Standards for green property bonds proposed by Climate Bonds Initiative

Buildings that rank in the top 15% in terms of carbon emissions qualify

A 16-member working group associated with the Climate Bonds Initiative, an NGO that promotes investment in green bonds, has proposed rules for judging which buildings qualify for financing by the securities.

According to the initiative, buildings that do qualify will be given official certification, called the Climate Bond Standard for Green Buildings (link).

Under the proposed rules, commercial buildings that rank in the top 15% of their markets in terms of low greenhouse gas emissions qualify, as do owners of commercial buildings who report on efforts to limit those emissions. An example would be a switch to LED lighting schemes.

Residential properties also qualify for green bond financing if they rank in the best 15% in terms of emissions. Home mortgages in the higher levels of current rating systems such as the UK’s “Code for Sustainable Homes Level 6” or Australia’s BASIX tool also are acceptable.

The public now has 30 days to comment on the proposed standards. Afterward, they will be submitted to the Climate Bond Standards Board, the overseer of green bond standards.The Board consists of investors from the US, Europe and Australia which have $22trn ($16.1trn) in assets between them.

“In the long run, we expect green property and urban development bonds to be more than 50% of the green bonds market,” said Sean Kidney, the Climate Bonds Initiative’s chief executive. “But this will depend on confidence among investors that the buildings are making a genuine contribution to the transition to a green economy we need to head off catastrophic climate change.”

According to the initiative, the key markets for green properties include New York, Toronto, Sydney and London, where there is a large pool of qualifying property.

The proposed rules follow the recent issuance of bonds to back green properties in France, Sweden and the USA. However, the body said that as there was “uncertainty” about which properties should be financed by green bonds, clarifying standards had to be developed. One example was the recent issuance of a $250m bond by US grocery store operator Regency which, in the Climate Bond Initiative’s view, is not financing “pure” green properties.