Feature image: The LEED Platinum Bank of America Tower in Houston, Texas. Photo credit: Skanska.

USGBC · USGBC+ Fall 2022: Major companies use green financing to build their LEED portfolios

Doing business in a sustainable way has been a priority of forward-thinking companies for decades—but in the 2020s, especially for large, highly visible companies, being proactive about having a positive impact and sharing that impact with the public is now essential. Green business is good business, and in the future, financial decisions linked to sustainability goals are likely to be the new normal.

Financing that benefits the environment

The term "green finance" encompasses several forms of funding: incentives to build green; green bonds, or fixed-income financial instruments that raise money for projects to benefit the environment; and green leases, in which tenants commit to, or receive incentives to, participate in energy and water conservation, waste reduction and other sustainable actions.

According to the United Nations, green finance is a subset of sustainable finance. The latter includes social and governance aspects (of "ESG" priorities, closely related to corporate social responsibility), but green finance focuses specifically on environmental goals.

For example, through its Environmental Business Initiative, Bank of America has committed $1 trillion through 2030 to advancing goals like renewable energy; sustainable transportation, water and agriculture; and improved forestry management. Citi has also made a $1 trillion commitment to sustainable finance. Charles Schwab and Co. provides layers of guidance to its clients on getting started with ESG investing. These are just a few of the many banks, investment houses and other private and public financial institutions making green choices a priority.

However, much of the momentum powering the ESG train is the will of individual investors—our values are changing. As reported by J.P. Morgan Chase, "$500 billion flowed into ESG-integrated funds in 2021, contributing to a 55% growth in assets under management in ESG-integrated products." Individuals increasingly want to support companies and products that have a positive impact on the world around them.

LEED and green financing

Aiding the goal of creating greener, more equitable communities, green financing incentives help bring the benefits of LEED certification within reach for more tenants and property owners. According to USGBC, "LEED-certified assets provide the basis for new exchange-traded funds, define the use of proceeds for green bonds and earn points on the GRESB ESG benchmark. The financing industry recognizes the benefits of LEED, and the positive impact green construction has on properties, which has led to discounted financing solutions for LEED-certified buildings, including interest rate reductions, increased loan proceeds and rebates and reduced mortgage insurance premiums."

For U.S.-based project leaders, a map of local incentives in the U.S. can be found in USGBC's policy library, and the IncentiFind database also helps developers, property owners and tenants find money for their real estate and home improvement projects nationwide.

Green real estate

Large-scale real estate developer Prologis is a striking example of a company using green bonds to raise money for green buildings. With a portfolio of over 1 billion square feet of space in 19 countries, California-based Prologis specializes in warehouses and industrial real estate. The firm estimates that 2.5% of the global GDP passes through its warehouses.

Prologis has developed its own green bond framework with an emphasis on new construction, retrofits and existing building certifications to meet LEED, BREEAM or other green building standards. It currently has over 240 projects using LEED, many of which are connected to the company's profile on usgbc.org. In April 2022, FIBRA Prologis, the Mexican REIT for the company, reported that it had achieved green certifications for half of its portfolio, a year ahead of schedule.

"Green bonds are a vehicle to further our ESG objectives and create value for our investors, customers and communities," says Tim Arndt, chief financial officer at Prologis. "In the past four years, we have issued 16 green bonds and three green private placements of debt and have added sustainability features in various bank credit facilities," he adds.

A large, white stone office building — The LEED Silver Prologis Park 70 in Denver, Colorado. Photo credit: Prologis.

Across the Pacific from Prologis, a particular trend is real estate companies based in Hong Kong, China, embracing major sustainability-linked loans.

For example, 30% of Swire Properties' current bond and loan facilities are generated through various forms of green financing. In 2018, the company launched its green finance journey with a $500 million bond as part of its Sustainable Development 2030 strategy. The bond also funded the development of Swire's LEED Platinum One Taikoo Place. All the properties in Swire's portfolio in mainland China are currently LEED-certified.

Other companies in the region setting a strong example are New World Development, with a $200 million sustainability-linked bond tied to 100% renewable energy by 2026; Hong Kong Land, with $6.85 billion in sustainability-linked loans tied to green building certification, waste reduction and more; and Sino Land, with a $1 billiion sustainability-linked loan with similar targets in green building and other sustainability strategies.

A record was set, however, by Sun Hung Kai Properties Limited (SHKP) in June 2022, when the company signed a five-year sustainability-linked loan for $20.7 billion—the largest of its kind for the real estate sector in Hong Kong—with 16 major international and local banks. The group has made incorporating ESG elements into its business operations a major priority to create long-term value for its shareholders and the community as a whole.

Part of its goals are heavy investment in renewable energy, including building solar farms and installing solar panels in its managed properties, as well as targeting LEED Gold or Platinum certification for its core commercial projects under development. SHKP also recently achieved LEED Platinum for the International Commerce Center, the tallest building in Hong Kong, under LEED for Operations and Maintenance.

The Hong Kong skyline of tall buildings — Hong Kong companies are leading in sustainability-linked loans. Photo credit: Shutterstock.

Sustainable fashion

The fashion industry may not be what immediately springs to mind when you think of sustainability, but in fact, in 2020, 32 major fashion and lifestyle brands joined to sign the Fashion Pact, a commitment to transform the industry into one that values carbon reduction, biodiversity and other sustainability goals. Now numbering over 60, the signatories are beginning to leverage green finance as a tool of change.

With a headquarters in Milan, Italy, luxury brand Prada may have been the first in its industry to sign a sustainability-linked loan for 50 million euros, in 2019 with Crédit Agricole Group. According to the loan terms, interest rates may be adjusted annually if Prada hits specific sustainability targets, such as if a certain number of stores achieve a LEED Gold or Platinum certification. With a portfolio of over 140 LEED-certified stores in 29 countries, the company is already leading in this area.

“Since 2019, the Prada Group has signed various sustainability-linked-loans, which have been useful tools to integrate more sustainable practices in its business," says Lorenzo Bertelli, head of corporate social responsibility for Prada Group. "Our considerable achievements in LEED certifications are strictly connected to this strategy, which aims at targeting ambitious sustainable goals," he adds.

Another famous name in luxury goods, Burberry, is headquartered in London, England. The brand has a goal of being carbon positive by 2040, and has refinanced its revolving credit facility to a 300 million euro sustainability-linked loan coordinated by Lloyds Bank. The loan is designed to enable Burberry to embed ESG aspects across its operations, including refurbishing the portfolio of buildings that have LEED Gold or Platinum certifications.

Green tech

The tech industry hasn't been waiting to leverage green finance, either. Alphabet Inc., the parent company of Google, recently released its 2022 Sustainability Bond Impact Report, in which it announced it had completed allocations from the $5.7 billion sustainability bond first announced in 2020—at the time, the largest of its kind ever issued by a corporation. The company invested $2.47 billion of the funds in green building, including over 8.7 million square feet of LEED Platinum office space.

A modern, concrete and wood Google office lobby — The LEED Platinum Google facility in Tel Aviv, Israel. Photo credit: Itay Sikolski.

An office space with indoor trees and atmospheric lighting — The LEED Platinum Google facility in Tel Aviv, Israel. Photo credit: Itay Sikolski.

Tech giant Microsoft, which in 2017 committed to achieving LEED Gold for all its data centers, created a $1 billion "climate innovation fund," a specific investment initiative "to accelerate technology development and deployment of new climate innovations through equity and debt capital." Part of the company's goal for the fund is to bring capital to underfunded markets where sustainability may not be prioritized, thus working toward greater climate equity.

In short, across the spectrum of portfolio leaders in LEED, companies are putting their money where their mouth is when it comes to the critical issues of ESG. Matters of "people, planet and profit" are more entwined than ever before. It was 30 years ago that the U.N.'s finance initiative was launched, and in 2023, it will be 30 since USGBC's founding. The changes in society since then have been tremendous—it's exciting to envision what all this green investment will do for the world of 2053.

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Major companies use green financing to build their LEED portfolios