The Ethical Investor: Here’s where your money can support the sustainable building movement
Sustainable buildings are a critical frontier in addressing global carbon emissions. Here’s where you can invest in the movement.
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Sustainable buildings help reduce carbon emissions
Ethical investors can back sustainable buildings via green bonds and sustainability funds
Liz Harrison from Janus Henderson offers advice on investment options for ethical investors
Sustainable buildings are a critical frontier in addressing global carbon emissions as construction activities currently contribute a staggering 39% of global energy-related carbon emissions.
This figure breaks down roughly into 28% from the energy used for heating, cooling, and electricity, and another 11% from carbon emissions from building materials and construction processes.
In Australia, there's a pressing need to reduce emissions as the country tries to build more homes and apartments, all while aiming for zero emissions in construction.
Despite progress in cutting energy-related emissions through efficiency and renewables, reducing carbon remains a tough task.
At the moment, efforts to improve building sustainability include strategies like integrating rooftop solar panel and enhancing insulation.
So how can ethical investors help?
Investors can contribute to making buildings more sustainable by supporting projects through investments in green bonds and sustainability-focused funds.
That’s the message from Liz Harrison, an ESG Fixed Interest Strategist at Janus Henderson Australia.
In a note to investors, Harrison highlights how green finance can play a crucial role in promoting sustainable building practices, as she explores different investment opportunities in this growing sector.
Harrison and her Australian Fixed Interest team at Janus is focusing on 'sustainable buildings' as part of its commitment to environmental and social goals.
She includes green bonds, sustainability bonds, and bonds from issuers investing in sustainable building practices as part of her portfolio selection.
Where can investors put their money ?
Harrison suggests that investors can allocate their money into various Janus Henderson funds, which in turn invest in the following:
State government bonds
Investors can put their money into State-issued bonds, which fund various green projects.
On October 1, 2023, NSW became the first state to introduce the 'Sustainable Buildings SEPP' aimed at reducing water usage and greenhouse gas emissions across the region.
This regulation applies to both commercial and residential buildings. For commercial buildings, the new standards require developers to measure and disclose emissions, meet specified minimum levels for energy and water efficiency.
The new standards also include requirements for complete electrification or the capability to eliminate fossil fuels by 2035, along with a focus on reducing waste.
Meanwhile, residential buildings must upgrade their energy ratings and reduce greenhouse gas emissions by up to 11%, depending on location.
The Treasury Corporation of Victoria has also issued sustainability bonds, primarily funding projects like the 'Victoria's Big Housing Build,' which aims to construct 12,000 new energy-efficient social houses.
Additionally, the Victorian government offers grants for solar home installations, including panels, solar hot water systems, batteries, and energy-efficient upgrades.
These initiatives are part of broader sustainability frameworks in Victoria and NSW, under which sustainability bonds are issued to support environmentally friendly projects.
“While it is likely that other states will enhance regulatory requirements on new builds, this is not something investors can direct capital towards,” said Harrison, adding that fund managers like Janus Henderson offer avenues for investment in these areas.
University green bonds
Some universities in Australia are leading in sustainability efforts, including La Trobe University and the University of Tasmania, which have issued green bonds.
Investors can buy these bonds in Janus Henderson’s Sustainable Credit Fund and other funds, says Harrison.
These universities are focused on sustainable building practices.
La Trobe University, for instance, aims to achieve 100% renewable energy by 2029, generating 30% of their energy needs through on-campus solar panels and a nearby solar farm at their Bundoora campus.
The University is committed to reducing its carbon footprint by upgrading building efficiency and ensuring all new constructions achieve a minimum 5-star green rating.
La Trobe’s use of cross laminated timber (CLT) in new buildings significantly lowers carbon compared to traditional methods.
CLT is renewable and captures carbon, requires less water and energy during construction, and minimises waste with prefabricated components, leading to faster build times. At end-of-life, CLT allows for easier demolition and more material reuse/recycling.
“La Trobe have also committed to replant multiple trees for every one tree that is removed during the clearing for a new building,” wrote Harrison.
The University of Tasmania, meanwhile, is relocating its Sandy Bay campus to Hobart's CBD, a $550 million project continuing through 2030. Already carbon neutral since 2016, this project presents a significant opportunity to further decarbonise.
The University aims to reduce carbon in construction by adopting low-carbon practices and materials such as low carbon cement/concrete, CLT, and recycled materials.
The capital from the University’s green bonds finances campus buildings, targeting at least a 20% reduction in upfront carbon emissions compared to industry standards.
“Wider adoption of such innovative practices will be a game-changer for the broader Australian construction industry, and a significant positive as it relates to achievement of longer-term economy-wide emissions reduction commitments,” Harrison said.
Real estate investment trusts (REITs)
REITs play a crucial role in the construction and maintenance of sustainable buildings.
One notable example is Mirvac, a leading property development company committed to sustainability, says Harrison, which has set ambitious climate targets, aiming for zero waste to landfill and achieving net positive carbon and water impacts by 2030.
“Mirvac states they are committed to using sustainable and low-carbon materials in new developments,” Harrison said.
“They are actively engaged in selecting low-carbon and sustainable materials for their construction projects such as recycled content, responsibly sourced timber, and low-carbon concrete alternatives, and promoting the use of recycled and renewable materials.”
But while Mirvac's sustainability efforts are commendable, accessing green bonds that specifically fund green projects remains a challenge.
“As it stands, they only have non-green bonds in Australian currency, with the lone green bond on issuance being in Hong Kong Dollars,” said Harrison.
Another REIT, Vicinity Centres (ASX:VCX), has also demonstrated strong ESG credentials, aiming to achieve net zero emissions by 2030 with a 41% reduction since 2016.
Vicinity has recently invested $73 million in Australia’s largest solar installation program across its shopping centres and successfully recycled 51% of their total waste in FY21.
“Investors can access direct investment in the sustainable buildings theme through Vicinity Centre’s green bond which was issued in May 2022,” wrote Harrison.
Banks’ green and sustainable bonds
Banks are now offering green mortgages and loans at a discount, including major banks and smaller ones like Bank Australia, Bendigo and Adelaide Bank (ASX:BEN), and RACQ.
These loans are meant for customers who want to install small-scale renewable energy systems like solar panels, battery packs, and electric vehicle charging stations.
The loans are funded through the bank's green or sustainable bond programs.
For instance, the Commonwealth Bank of Australia (ASX:CBA) offers 'green' term deposits for institutional investors.
Investors can put money into these green securities by approaching fund managers like Janus Henderson, says Harrison.
Originally published as The Ethical Investor: Here’s where your money can support the sustainable building movement
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