Will green finance ultimately be local?

What’s the best way to concentrate our money to fight climate change? At the national level? More subsidies for clean industries or incentives for individuals?

Today’s Green Inc blog post examines the idea that cities are the most likely agents for positive action against climate change, since the authors see “uncertain prospects for a global treaty in Copenhagen”, which means “that local communities will need to lead the way on climate change.”

The column’s authors pose the  idea that, “like politics, action on climate change is ultimately local”.

It is estimated that cities contribute somewhere between 30 and 41 percent of global greenhouse gas emissions. The estimate has a large range because no one is really certain of how to measure this particular statistic. Nevertheless, GHG emissions at even the lower end of that range makes cities key actors in reducing greenhouse gas emissions.

Nearly two years ago, we posted that cities would lead most positive progress on green building and climate change.

[Local governments] have become sustainability’s cowboys, driving their own resource, energy and climate change policies, since the federal government can not deliver a comprehensive enough solution that preserves their viability. Since real estate has been outed as the big consumer of city resources and energy services and the big contributor to regional carbon output, it is fair to say that investors will have to think about investment markets in terms of resource and energy sustainability in addition to classic real estate fundamentals so that they can remain relevant to their municipal partners.

As of this date, about 1,000 U.S. local governments have signed commitments reduce greenhouse gas emissions within their jurisdictions.

What could this mean for green finance? A lot, we believe.

We have just seen local governments flexing their muscle with a major share of U.S. stimulus funding going for local government initiatives for green buildings, energy efficiency retrofits, home weatherization and green jobs. Tax lien financing, a local government finance innovation, which is growing rapidly here in California, is catching on nationwide.

With banks still navigating a tough economy and not offering the kinds of products and amount of capital needed, there seems to be both need and opportunity for local governments to become primary suppliers and coordinators of the finance for sustainability.

If you agree with the Green Inc’s columnists’ analysis of the global climate change situation, they really don’t have much choice.

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Galley Eco Capital helps Helsinki to reduce carbon emissions

San Francisco-based sustainable finance consultancy Galley Eco Capital was announced as part of a winning team for the redevelopment of the Jatkasaari district in Helsinki, Finland, which will be an urban zone with low or no carbon emissions.

Sitra, the innovation agency of the Finnish government, revealed today that the winning team for their “Low2No” development design competition was made up of Arup, Saurbruch Hutton, Experientia and Galley Eco Capital. The multi-national team was selected out of 74 initial entries, for their “C_life – City as Living Factory of Ecology” project.

Galley Eco Capital  brings their unique perspective as an international sustainable finance consultancy with a focus on creating green and socially responsible finance and investment programs.  Galley Eco Capital’s work complemented the architectural and consumer behavioral aspects of Jatkasaari by contributing new ways for finance to transform both the district and Helsinki market, to positively impact people’s lives.

The competition jury stated that the innovative monetary/economic model presented contributed significantly to the team’s clear top-down as well as a bottom-up strategy for leveraging the Jätkäsaari opportunity, in the spirit of the Low2No challenge.

Sustainable finance for Jatkasaari and Helsinki

While other team members devised the design, energy and consumer behavioral strategies for the project, Galley Eco Capital’s responsibility was to create an economic and funding model, which would support the project by integrating traditional and socially-responsible capital sources and products at a regional market level and set the right incentives to achieve maximum effect in terms of emissions reduction, energy efficiency and resource savings.

Starting with a thorough analysis of Sitra’s environmental and socially-responsible real estate objectives, the Finnish climate change agenda, and Finland’s participation within the global environmental finance markets, Galley Eco Capital developed ways to create a reliable pipeline of green mortgage, environmental, energy and carbon finance capital for Jatkasaari.

These products would all seamlessly connect with the traditional Finnish financial network to form a holistic financial system. Delicate synthesis was also required to create a flexible market structure, which would monetize available sustainability benefits while adequately funding the Jatkasaari project throughout construction and operation.

About Galley Eco Capital

Using their expertise in designing and implementing sustainable finance and investment programs, Galley Eco Capital’s strategies help investors, lenders and regional governments to bridge traditional with green finance and efficiently monetize the available sustainability benefits embedded within their real estate and renewable energy initiatives.

Galley Eco Capital’s unique approach assures more successful solutions through the application of interaction design principles, driven by culturally-aware, user-centric perspectives and underpinned by long years of international real estate and capital markets experience.

The strategies help drive positive change by:

• developing debt and equity financing structures based upon the value-add contributed by sustainability and energy efficiency,
• synthesizing traditional with emerging green financial products into holistic financial solutions,
• sourcing and structuring incentives and government subsidies to offset program costs,
• designing and monitoring sustainable investment performance measurement to assure positive program impact

Over the next 6 years, the Jatkasaari district will be designed, constructed and opened to the public. From there, the sustainable ideals that govern its day-to-day life will act as a model and example for the rest of Helsinki, Finland and the world. Through Galley Eco Capital, San Francisco will be a vital part of this journey.

For more information on the Low2No project, or on Galley Eco Capital, contact Lisa Michelle Galley, Managing Principal, at +1 415 655 6668, or via email at “lisa at galleyecocapital dot com”.

Friday Video: City-scale Sustainability in Curitiba, Brazil

Happy Friday!

I’m happy to pass along this great video — from the fabulous EcoCity blog — about how the Brazilian city of Curitiba has garnered world acclaim for its successful implementation so many city-wide sustainability solutions.

The video is a trailer for the actual DVD of a longer documentary about the town.

The documentary is getting rave reviews and being heavily advertised in the “alternative” theaters in my neighborhood.

This week has been a blur of meetings with lots of folks about a variety of practical, district and city-wide sustainability and finance initiatives.

Whether its power transmission, existing home retrofits or a master-planned development,  our partners are finding out that, in many cases, there can be lots of (stimulus) money and good will at the deal table, but there’s still a hairy problem to get the cooperation of the many financial players needed to make the whole deal work.

Seeing how the City of Curitiba managed to overcome barriers lets us go into the weekend knowing that practical solutions to scaling up and financing sustainable solutions are at hand.

Have a great weekend!

Photo credit: Flickr/Bruno Henrique Barruta Barreto

How Oil Prices Literally Drive the Mortgage Crisis

We’ve blogged before on the disastrous connection between fuel pricing, vehicle miles traveled and residential foreclosures. And after those posts, it was interesting to see some economists shift away from discussing this problem, focusing almost exclusively on the impact of oil speculators.

Nonetheless, we stayed on the case, since advancing  true green real estate finance has to include the overt acceptance that there is a relationship between fuel pricing, auto transportation, responsible urban planning and a community’s long term viability. And a community’s long term viability is what should unite lenders, investors and policymakers to act responsively on this topic.

In light of the bailout announcement last week, environmentalists are pointing out that Wall Street and many economists have been curiously silent about the interaction between oil prices, energy consumption, fuel costs and foreclosure rates around the country.  This silence is undermining constructive policy leadership needed for these problems.   Case in point, sent over by Jason Keehn, of InfoCast, Inc., who birddog’s community-level sustainability more intensely than anyone else we know:

The NRDC’s David Goldstein via his high-protein blog, Switchboard, discusses how pundits and policymakers have been ignoring the overwhelming evidence that  increasing vehicle miles traveled literally fueled a significant share the foreclosure wave.  Goldstein’s lays out the case as follows:

“Mortgage defaults occur in places where the need to drive is very high — strolling suburbs with little or no transit service. Urban areas with compact, walkable neighborhoods and good transit services have been largely immune from the credit crisis. What dat[a] we have suggests that the lower the auto transportation cost associated with living in a certain neighborhood, the lower the probability of default. A rational energy policy would consider transportation expenses in underwriting loans, and could have avoided a substantial if not dominant portion of the risk that is now afflicting the economy. Concerning the low savings rate, for the past 35 years, since the energy crisis of 1973, median incomes of Americans have hardly changed, yet the trend of ever-increasing need to drive cars has continued unabated. At the same time, cities and suburbs were growing in ways that reduced compactness, walkability and transit access, apparently leading to this increased need to drive to maintain the same quality of life. Driving is expensive — it was 18% of household expenditures even when gas was $1.50/gallon. This compares to only 21% for housing itself (considering only paying for the house, not the utilities or furniture, etc.). So if expenses go up, it’s not surprising that savings would go down.”

This also leads to his discussion of his work on showing the potential benefits the US economy could experience if energy policy favored greater energy efficiency — and the green real estate finance angle; that real estate loans should assess the interaction between transportation, the asset type and location under consideration.

So now you’ve got three things to put on your to-do list: read Goldstein’s post, subscribe to Switchboard and get on his book list.  This research is sure to be a pointed challenge to business as usual for a huge swath of real estate lenders, investors and appraisers.

Oh, and if I’ve moved you enough to check him out, do us a favor and make sure you write Goldstein a comment letting him know that ‘Our Green Journey‘ sent you.

TBLI, Paris: Sustainability Heavy Hitters & Green Building Transparency

As you think about your green real estate strategy, have you defined how transparent your property’s energy performance and environmental impact will be to tenants, other investors and lenders? Do you measure and report environmental outcomes based upon internally derived or neutral third party standards? As you think about it, read on for examples of how the same questions are being approached in the European Union.

Last week I was in Paris speaking about financing green real estate at the Triple Bottom Line Investing conference hosted by Brooklyn Bridge, a powerful organization run by Robert Rubinstein out of Amsterdam. TBLI is at the cutting edge of global sustainability, allowing corporate social responsibility representatives from traditional organizations such as TIAA-CREF and Allianz Global Investors to share perspectives with socially responsible and/or mission-based groups like Calvert Investments and Environmental Defense.

The green building session was packed with a savvy, enthusiastic international audience of developers, venture capitalists, NGO’s and financial institutions. Turns out that they were all busy chiseling out their green real estate strategies or updating their intelligence on how green building’s emergence may be affecting some other key area of their business.

My main TBLI takeaway can be summed up in one quote from an SRI professional, overheard during another session on carbon offsets:

“Transparency makes a market”

This reminded me of the recent Costar Green Report, which listed the latest green building initiatives by heavy hitters such as CBRE, Simon Property Group (SPG), Glimcher (GRT) and Jones Lang LaSalle. It’s great that US real estate is going green in a big way, but I still see lots of subjective picking and choosing of green initiatives with only vague mentions of concrete, meaningful energy performance improvement and environmental impact. This essentially relegates the green real estate investment proposition to being a cat in a sack – so long as a property owner does not have to disclose the true energy and environmental impacts of their green initiatives, buyers can not objectively value (i.e. pay for) the green benefits they expect to receive. So, in the spirit of Carnegie Mellon professor Randy Pausch, I’d like to introduce you to The Elephant in the Room:

“Which, if any of these companies are executing initiatives that deliver the real value and impact expected by their investors and communities? And if they are, how can we compare and judge their initiatives relevance and success for ourselves against what objective standards?”

Examples of Transparency from the European Union

The European Union has already passed the ‘Energy Performance of Buildings Directive’, requiring member countries to implement laws regulating building energy efficiency.

Generally, the regulations:

• define what areas of a building’s energy performance and environmental impact will be measured,
• compel building owners to obtain the evaluation at certain junctures in the building’s lifespan and
• require the property owner to make the official certification of the most recent evaluation to occupants and prospective buyers.

I talked with green building professionals from Germany and Britain about how these regulations have already caused investors within their countries to tie a portion of a property’s value to its objectively certified energy performance and environmental impact.

In Britain, the Energy Performance Certificate, is the official document verifying a buildings energy performance and environmental impact. The evaluation results are plotted on an A-G scale, where A is very efficient and G is highly inefficient. The EPC is required any time a property is built, bought or sold. It is required to be displayed near the building entrance at all times, to inform all occupants of the building’s actual performance (!). I talked to a London-based property professional who reported of the quick action by investors to begin retrofitting buildings once they learned that their tenants and buyers would know of their building’s potential lower grade – and possible devaluation. Predictably, the retrofitting of buildings has become a very lucrative market by itself. Representatives from British engineering firms also reported that they were already scouting out the North American markets for potential expansion.

Germany implements the EU directive through an Energieausweis (‘energy certificate’) — see a sample certificate above — similarly certifying to occupants and potential buyers a building’s performance level on the same dimensions. The Energieausweis must be created/updated at the time of construction, rental, leasing or sale. Public buildings have to display their certificates as in Britain, but private building owners simply have to make their certificates available upon request by tenants and property purchasers. Interestingly, the energy evaluation for commercial buildings can be made based upon either the property’s actual energy consumption or its calculated requirement, based upon its construction and use. Again, the energy audit and building retrofit business in Germany has been big business for years and now will probably grow in relevance for the industry.

Since the implementation of the EU directive is still in its early stages, there is not any data on the actual environmental impact of this directive nor on exactly how property values have changed as a result. Both the colleagues that I spoke with however, said that the energy certificate results are utilized by investors to assess a property’s operating efficiency and sales price by transparently comparing a certain result with national standards and those outcomes achieved at similar properties in the market trade area. So the laws have brought some amount of transparency to these aspects of the investment property market.

And what about the USA?

It is a good time for us to begin an industry level conversation about objective standards of measurement and disclosure as the basis of investor perceptions and action on energy preformance and environmental impact – in order to better promote green building, protect its integrity and allow the real stewards of best practice to be properly rewarded for their efforts.

At the present time, many of our cities and states have begun to enact laws and regulations, which implement green building and LEED ratings criteria into code. This is great for new construction, however it still does not address the greening of existing buildings nor do investors have a relevant, comparative benchmark for environmental performance when they are evaluating a potential acquisition. Also bear in mind that, while LEED-certified buildings generally have a lower energy usage and environmental impact, no particular LEED rating assures that a property has actually achieved a certain level of energy performance or environmental impact.

Here in the US, we are keen fans of transparency. This time, American green real estate can benefit from learning how our colleagues across the Atlantic have been approaching the same issues.

Green Journey Reading Recommendation: Check out Germany’s GreenBuilding program. This is not a green building program like the USGBC LEED rating system, rather a special program , administered by the German Energy Agency (’dena’), designed to inform and help German property owners to green their buildings. The program’s overall setup, content and implementation is ‘high protein’ information for industry professionals who are participating in similar programs here in the US. Both sites contain English translations of all information.