Advice and Opinion

Green building ratings play a key role in attracting investment and funding

The benefits of green building alone make good business sense – they’re good for the environment, their owners, their neighbours, the people that work in them and bottom lines. But now green building is helping to attract investment and funding to all kinds of businesses, especially listed property companies like REITs (Real Estate Investment Trusts), as more and more capital owners place a high priority on responsible investment.

Sustainability is a major consideration for investors and funders, especially with the growing support for the United Nations Principles for Responsible Investment (PRI). These principles create a holistic approach to risk and return for investors who need to allocate capital in a sustainable manner. In doing so, they actively consider the environmental, social and governance (ESG) issues within investment decision-making, ownership practices and asset allocation.

More and more institutional investors are asking for meaningful, measurable information about the ESG issues from the entities in which they invest. This is where green building benchmarks become a valuable tool for the measurement of environmental impact.

Brian Wilkinson, CEO of the Green Building Council South Africa (GBCSA), explains that green building ratings, like the Green Star SA rating, provide independent certification that buildings are designed, built and operated in an environmentally sustainable way. The ratings create standards and benchmarks which objectively measure how green a building is.

“Buildings are one of the main contributors to climate change. Green buildings use resources more efficiently. A green building rating is a reliable measurement of the extent to which a property owner is managing their environmental sustainability. This is important because environmental risks are also economic problems,” says Wilkinson.

For REITs, which are large commercial property owners, owning Green Star SA rated buildings telegraphs to investors a commitment to reducing the environmental impact of their properties and their business, showing environmental leadership.

“When it comes to attracting a flow of funds, this is important because green building supports environmental sustainability, and financial performance too,” says Wilkinson. “Green buildings in South Africa are proven to deliver better returns for their owners.”

Measuring and monitoring efficiency is a key component to green building, and this includes keeping track of, and minimising, emissions that impact climate change. Green buildings support their owners, and their occupants, with the information needed for best business practices, such as carbon disclosure.

Participation in best-practice initiatives like the CDP, referred to for disclosure about environmental risk mitigation by over 767 investment companies world-wide representing US$92 trillion in assets, requires accurate, meaningful emission data. Green rated buildings are a reliable source of much of this information.

Green building isn’t only a meaningful tool in attracting investment, but funding too. Green bond issues, to raise capital specifically used to fund green initiatives, are rapidly gaining momentum around the world. Earlier this year, the JSE listed its first green bond, issued by the city of Johannesburg to fund sustainable, green projects in the city.

“We’re expecting to see more and more green bond issues in South Africa. Where these are for the development of new commercial properties we anticipate Green Star SA building ratings will be a standard measure for reporting on the deployment on this capital,” says Wilkinson.