Investa Property Group: Managed funds targeting 100% green finance

Provide a short overview of the practice, process or product that is being proposed for the award, including a description of how it is an innovative approach to ESG incorporation and its coverage within your firm.

In 2017, Investa Commercial Property Fund (ICPF) was the first Australian property fund to issue a Climate Bonds Initiative (CBI) certified green bond. Since then, ICPF has continued its issuance of green debt, aligning its portfolio to CBI global certification criteria, which requires buildings to perform in the top 15% for carbon intensity in their cities. ICPF has now issued over $1.4 billion in green debt, representing 86% of its total funding.

ICPF’s stablemate, Investa Gateway Offices (IGO), has a $1.2 billion debt book that is entirely CBI certified.

Investa development assets are aligned with the Green Bond Principles. For example, green debt funding is in place for the Parkline Place commercial office development ($700 million) and the Indi Sydney City build-to-rent (BTR) development ($130 million).

As leaders in sustainable investment, Investa is targeting 100% green finance across its core managed funds by 2025, tying its buildings’ operational performance to low-carbon outcomes. This target reflects the strong environmental performance of Investa-managed assets and aligns with Investa’s Science Based Targets initiative (SBTi) net-zero Scope 1 and 2 emissions targets by 2025.

 

Describe why you decided to undertake this approach.

Investa first embarked on attracting green debt when there weren’t many eligible facilities that could meet the Green Bond Principles criteria. This requires the bond to: “…support issuers in financing environmentally sound and sustainable projects that foster a net-zero emissions economy and protect the environment.”

Investa’s decision to integrate the issuance of green debt across funds and developments recognised our high-performing green building portfolio and was initially undertaken as we mapped our net-zero pathway and SBTi carbon reduction targets. Alignment with the Climate Bonds Standard gave Investa third-party certification to demonstrate our green credentials and a strong framework against which to operate and develop our targets.

Our Green Bond Framework aligns our financing strategy of 100% green finance across our core managed funds by 2025, and enables banks to meet their ESG ambitions and green debt funding positions.

With the use of proceeds of green capital, Investa adopted a carbon reduction strategy (“Getting to Zero by 2040”) in 2018 and established the first SBTi carbon reduction target in the Australian property market. Further issuances of green debt aligned with our 2021 Transform Tomorrow strategy, bringing forward our net-zero Scope 1 and 2 emissions targets to 2025 and extending our definition of Scope 3 reductions.

Our emissions reduction targets and building performance operate well below CBI emissions thresholds, putting Investa in a strong position to borrow and access green capital in Australian and international markets at competitive margins.

 

Provide a practical example of how you have applied your approach to an investment (security/issuer/sector/asset class/portfolio).

Investa applies our green debt proceeds to low-carbon building projects that meet the commercial Low Carbon Buildings Criteria set out in the CBI’s standards. Buildings in the ICPF and IGO funds are required to operate with emissions intensities below the CBI emissions threshold for the tenure of the loan.

Our Green Bond Framework outlines that as assets are brought into the portfolios, they are required to be operating below the CBI emissions threshold, or have two years to meet this eligibility criteria.

The Investa net-zero pathway enables continued operational performance below the CBI benchmark through our four-step approach, which includes:

• managing highly energy-efficient buildings;
• investing in renewable energy procurement;
• decarbonising buildings through electrification; and
• offsetting any residual emissions until decarbonisation can be achieved.

For new investments, the ICFP and IGO funds mandate building of operational performance to contribute to the CBI operating profile. New investments through development target high green-building ratings, high energy efficiency, and high water ratings to enable new buildings coming into the portfolio to operate in line with use-of-proceeds requirements. Incorporating ESG factors into investment decision making has created ESG development guidelines and requirements in strategic asset plans.

Construction facility green finance use of proceeds requirements mandate SDG alignment and alignment with Green Loan Principles for green buildings, energy efficiency, renewable energy, pollution prevention control, and sustainable water and wastewater management. The Indi Sydney City green loan use of proceeds are aligned to:

• a 5-Star Green Star Design and As-Built rating target;
• a 30% BASIX energy score target;
• energy-efficient processes in new buildings, such as reducing the need for heating and cooling, LED and motion sensor lighting and high-performance lifts;
• on-site solar panels and renewable energy contracts in operation waste reduction technologies; and
• sustainable water and wastewater management solutions, including water reduction measures and water recycling measures – for example, greywater systems, rainwater collection, and/or stormwater drainage.

All proceeds of green loans receive pre-issuance assurance and annual assurance from a third-party certifier on meeting the relevant criteria, with the results disclosed annually in the Investa reporting suite.

 

Provide an example of the outcomes, outline the benefits and challenges associated with the introduction of this initiative, and state what you have learned from this approach that can be applied more broadly. How might you intend to develop the process or practice?

Investa’s ongoing industry leadership is a key benefit associated with our target of 100% green finance across our core managed funds. Green finance enhances access to capital for our funds as well as savings in borrowings. It also enables our capital partners to meet their ESG ambitions and demonstrate their carbon reduction achievements (through our reporting) and increase investment in the transition to a low-carbon economy.

Key challenges associated with green financing principles and standards occur as new asset classes develop. The financial and building certification criteria often does not develop at the same pace, creating challenges in reflecting different operating models, emissions profiles, and characteristics that enable access to green capital. These challenges have been experienced when financing the emerging build-to-rent market in Australia. Implementing our 100% green finance target across our managed funds, Investa sought a green construction facility to support our Indi Sydney City BTR development, aligned with the CBI. When applying the CBI criteria, where buildings operate in the top 15% efficiency in their sector, it was found that there were very few operating BTR developments in Australia to provide this comparison.

Another recognised CBI method is the Australian energy efficiency standard, NABERS, as an indicator for performance. NABERS recently developed a residential tool, but the tool was designed for the residential build-to-sell market, which is designed and operates quite differently to the BTR model. BTR assets have larger common areas, base building systems and embedded energy networks that power the whole building. In addition, the nature of a BTR’s amenity and curated services results in communal areas utilised more frequently, creating increased energy demand. As such, we were unable to use this second pathway to meet the CBI certification.

Investa Treasury and ESG teams worked with our capital partners to develop a green debt framework that still met the Green Loan Principles criteria and targeted other high-performing metrics, certifications and outcomes.

Investa is working with our Australian peers in the BTR market, and NABERS and CBI, to either enable a BTR category in the NABERS residential tool or a standalone NABERS BTR tool that demonstrates efficiency and meets the stringent CBI criteria. Investa personnel participate in the Green Building Council of Australia’s (GBCA) Advisory Committee and are working with the GBCA to formalise a CBI-recognised pathway associated with the Green Building Performance ratings for operations of all building types.

The benefits of applying 100% green finance across our managed funds include attracting more capital to ICPF and IGO as well as all new investments and standing assets aligning to the Paris Agreement and our ambitions for net zero.

Sustainable finance is a pillar in the Investa Transform Tomorrow strategy and the application to all our existing and emerging asset classes will enable Investa to reimagine the way we live and work, regenerate our built environment, and create a more resilient business for the future.