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52
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52 (147) 2022

Real estate and construction

Banking on greener construction

By Wioletta Bratoszewska, real estate finance director, HSBC in Poland
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Over the past two years, the pandemic has turned our world upside down in so many ways. It put us all in face of almost endless uncertainties, questions, reassessments. It made everyone – at personal and professional level – look once again at the goals we set for ourselves and the paths and strategies we choose to achieve. Sustainability has been the underlying theme in this process: what does it take to live a truly fulfilled and balanced life; what does it take to make our communities, our institutions, our regions and our planet prosper and grow in a manner that does not overburden future generations – with degraded environment, irreversible climate change or the social impacts of economic growth that cares for nothing beyond numbers on individual balance sheets.

At the HSBC we have long been committed to the overarching concept of sustainability. Paradoxically, the pandemic has helped us as an institution and the entire financial sector to look once again at the relationship between the capital markets and the society. It helped us see better the social, environmental and economic challenges in a much broader perspective. It also helped us consider such concepts as circular economy, sustainable growth, decarbonisation, electromobility or alternative fuels, biodiversity not only as sustainable investment opportunities but also as agents of change towards a more balanced and fulfilled society and economy.

How we see sustainable change

And that change is not a bleak promise of the future, it is happening right now, right here. We must realise that in parallel and in response to our European and global aims of reaching climate neutrality, a technological revolution is already underway. It will completely change not only the way we produce and consume energy. It will utterly change our economies, our industry, our everyday life. It is no longer about changing an energy supplier or buying A++ class equipment. Soon, thanks to an app we will be able to buy the needed electricity to light and heat our house in Kraków from a small cooperative in Lisbon that has solar panels installed on rooftops of several residential buildings. Once our weekly shopping is done, the fridge will itself calculate the electricity needed to cool the products and bid for what an owner of a geothermal plant in Slovakia's Poprad region has on offer. Our electric car charged on a 'night tariff' will sell part of the stored energy at a 'daytime rate' while waiting for us at the office garage. The windows of our home will not only keep the heat in on a cold day but will also produce additional electricity from the solar cells printed in the glass.

To bring in the full benefits of these changes to as many people as possible we need new infrastructure. And as discussions abound on new electricity grids, charging stations for electric cars, internet of things, solar panels and wind farms, there is a profound need to refocus on the buildings we need for this technological revolution to set in. Again, it is not only about energy efficiency ratings, rooftop solar panels, installing smart meters and wall boxes for e-cars in garage spaces. This is also about more efficient materials and construction technologies, and last but definitely not least – it is about renovating existing buildings to make them fit for climate-neutrality.

Reinventing buildings

Research shows that buildings generate nearly 40% of annual global CO2 emissions in the EU. This 40% number consists of operational emissions (from energy used to heat, cool and light buildings) which accounts for 28%, with the remaining 11% is associated with materials and construction processes used throughout the whole building life-cycle. And again, the building sector accounts for some 40% of energy consumption across the EU. In Poland the challenges are perhaps even greater, given that among the more than 14 million buildings present some 40% percent are individual houses – very often more energy consuming, less efficient in terms of heating sources, etc.

To address these challenges at the regulatory level, the EU has adopted an overarching strategy for a climate-neutral continent, the European Green Deal. Its underlying logic is both simple and complex. On the one hand, the options we have are simple: to reduce energy use, mostly by increasing energy efficiency and replace fossil fuels with carbon-free sources. On the other hand, implementing the European Green Deal, as specific new regulations are proposed, is met with growing realisation of costs, transformational challenges, gaps in technologies needed to meet ambitious goals, as well as the different starting points accounting for diverging perspectives between European countries, and regions.

Against these challenges, there is a consensus across Europe that a 'renovation wave' of the continent’s building stock over the next decade will be a key pillar of post-pandemic recovery and of the decarbonisation of our economies – as well as being part of a social strategy of curbing and preventing energy poverty.

To this end the HSBC has been putting ever more focus on partnering with stakeholders from the wider ecosystem that’s emerging to support this major change in the building sector – across Europe and also specifically in Poland. This is much more than simply ensuring the right and adequate financing. We see it as making change happen by empowering the most innovative entities in the construction sector, in technological innovations, digital solutions, etc. across the board. Also in this respect, we are ready to support Poland in successfully carrying out its long-term renovation strategy, once adopted.

Green financing

More broadly, HSBC is committed to being a key part of that 'green wave', as much as regards the overall social and economic aims as well as when it comes to putting in place the right tools for making it actually happen. Green financing will clearly play a major role in mobilising the funds necessary to fulfil the ambitions and reaping the benefits of climate neutrality in 2050. At the same time, green financing is becoming one of the key regulatory areas in climate policy. It means that financial institutions – investment and commercial banks, insurance companies and participants of regulated capital markets – will have to attach particular importance to climate issues. This will affect our strategies, business models and even the structure of financial products. What does it mean in practice?

Achieving the climate goals would be impossible without the involvement of the entire financial sector. What should be done is to increase the scale of environmentally-conscious investments and develop the market of green financial products such as green bonds. It is a challenging task to effectively put in place a low-carbon economy, but regulations and political decisions are supporting this type of approach. For banks such as HSBC in Poland, the EU taxonomy classifying investments according to their ability to deliver climate neutrality and environmental sustainability is crucial, both as a guidance and as a practical tool.

The EU taxonomy aims at pushing the financial and industrial sectors towards investing more in what is sustainable and what will help our societies live and prosper in a sustainable manner. It does not represent a mandatory list of activities to invest in, nor does it prejudge financial performances of those activities. Rather, it sets out the general principles to make a substantial contribution to Sustainable Development and Paris Agreement goals. It is a compass to navigate the future that does not leave too many debts and unpaid cheques for our children and grandchildren to settle.

What can companies do?

Companies must take into account the fact that capital in the world is increasingly looking for investments that meet environmental standards. Across the building sector, construction companies, building technology and service-support firms, office-building management, warehouses and shopping centres should pay more and more attention to the fact that these facilities meet sustainable development standards. The ability to demonstrate that an object meets the right criteria under the environmental and social governance (ESG) standards can become an important – even a decisive – asset in the search for an investor. Putting it more bluntly: companies disregarding ESG standards risk undermining their brand and reputation.

Let’s take a construction building as an example from Poland. There are companies which are presently testing modular constructions – which through efficiency, savings and performance support environmental goals. They can be used not in houses as well as public facilities such as schools or hospitals. Beyond that, at some point even skyscrapers could to some degree be 'manufactured' from prefabricated modules. This has a potential to revolutionise the Polish market, but also ensure a truly European and global solution. This may be just one example, but such an undertaking and innovative thinking deserve support to successfully contribute to achieving climate neutrality, making sustainability a practical reality. A small step for green financing, but a big leap for a sustainable construction sector.

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