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Green lending criteria will support low-emission buildings

B.C. buildings well-positioned thanks to electrification push
Vancity is offering preferential terms to developers that seek financing for buildings with low greenhouse gas emissions. / Shutterstock

A new construction financing program from credit union Vancity is encouraging green buildings through preferential lending terms.

Vancity quietly launched the low-carbon construction financing pilot late last year. An online information session on March 9, sponsored by the Zero Emissions Building Exchange in partnership with the Urban Development Institute and green design collaborative LFV Solutions, will mark its public debut.

“What we’re trying to do with [the program] is try and incentivize lower-emission, more climate-resilient buildings,” said Alison Coates, director, climate strategy and performance, with Vancity. “As part of that, we’ll look to incent building a building without the use of fossil fuels for heating, water heating and for cooking, and also look at embodied carbon and … [consider] future climate scenarios.”

Buildings that don’t require fossil fuels for heating or cooking (except in emergencies) will be eligible for preferred financing terms, including reduced interest rates and fees, extended amortization periods and higher loan-to-cost ratios.

Buildings must also be designed with 2050 climate projections in mind and submit lifecycle carbon assessments to qualify for preferred financing terms.

Coates hopes the information session next week will attract the interest of builders who would like to take advantage of the program.

The initiative aligns with Vancity’s participation in the three-year-old Partnership for Carbon Accounting Financials. PCAF includes 228 financial institutions worldwide that have pledged to assess and disclose greenhouse gas (GHG) emissions in their loans investments. It includes 15 lenders based in Canada that manage more than $5.8 trillion in assets.

Besides Vancity, the country’s big five banks, BDC and the Investment Management Corporation of Ontario are members of PCAF. BC Investment Management Corp., which manages the province's public sector pension funds, is not a member but it has not ruled out the possibility of joining.

Vancity is among the lenders that have already issued disclosure statements regarding the investments. Its first statement, published last May, noted that its $18.6 billion in loans related to real estate accounted for the largest volume of emissions tracked.

However, real estate loans were relatively clean compared to vehicle loans. Vancity reported 9.6 tonnes of emissions per dollar of commercial real estate financing versus 179 tonnes per dollar attributed to motor vehicle loans.

“The advantage that we have in British Columbia is that we have a clean electricity supply, so the messaging is a little different,” Coates said. “It’s about electrification and switching.”

Vancity will issue its second report this spring. RBC has pledged to report carbon emissions associated with its loans for this fiscal year in 2023.

Other institutions will follow, with financing terms promising to tilt in favour of green buildings in the coming years.

“Today, GHG emissions have no discernible impact on the availability or cost of financing, but that is set to change,” Paul Morassutti, vice-chair with brokerage CBRE Ltd. said in the company’s 2022 outlook presentation this week. “[PCAF] will have significant impacts to commercial real estate because lenders will have to report on and include GHG emissions for the assets on which they end. The price and availability of debt will reflect this.”