Building the future through Green Bonds in Colombia
“If You’re Going to Build It, Build It Green,” says Mahesh Ramanujam, President and CEO of the US Green Building Council, the organization that offers LEED certification to the world. For Ramanujam, building green simply makes business sense.
Why Build Green?
Since 20% of energy-related greenhouse gas emissions originate from buildings, the mainstreaming of green buildings presents an enormous opportunity to reduce our global carbon footprint and environmental impact. Ramanujam and Kapoor believe that the green building industry has made great strides in recent years through improved government regulations, increased consumer demand, interest from investors and banks and more, but transforming the way buildings are built will involve more work in the future.
Are We Making Progress?
Investors, banks and homeowners are beginning to recognize the value of going green, but there is more work to be done. Investors already realize that building green brings brand recognition, commercial value and lowers risk in the long-term. Similarly, banks understand that they must respond to the market and introduce products as consumers demand them. Ultimately, “it’s an ecosystem change” for all players who are key to transforming markets.
Green bonds are all the rage. In 2018, green bond issuance grew a steady 4 percent year-over-year to $162 billion, according to the Climate Bonds Initiative. But once a green bond is issued, how can investors be confident that proceeds will make a measurable difference in the fight against climate change? This is a story of how a bank in Colombia took a performance-based approach to satisfy investors and pivot the construction market towards a more sustainable future.
Worldwide, green bonds have typically supported renewable energy projects, with energy efficiency only recently taking a wider slice of the pie. Bancolombia, which is Colombia’s largest commercial bank and the first to issue a green bond with IFC as the sole investor in the amount of COP 350 billion ($117.1 million) in 2016, decided to focus its efforts on green buildings above other areas that it also finances, such as clean production and agribusiness. An adopter of the Equator Principles of risk management and winner of the title “the most sustainable bank in the world” by the Dow Jones Sustainability Index, Bancolombia has a history of success with green credit lines and is proud of its reputation as a champion of sustainability.
Here’s how Bancolombia’s model works. The bank provides a variable loan for green construction financing from 0.5 percent to up to 2 percent less than conventional market rates by using its own resources alongside the proceeds of the green bond. The more measurably green the project is, the better the financing rate.
Centro Comercial Paseo Villa del Río – Preliminary EDGE Certificate Photography from: edgebuildings.com
Qualified projects must receive a preliminary design certificate from an approved green buildings rating system such as LEED or IFC’s EDGE. If the building owner chooses EDGE, details of the project are entered in the EDGE software with the project required to achieve a minimum of 20 percent less energy, water and embodied energy in materials compared to a conventional building. Certification services for EDGE are offered by CAMACOL, a leading construction trade group in Colombia.
Parque Comercial Guacarí – Final EDGE Certification (2019) Photography from: edgebuildings.com