Home Initial ‘green’ loan secured under new Sustainable Finance Framework

September 14, 2023

Initial ‘green’ loan secured under new Sustainable Finance Framework

In a milestone for the business, Cromwell Property Group transitioned to our first ever green loan in July, as part of the rollout of our new Sustainable Finance Framework. Developed in consultation with the Commonwealth Bank of Australia and French-based multinational financial services company Societe Generale, this framework will see Cromwell apply best practices in energy efficient real estate and sustainability to our portfolio – and support the transition to a more sustainable economy more broadly.

What is a ‘green’ loan?

According to the Climate Bonds Initiative, an international organisation working to mobilise global capital for climate action, green loans are defined as any type of loan instrument used to finance or re-finance projects, assets, and activities with environmental benefits.

Green loans are based on ‘use of proceeds’, with borrowing proceeds transparently earmarked for eligible ‘green’ assets1. It is global best practice for green loans to be arranged in line with the Green Loan Principles, the Climate Bonds Standard (to the extent of available criteria), as well as several country specific guidelines.

The Climate Bonds Initiative anticipates that green loan markets are poised for growth in the coming decade, as lenders and borrowers cooperate and leverage market development to support local economies to transition to become net zero and climate resilient.

It’s better being green

The inaugural transaction under Cromwell’s new Sustainable Finance Framework involved transitioning the existing $130 million bilateral loan on the Cromwell Riverpark Trust – with Commonwealth Bank of Australia – to a green loan certified by the Climate Bonds Initiative. The debt facility for the Cromwell Riverpark Trust was extended for a further two years, with all other terms remaining the same.

Obtaining this type of loan requires issuers, like Cromwell, to embed transformative steps, not incremental improvements, for rapid decarbonisation across all three scopes of their footprint.

Lara Young – Group Head of ESG, Cromwell Property Group

Cromwell’s Group Head of ESG, Lara Young, said a huge team effort, and considerable work, went into securing this type of loan for the Cromwell Riverpark Trust, which is underpinned by Energex House in Brisbane.

“The Climate Bonds Low Carbon Buildings Criteria was designed with an ambition of a zero-carbon future in 2050. Obtaining this type of loan requires issuers, like Cromwell, to embed transformative steps, not incremental improvements, for rapid decarbonisation. Only the top 15% most emissions-efficient buildings in a city can qualify for green loans certified by the Climate Bonds Initiative⁽¹⁾” said Ms. Young.

“Energex House is an industry leading Green Star 6 star, and 6-star NABERS Energy rated, building. By extending the term of the facility for a further two years under a green loan, we will continue to improve its sustainability performance.”

Framework to safeguard the future

Cromwell has developed its Sustainable Finance Framework to support, and provide transparency to, our commitment to fund low-carbon, sustainable, efficient, and resilient buildings that meet our ESG ambitions, as well as those ambitions of our people, our tenants, and our suppliers.

Moving forward, the framework will further optimise the Group’s borrowing practices through the use of sustainable debt instruments, including green bonds and loans – like those outlined above – as well as sustainability linked bonds and loans. A copy of the document is available on the Cromwell Property Group website.

Lara Young explained that Cromwell would continue to refine its Sustainable Finance Framework over the next few years, in line with the evolving sustainable finance market and the latest legislation, standards and best practices.

“By leveraging green or sustainability linked debt, Cromwell Property Group can move significantly closer to meeting our current and future ESG responsibilities, including a Cromwell portfolio Net Zero Scope 1 and 2 target for 2035, and Net Zero across all 3 scopes by 2045.”

Initial-green-article-1

The new framework was developed following in-depth consultation with issuers and financial institutions to ensure that a best practice methodology could be deployed. The Commonwealth Bank of Australia and Societe Generale acted as sustainability coordinators throughout the development process.

Commonwealth Bank of Australia General Manager Corporate Finance and ESG, Jane Thomson, said sustainable finance was a rapidly growing market.

“We have partnered with many high-profile clients through their first sustainable finance transactions, and we’re thrilled to support Cromwell to develop a framework that reflects their business objectives and sustainability strategy,” Ms. Thomson said,

“One of our priorities is to play a leading role in supporting Australia’s transition to a modern, resilient, and sustainable economy, and key to that is supporting high quality green buildings in the commercial property sector.

There are enormous benefits for an organisation in accessing the vibrant sustainable finance markets and we are pleased to have supported Cromwell’s inaugural green loan under the new framework for the Energex House asset.”

Tessa Dann, Head of Sustainable Finance for Australia & New Zealand at Societe Generale, said: “as a global bank with strong focus on supporting the transition to a more sustainable economy, we are pleased to have worked as a sustainability coordinator for Cromwell Property Group to develop a Sustainable Finance Framework with a global perspective that reflects Cromwell’s presence across 14 countries.”

“The Sustainable Finance Framework adds another dimension to Cromwell’s sustainability strategy by enabling all Cromwell funds and related entities to utilise the Framework by aligning debt funding needs with sustainability outcomes.”

Benefitting our investors

As outlined in the ‘ESG and Investment Strategy’ white paper by Cromwell’s Research Team, ESG and financial performance are inherently interlinked. The report demonstrated that investments which maximise positive ESG outcomes also maximise long-term performance given their contribution towards ensuring stable, well-functioning and well-governed social, environmental, and economic systems.

There is no trade-off between ESG and financial return, the report found – they go hand-in-hand. That is why it is prudent that investors seeking to protect, create, and grow long-term performance ensure that ESG is central to investment strategy decisions.

Strong ESG credentials attract high calibre tenants, helping to safeguard stability of income.

Strong ESG credentials attract high calibre tenants, helping to safeguard stability of income. For example, the Australian Government has minimum energy performance standards for all government office buildings. Australian Government tenants are only allowed to occupy office building spaces that have a 4.5 stars NABERS Energy, or equivalent, level of energy efficiency.

State governments around Australia similarly have strict energy requirements for the spaces they occupy. For Cromwell, given the large volume of government tenants we cater for, ensuring that we nvest in ESG is critical to ensuring ongoing long- term government leases.

Accountability: delivering on what we promise

Cromwell formalised an overarching ESG Strategy in early 2023, the process for developing which was one of consultation and collaboration, and we have sought to achieve a globally harmonised approach.

The new ESG Strategy includes targets that are crucial to our future, including decarbonising our business toward net zero and setting new baselines for areas such as energy consumption, waste management, and carbon in each of our operating regions. We have also developed region-specific targets to ensure we are addressing local concerns, such as the development and registration of an Australian Reconciliation Action Plan, with further progress and meaningful reflection occurring constantly.

As a capital light fund manager that focuses on the acquisition and uplift of existing buildings, we have a lower carbon footprint compared to organisations focused on new developments as our embodied carbon is largely limited to maintenance and refurbishment. That said, even Cromwell still strives to ensure embodied emissions are addressed. During our buildings’ lifecycles, we aim to act as responsible stewards – we generally acquire existing buildings, identify and implement the most relevant opportunities to improve their environmental efficiency and ensure they are performing well, before divestment.

In FY23, we developed a comprehensive Scope 1-3 emissions baseline and Marginal Abatement Cost Curves across all regions to understand where our major emissions sources lie in our value chain, and determine and prioritise locally appropriate and cost-effective emissions reduction activities.

We have now developed an ambitious Net Zero Strategy that encompasses our Scope 3 emissions, including our tenants’ emissions and embodied carbon, and we are excited to share updates on our progress.

_Footnotes

^{1. Green Loans Australia & New Zealand, 2020 (Climate Bonds Initiative)}

Explore our Sustainable Finance Framework

Read the full Sustainable Finance Framework and find out more.

Learn