that allow investors and property owners to assess the exposure of their assets to stranding risks based on energy and emission data and the analysis of regulatory requirements. As it gains ground among sophisticated real estate investors and aligns with other important initiatives ranging from TCFD and PCAF to GRESB, we hope to ensure that our community of European real estate lenders can make constructive use of a seat at this table.
In November 2023, we published a report on ESG and valuation for real estate lenders, following several months of drop-in meetings for interested member firm representatives and authored by Sam Carson at CBRE - read more, and access the report, here.
In late 2024, we are preparing to replace the ESG network with a new Sustainable Finance Forum, with clear member leadership and areas of focus. More to follow.
Contact Peter Cosmetatos for further information about our activities in this area.
