Alternative lenders, just like traditional banks, must deal with the ESG imperative, experts agreed at Real Asset Media’s Debt Finance & Investment Briefing, which took place recently in Frankfurt and online on the REALX.Global platform.
“ESG as a topic has come to the forefront for all investors and it’s even more important for institutional and alternative lenders,” said Nadja-Christin Hoppe, executive director, head of sales & corporate finance, Corestate Bank. “But there’s no regulatory framework yet, so interpretations differ.”
For most banks sustainability has become a priority, but approaches vary among alternative lenders.
“Sustainability is a topic for all, but in the market we see that for most credit funds returns are more important than ESG compliance at the moment,” said Kim Jana Hesse, head of capital partners, FAP Finance. “They will not reject a project on ESG grounds yet.”
Berlin Hyp, which pioneered the first ever Green Bond, has seen its approach bear fruit as investors’ interest has grown.
“Our bond issues have been very successful and our recent social bond was four times over-subscribed, which shows there is overwhelming interest not just in the environmental aspect but in the social aspect as well,” said Norbert Kellner, head of syndication, Berlin Hyp. “For us it’s not just important from a regulatory point of view, but from a risk analysis point of view, because we need to know what kind of asset we are financing.”
From a banking perspective, looking at the long-term life of the asset is a necessary mitigation of asset risk.
“We’re working to deliver green assets and we check the business plans of clients to rate the ESG credentials of the asset or project,” said Kellner. “Without certainty we don’t proceed.”
Half of assets could be ‘stranded’ by 2050 INREV research shows
INREV research shows that, if nothing is done, on current energy use and carbon intensity in less than ten years’ time a third of all assets in Europe will be stranded. In 2050 over 50% of assets will be stranded.
“Funds are under pressure to show what their pathway to net zero is,” said Irina Pylypchuk, director of research and market information, INREV. “We’ve launched a due diligence questionnaire and sustainability guidelines, but it’s very difficult to get to an alignment of standards”.
There is a definite shift towards repurposing assets rather than demolishing and re-building, which is driven by economic as well as environmental considerations.
“We are seeing increasing interest from both sides, developers and investors,” said Hoppe. “As circumstances are challenging, if you focus on repositioning you have a more manageable time period.”
Obsolescence is a risk, but the flip side of the coin is the opportunity and the incentive to improve existing assets to make them compliant.
“The positive side of stranded assets is that it opens the door to repurposing, especially now that construction costs are rising,” said Matthias Sandfort, group head of debt finance, Corestate Capital Advisors. “But in real estate lending it always come down to location. If the asset is in a good location, you will always find tenants.”