The World Bank launched its first labelled green bond in 2008 to engage investors in projects that would alleviate climate change. Since then, banks, businesses, governments and international organisations have developed and promoted financial products which support low-carbon initiatives.
The introduction of the European Union taxonomy regulations in 2020 has been a game-changer for green finance as it sets standards for the green classification of new builds, renovations and the acquisition of buildings. So, in order to qualify for a low-interest-rate green funding, projects must comply with EU taxonomy legislation. Phase one – with regulations on climate-change mitigation and adaptation – of the taxonomy came into force on January 1st this year. And from January 1st next year, buildings will have to comply with regulations on recycling, water, pollution and biodiversity.
The EU set the taxonomy standards to provide companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable. As part of the European Green Deal, it aims to protect private investors from greenwashing while helping companies to become more climate-friendly.
In Ireland, energy utilities have joined banks and other investment companies in offering green finance options to investors.
The ESB issued one of Ireland’s first corporate public green bonds when, in June 2019, it launched an investment fund of €500 million at a fixed rate of 1.125 per cent to mature in June 2030. The money raised by investors is being used exclusively to finance projects – such as wind farms – that have a positive environmental impact. The ESB’s new headquarters – a net-zero-energy building on Dublin’s Fitzwilliam Street – was one of the first projects to avail of the funding.
The Tallaght district heating scheme in Dublin is an example of a not-for-project utility whose €4.5 million funding has come from the Government’s climate action fund. The heating scheme, which is one of six HeatNet NWE (Interreg North-West Europe) schemes, is managed by Codema with the Sustainable Energy Authority of Ireland (SEAI).
The fourth-generation district heating and cooling project uses waste heat from the nearby Amazon data centre to supply space heat and hot water to buildings connected to its network. The first phase will heat South Dublin County Council local authority buildings and the Technological University of Dublin's Tallaght campus. New residential developments will be added at a later stage.
On a micro level, homeowners can now also avail of green mortgages (if their home has a high BER rating) and green loans for retrofitting jobs carried out on their home. The new one-stop-shop retrofitting experts registered with the SEAI will offer homeowners assistance in applying for these green loans as well as processing grants for retrofitting jobs available through the SEAI.
Green finance is also available to developers who prioritise sustainability in housebuilding projects. The State home-building finance agency, Home Building Finance Ireland (HBFI) has a green funding product offering a discount of up to 0.5 per cent to homebuilders for developments certified with the Irish Green Building Council's home performance index (HPI). AIB also recently announced a green loan, offering a discounted rate to developers who adopt the index.
The HPI was developed by the IGBC as the first comprehensive sustainability certification for new Irish homes. The certification goes beyond the BER to address the environmental impacts of new homes and includes the production of building materials, the impact on ecology, pollution, water consumption and flood risk. It also encourages homebuilders to improve the health of new homes by improving acoustics and use of daylight and minimising harmful chemicals such as radon and volatile organic compounds. Almost 1,000 homes have been registered for certification with the HPI upon completion.
IGBC chief executive Pat Barry says traditionally in Ireland building regulations were the only way of raising environmental standards in construction: “As government is often fearful of moving too quickly for the industry, progress towards higher standards tended to be slow. The advent of green finance and the recently-published taxonomy regulation has turned this dynamic on its head,” says Barry.
Citing AIB and HBFI discounted loans to developers, he adds: “These developments are really exciting and should allow us to ratchet up the levels of ambition and innovation in construction towards zero-carbon buildings. It is no longer about what is the worst building you can build that complies with regulations, but whether you are green enough to attract sufficient finance to build in the first place.”
So with EU taxonomy regulations and IGBC green finance standards now set up, green investors should be reassured that their investments are supporting genuinely sustainable projects as mitigation and adaptation to climate change becomes one of the highest priorities facing the world as the clock ticks towards deadlines set by the Paris agreement on climate action.