- 6/5/2024

A good ESG score is a must

3 min

Aurore de Montjoye is Head of Real Estate Finance at BNP Paribas Fortis Corporate Banking. Her team supports some of the largest listed or private project developers and real estate investors for all types of projects in Belgium and Luxembourg.

Are all real estate players aware of the current environment, social, governance (esg) requirements?

"The topic has gained in importance since 2019. These days, it also plays a crucial role in development finance applications. A few years ago, our analyses mainly focused on risks relating to the building's location and rental potential. Today, half of discussions in the credit committees are about ESG aspects."

What do these esg discussions entail?

"When renovating or redeploying an existing building, we look at the project's circularity, i.e., the reuse of old materials and the improvement of the expected energy performance, among other things. Most of these obligations already apply for newbuilds before the developer gets a construction permit, as applicable rules have evolved significantly. Some property developers go even further, using as many components as possible that can be dismantled afterwards. Or they develop energy-independent buildings that no longer rely on fossil fuels. These are all positive indicators that we take into account in our analysis."

What else do you check?

"We also examine the extent to which our customers’ activities meet a range of ESG criteria. What does their Code of Conduct say, for example? Do they have a policy to tackle pollution? Do they also monitor their suppliers’ ESG policies? We ask them to fill out a questionnaire, using their answers to determine their score."

Has this transition been accelerated by the entry into force of the corporate sustainability reporting directive (csrd), which made esg reporting mandatory?

"Currently, the CSRD only applies to large and listed companies. They have already prepared for this as they have ESG and data specialists. But smaller players still have a way to go. That’s why we put this on the agenda of every meeting, so companies do not lose sight of this objective."

Why is this so important?

"Currently, companies with renovation or acquisition projects that do not meet the ESG criteria are struggling to find financing. In the long run, they will likely be banned from the system and will no longer be able to rent out their property. In Brussels, this could already be the case from 2033 for residential buildings that are considered major energy consumers because they have a Category F or G EPB (energy indoor climate) certificate. If nothing changes, the value of these properties will fall over time and ultimately be reduced to the value of the land after demolition."

Which other arguments do you think will convince developers?

"When a real estate project considers ESG criteria and receives a specific credit line from the bank, investors are reassured, and it will be easier to promote the project. This applies both to private individuals, who are becoming increasingly aware of environmental issues and energy costs, as well as to companies that lease offices. In the long term, they will also have to publish their own CE balance sheet. And their corporate carbon accounting is influenced by the energy performance of the buildings they lease. Besides its intrinsic value, a building that meets ESG requirements is also more sellable. The cost of use of a new or renovated property often drops drastically. All these aspects make the building more attractive to buyers."

How can the bank help players in this market cope with this transition aside from financing?

"Thanks to our network, we have many experts – engineers, financers, and technicians – who work together in our Sustainable Business Competence Centre. In 2023, it analysed 67 projects, amounting to EUR 330 million. These experts help us raise customers' awareness, determine their position possibly using a benchmark, and define strategic objectives for the transition. We also work with a large number of partners, such as Climact*, which helps companies calculate their carbon footprint and develops plans together with them to reduce their CO2 emissions."

Do you offer committed investors specific financing products?

"Yes, we do. We have a non-purpose credit line, for example. Its pricing mechanism is linked to the improvement of predetermined ESG performance indicators. This product is available to our real estate customers, albeit from a certain size."

Which performance indicators do you take into account?

"This is negotiated on a case-by-case basis. One criterion for obtaining a loan is a realistic but sufficiently ambitious improvement process. Here, too, our Sustainable Business Competence Centre can make a real difference, as these experts are involved in a significant number of cases. We finance a regulated real estate company with a credit line, the costs of which depend on an indicator that is linked to the total energy consumption of their property portfolio. In another case, the indicator is linked to the share of buildings with the highest energy performance rating. We have also developed a tailor-made solution for leasing buildings that meet the strict energy assessment criteria of the BREAAM rating system, with BREAAM being an acronym for 'Building Research Establishment Environmental Assessment Method'.

"Companies with renovation or acquisition projects that do not meet the ESG criteria are unlikely to find financing in the long term."
Aurore de Montjoye, Head of Real Estate Finance, BNP Paribas Fortis Corporate Banking

* Climact NV, Place de l'Université 16, B-1348 Louvain-la-Neuve, Nivelles RPM/RPR: 0892.272.118.