Investa reaps the benefits of being a green frontrunner
Investa Property Group’s green-debt strategy has matured, bringing realised cost benefits, the A$500 million (US$330 million) milestone in green loans and the prospect of all future bank-debt refinancing coming in green format. The company’s Sydney-based general manager, corporate sustainability, Nina James, and head of corporate planning and treasury, Lisa Story, discuss the merits of the strategy and its execution.
Investa is in the fortunate position of having assets suited to use-of-proceeds green debt. The wider market, meanwhile, is evolving to facilitate sustainable-debt financing based on entity-level sustainability scoring. Why does use-of-proceeds still make most sense to Investa?
We have certified high-performing green buildings so we can hit the required targets and access green debt immediately. If an issuer is building a portfolio of assets to be developed, it is creating high-performing buildings and would go for the sustainability-linked product, which provides credit for progress towards the final state.
How much of Investa’s debt could be labelled green and is the company planning to make its whole programme green? If so, how quickly can this happen and how do you fund the assets that do not yet qualify?
It is more wait-and-see in capital markets because of varying levels of investor engagement and education in different markets. The Australian market has good demand for green product, but it can blow hot and cold. There is no guarantee it will be open when we need it.
It is unclear whether we could issue in green format if Australia were cold and we turned to the USPP [US private placement] market. Notwithstanding Sydney Airport’s recent sustainability-linked USPP deal, that market is still evolving in this space.
We are sensitive to price and want to get the best result for the funds we manage so we would need to assess our options. Our intention would be at least to explore a green bond for each transaction.
We want our debt not only to allow this but to enable it. This was critical in setting up the framework.
Many borrowers seem to be trying to identify assets that can be used for labelled transactions, whereas it sounds like Investa has the assets but is uncertain whether some capital markets want this kind of debt. Is that right?
We see ourselves as a leader in this space and it is incumbent upon us to educate the market so investors can understand the benefits of what we are doing. Then, when we do a transaction, they will have the education and this will help with the build.
It is difficult to imagine that an issuer would be penalised for a green-bond transaction, even in a market that is less engaged with the asset class. Why would the response be negative rather than, at worst, neutral?
I was at the USPP conference in Miami in January and the level of interest from investors varied. Two or three were very interested in our ESG credentials and we talked about green finance. Their understanding was good but many others were just listening.
Our sense is that USPP investors are starting to increase their ESG awareness. Does this match Investa’s experience?
To what extent are debt investors interested in Investa’s corporate sustainability strategy, given all its issuance is tied to specific assets? In theory, if securities are tied to performance, investors might not be concerned about the asset owner.
Sitting alongside this is GRESB [Global Real Estate Sustainability Benchmark] reporting and UN Principles for Responsible Investment reporting. Many investors also send us their own surveys, often related to the TCFD [Task Force on Climate-related Financial Disclosures]. Our intention is that there will be an ongoing annual note on our TCFD progress in our sustainability report.
Investa recently announced that it has surpassed A$500 million in labelled green loans. Is it now broadly accepted among banks that green facilities should be at a discount to vanilla lending?
It is a safer loan for banks than one to a company with an equivalent number of buildings but fewer green credentials and less-sticky tenants.
We hear that many big businesses now require high environmental standards when they move premises. Is this trend a big part of Investa’s business proposition?
But there are other drivers, too, such as the TCFD. This is yet to hit debt markets but it will come quickly, and it will be at scale when it does.
Equity investors are scrambling to address TCFD reporting requirements this year and they need to run various scenarios against their portfolios to assess the financial risks of climate change. It strikes me as logical that debt investors will soon be doing the same work, in which case there will be a heavy bias towards green debt because it is risk-mitigated. This is a logical evolution.
Would Investa have any interest in evolving its debt programme into sustainability format rather than remaining purely green?
We continue to lean towards this, rather than going broader with sustainability bonds, because it is more difficult to articulate the metrics for social targets. You can potentially dilute the message, which is the opposite of what we want to do.
If CBI came up with a verification that allowed us to go broader than our climate-change mitigation work, we would be open to that conversation. But it always comes back to the fact that we can move through the process of certification cleanly and efficiently because we have high-performing assets.
Governments that are doing social infrastructure projects are looking for ways to have a conversation with their investors, which makes a sustainability programme more suitable. Our building portfolio means the CBI certification is the best way.
Equity investors are scrambling to address TCFD reporting requirements this year and they need to run various scenarios against their portfolios to assess the financial risks of climate change. It strikes me as logical that debt investors will soon be doing the same work, in which case there will be a heavy bias towards green debt because it is risk-mitigated.
Investa has four bilateral green loans – with ANZ, Commonwealth Bank of Australia, HSBC and Westpac Banking Corporation. Why have you gone for bilateral rather than syndicated debt?
We see syndication as a step backwards because we would need to report to the facility agent, and get approvals and consents, to get things done. It is more restrictive.
How have you decided on lenders for green loans?
Aside from this, the decision on which bank comes down to balancing the book. We will look at pricing when we write a new facility and if there is a bank that wants to do a green loan, we will go with that one.
Every time we have an opportunity to borrow money, for example to fund an acquisition, we approach each of the banks. We are sensitive to both price and greenness.
What does Investa gain from being a market leader in this space?
It also made sense for us to move this forward into our debt profile. As an early mover we faced risks, but these were negligible – as was the cost of pursuing certification. I often hear organisations raise cost as a reason for not pursuing ESG funding, but I often wonder if this is a result of organisations not doing due diligence to understand what the costs are. They are not a big deal.
There was no pricing differential for green-debt products initially – it was not possible to join the dots and say there was a pricing benefit. But it was worth it for us regardless, and it has now been proven that we were right to take those steps.
The government is also interested in the roadmap. We were in Canberra late last year and met with departments working in this space. Progress is being made everywhere.
When might we next see Investa in debt capital markets?
We target WADE [weighted-average debt expiry] and a good way to ensure this is to look at debt capital markets for seven-, 10- and 12-year debt.
investing with impact Yearbook 2019
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