A recent Berkadia poll indicated increasing interest in ESG investing, meaning Environmental, Social and Governance. The #1 issue from the poll, and of global economic concern in 2022 is greenhouse gasses.
The 26th UN Climate Change Conference in November 2021 at least attempted to address the urgency of the matter. There was a lot of political positioning among “first world” nations and considerable push-back from less economically advanced countries. Proposed solutions focused on:
- mitigation, or reducing emissions
- Adaptation, helping those already impacted
- Finance, and
While governments can do only so much to legislate the reduction of CO2 and other greenhouse gasses, it is up to industries, businesses and people to actually design, create, install and operate the mechanisms by which this happens.
Most forecasts of levels of greenhouse gasses “predict” that if we don’t do something soon, we can anticipate dire consequences. According to the U.S. EPA, commercial buildings are responsible for about 6% of greenhouse emissions, and Industrial is about 16%-19%. Combined, this gives the commercial real estate sector significant opportunity to participate in the reduction of greenhouse gasses through several financing mechanisms that we have in place.
The property assessed clean energy (PACE) model is an innovative mechanism for financing energy efficiency and renewable energy improvements on private property. PACE programs exist for commercial properties and residential properties. PACE programs allow a property owner to finance the up-front cost of energy or other eligible improvements on a property and then pay the costs back over time through a voluntary assessment. In new Development, construction lenders are getting more comfortable with allowing a developer to include PACE financing for energy efficiencies as part of the capital stack, in addition to owner equity.
Carbon Offset Credits
Every building has a carbon footprint. The footprint consists of the CO2 and other gasses generated as a by-product of the manufacture of the building materials themselves, the construction activities and the operation and use of the building after completion.
Put very simply, businesses that have a carbon footprint that they want to reduce (i.e. to achieve carbon neutrality, or zero carbon emissions,) can either change their processes or buy carbon credits generated by other businesses (that sequester carbon and other greenhouses gasses from the atmosphere) to offset their own emissions.
SOFIA Capital Ventures is now aligned with a capital source that provides equity investments into new commercial properties that is “guaranteed” by carbon offset credits. Their assessment process takes into account the life-cycle use of the building and uses that measurement of greenhouse gasses to create off-setting carbon sequestering (through farming and planting trees.) This process generates credits for the investor to secure their equity investment.
If you have interest in green buildings, either to retrofit or new construction, please contact us directly to further discuss these opportunities.