26 April 2023
The Sustainable Finance Policy Landscape
The international investment and sustainable development communities have developed a complex network of ESG regulations and incentives – specifying the full scope of sustainable finance strategies available to investors today. Navigating the complex, scattered, and fragmented regulatory landscape of sustainable finance is a costly task for investors to bear. The challenge to promote sustainable finance and investment practices is becoming increasingly difficult as the policy ecosystem is in constant evolution. Every year, an increasing number of innovative ESG regulations require investors to fulfil detailed compliance requirements, while a growing number of financial incentives have become available to investors who integrate ESG criteria into their portfolio management and allocation.
Longevity Partners’ Sustainable Finance business unit broadens its advisory servicing to facilitate responsible investing. With Sustainable Finance, Longevity offers Second Party Opinions (SPOs) of green loans and bonds, provides responsible investment policies, and creates bespoke frameworks aimed at informing negative and best-in-class investment screening. Recently, Longevity Partners has developed a new service that gives its clients insight into the sustainable finance regulations and financial incentives that real estate investors could leverage in their decision-making.
This helps our clients facilitate access to grants, savings, information, and cost-effective financing opportunities. Our service achieves two key sustainable investment objectives. We provide policy background and assess non-compliance risks associated with regulations targeting the principles of the UNPRI, SFDR, and CSRD. Further, we inform investors on the range of financial incentives and grants available to the real estate industry.
Jointly, our Incentives, Grants, and Sustainable Finance Regulation Watchlist generates financial savings for sustainability-conscious real estate investors by presenting a comprehensive overview of financial opportunities and regulatory risks in all jurisdictions. The Sustainable Finance database helps you capitalize on your ESG objectives – in it, we list interest rate discounts, subsidies, grants, tax credits, and legal liability risks.
Leveraging the research and expertise of Longevity Partners’ consultants, the database bridges the information asymmetry gap present in the regulatory landscape and offers real financial opportunities across all asset classes and jurisdictions.
What are the Financial Incentives for Responsible Investing?
Grants and Subsidies
A wide range of subsidies and grants are available to real estate actors seeking to invest in real assets, financing projects and technologies, developing best-in-class schemes, or targeting corporate ESG objectives.
For example, the Spanish Recovery and Resilience Plan is allocating €6.8 billion to supporting energy efficiency renovations in residential buildings and integrating renewable energy sources in buildings. A range of other subsidies are available for EV charging stations and Solar PV panel installation, with the Spanish government paying solar energy producers above the market rate via Feed-in-Tariffs to promote Solar PV installation. Many other similar subsidy and grant schemes are available in almost all nations participating in the Paris Agreement – but information often remains out of view, buried in government websites, beyond investors’ news feeds.
The most common form of fiscal incentives available to investors are tax credits rewarding positive decision-making in ESG and responsible investments. Government-backed ESG tax credit schemes provide a dual benefit to real asset owners – they minimize net-tax liability and make sustainable investments more cost-effective. For example, in the Spanish jurisdiction, the Electric Mobility Directive (RD 21/2021) created an Electric Vehicle (EV) charging tax credit to install appropriate amounts of charging infrastructure for non-residential buildings. As a result of this fiscal incentive, real asset owners that installed appropriate amounts of charging infrastructure for non-residential buildings prior to the 1st of January 2023 may be eligible for tax benefits subtracted from the Real Estate Tax (IBI) and the Economic Activities Tax (IAE).
Without intensive and high-precision green investment policy research, real estate investors face a considerable difficulty finding such niche ESG and sustainability-related tax incentives. Investors face a significant risk of missing out on incentives that would result in cost-effective sustainability solutions for their assets.
Beyond incentives, investors face an increasing need to develop awareness around the policy landscape and understand the diverse sources of funding available. The starting point for most investors seeking to access green loans is the industry cornerstone document, jointly approved by the APLMA, LMA, and LSTA. Beyond the traditional application of green loans, additional benefits are rewarded from a detailed awareness of sources of public funding, green lending policies, grant application processes, and interest rate discounts for various schemes. In addition, each jurisdiction applies green loans to reward industry best practices according to their own standard.
Longevity Partners’ team has integrated this research into the Incentives, Grants, and Sustainable Finance Regulation Watchlist, which unlocks sustainable value by connecting investors to suitable financial incentives in 50+ jurisdictions. For instance, real estate investors with assets in can avail of green lending schemes such as: (i) Preferential Capital Requirement Programme for Housing with modified terms and conditions (ii) Preferential Capital Requirement for corporates (iii) The Green Mortgage Bond Purchase Program (iv) The FGS Green Home Program and other initiatives. Analogous green lending schemes apply globally, in almost every country – from the Nordics to Germany, France, the UK, the US, and Japan.
Receiving advisory services on green loan opportunities and incentives, clients may avail of lower borrowing costs for their well performing assets and retrofitting investment projects. For instance, experience in the UK sustainable finance market shows that green loans offer a spread of up to 50 basis points on the margin of interest rates – reducing loan exit fees and principal.
Similar examples in other jurisdictions point to the real asset market’s readiness to leverage sustainable capital and unlock all incentives available to them.
Regulatory Guidelines for Sustainable Finance
Finally, since the UNEP FI, SAASB, ISSB, and UNPRI emerged to form the core of sustainable finance regulation, the six Principles for Responsible Investment have been integrated in national legislation, policy, and corporate soft law across a vast number of countries. The Principles have influenced much of the sustainable finance & investment legislation worldview; these are:
- Principle 1: incorporate ESG issues into investment analysis and decision-making processes
- Principle 2: strengthen active ownership and incorporation of ESG issues into ownership policies and practices
- Principle 3: ensure appropriate disclosure on ESG issues
- Principle 4: promote acceptance and implementation of the Principles within the investment industry
- Principle 5: work together to enhance effectiveness in implementing the Principles
- Principle 6: report on activities and progress towards implementing the Principles
The guiding principles of the UNPRI shaped policies across several categories of sustainable finance & responsible investment. Namely, the principles are reflected in international, national, and regional policy frameworks on green loans, green bond issuance, corporate governance, due diligence, and ESG reporting. For example, investors with assets in Switzerland are strongly advised to develop awareness of UNPRI-tied regulations such as: (i) the Swiss Sustainable Finance Guidelines, (ii) the new CO2 levies under the June 2021 update to the CO2 Act, (iii) the SSF Sustainable Transition Roadmap, (iv) the SIX Corporate Governance & Information Directive, (v) the Human Rights Action Plan, (vi) the FINMA Guidance 05/2021 on Greenwashing, and plenty more.
Real estate investors will benefit from accounting for the opportunities and risks posed by regulations that directly uphold the Principles for Responsible Investment. Real estate investment strategies reflecting a detailed understanding of the sustainable finance policy horizon will ensure that investors are resilient and well-prepared for the accelerating regulatory tsunami emerging in sustainable finance.
Real estate investors stand to benefit significantly, both financially and strategically, from harnessing the potential of sustainable finance incentives and regulations – unlocking untapped sustainable value in their assets. National incentives can yield significant capex reductions and, as in the case of green loans, sustainability-linked real estate investments that can save thousands in borrowing costs. The problem is that sustainable finance incentives vary across different jurisdictional scales and are hidden behind a sea of small bureaucracies. Investors using the Incentives, Grants, and Sustainable Finance Regulation Watchlist have access to research and recommendations for policies at national, international, regional and provincial, city and local authority levels
How Can Longevity Partners Help?
As a leader in the Sustainable Finance Policy domain, Longevity Partners is ready to work with your firm to identify research applicable to the jurisdictions and investments material to your needs. Get in touch with our team to begin your sustainable finance journey, today.