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#09 Sustainable lending

On 8 October 2018, the Intergovernmental Planet on Climate Change (IPCC) published a Special Report. This recommended a climate goal of limiting global warming to a maximum of 1.5° Celsius.

Certificates provide transparency

Global warming of 2° Celsius would have unacceptable consequences for sustainable development and for the alleviation of poverty. However, the report also said that immediate action has to be taken if the target of 1.5° Celsius is to be met.

The 5th Assessment Report produced by the Intergovernmental Panel on Climate Change (IPCC) comes to the conclusion that 32% of global energy consumption and 19% of all greenhouse gas emissions are attributable to buildings. This means that the property sector offers significant potential when it comes to meeting climate goals: for example, energy consumption and the resulting carbon emissions can be cut dramatically using innovative building types and neighbourhood concepts in the case of new builds, and energy-saving measures in the case of existing stock.

However, sustainable properties not only have a lower environmental impact: they also improve the environment in which people work, shop and live. According to Jones Lang LaSalle, sustainable properties are also easier to sell, generate higher income and have more satisfied tenants. This is why, like Aareal Bank Group, many companies in the property sector finance properties employing sustainable technologies such as photovoltaic or solar energy systems.

Since we nearly always finance existing properties, we can only influence the sustainability of the properties we fund indirectly: this can be done, for example, by creating transparency during property valuations. Green building certificates share the same objective – these are becoming more and more important when assessing properties' ability to retain their value alongside classic economic criteria such as location, third-party reusability and tenant credit quality.

At present, there are 7.2 million square metres of sustainability-certified office space in Germany's seven largest cities. This corresponds to 7.8% of the total area. 73% of the office buildings Aareal Bank financed worldwide as newly-originated loans during the 2018 financial year have a green building certificate or aim at achieving it. This corresponds to a financing amount of €1.6 billion. Certification of other types of building is also on the rise: a portfolio of seven logistics properties in the UK that we financed in 2017 was already fully sustainability-certified.

"Most large companies in France, Germany and large European cities have now included sustainability certificates as a binding element of their requirements catalogues when leasing significant amounts of space. In particular, appropriate certification is now mandatory for companies with a sustainability focus."

Martin Vest – Managing Director, Aareal Bank AG

What we are working on

  • Student housing – following the first two successful deals in Q2 2018, selected other countries are now also focusing on this asset class as an additional property type
  • Leveraging the potential offered by our investment in the BrickVest investment platform
  • Expanding the pipeline tool used to manage new business with the aim of further optimising sales and portfolio management by providing a single source for information that is accurate down to the nearest day
  • Increasing transparency on sustainability aspects and risks in our loan portfolio, e.g. via a pilot project with Carbon Delta

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