Paving the way for Sustainable Real Estate

Buildings in the UK are responsible for a quarter of the UK’s overall emissions. So, what can businesses in the real estate sector do in practical, realistic terms?

For the second year in a row, the Group has been awarded Real Estate Capital Europe’s Sustainable Finance Provider of the Year. As leaders in the sector, we spoke to David Cleary, Managing Director, Real Estate & Housing and Chinyelu Oranefo, Director, Sustainability & ESG Finance to discuss the benefits of sustainable finance for the real estate sector and how it can help build a greener future for people and businesses.

Q: What does winning this award mean to you?

David: We are thrilled, particularly because our clients voted our team for this award. Being recognised by the industry is testament to the work we’ve been doing to support clients and the wider real estate industry with their sustainability goals.

Q: Why is sustainable finance important for the real estate sector?

Chinyelu: The built environment is responsible for 25% of emissions in the UK and, taken together with a rise in extreme weather conditions, integrating sustainability practices to mitigate physical risks is becoming more important than ever. Risk specialists cited extreme weather to be the greatest risk in 2024 – and potentially more disruptive to businesses than AI.

Chinyelu: But when we talk about sustainability for real estate, we’re not just focused on emissions. With the impact of the cost of living and high energy prices, there’s increasing pressure for buildings to be more energy efficient.

For example, only around 30% of the UK’s existing buildings currently meet EPC Band C. This suggests that many of the UK’s existing buildings have a long way to go to reach the standards required to reach the UK’s net zero target by 2050. Not only that, but these buildings can be expensive and inefficient to run for those living and working in them.

Q: So, how can sustainable finance help businesses?

David: Sustainable finance is used as an incentive for businesses to ultimately achieve their strategy and objectives. The world is going through a transformation and our financing allows our clients in the real estate and housing industry to remain competitive.

Q: How is Lloyds Bank helping the real estate sector transition towards a greener future?

David: ?Everyone’s circumstances are different. We understand that sustainability goals can vary across the sector. Older, existing properties may require retrofitting, while new-build commercial properties may have other challenges to overcome, such as choosing low carbon materials and heating sources and integrating biodiversity net gain. From sustainability-linked loans to green bonds; we’ve got a range of tools, products, and services to help clients with their goals.

Chinyelu: Yes, we’re constantly learning, growing, and improving our own sustainability credentials.

We have a dedicated Sustainability and ESG Finance team working hand in hand with our relationship managers to inform clients’ strategies. Our relationship managers have received customised sustainability training from prestigious universities such as the Cambridge Institute for Sustainability Leadership, University of Edinburgh, and University of Exeter.

Having specialist learning programmes in place allows us to support our full range of clients – from those just getting started to those who already have advanced sustainability plans in place.

Q: What are some examples of how you have you supported clients?

Chinyelu: While we support all asset classes in the real estate sector, we are one of the largest funders of the UK housing sector and acted as Sole ESG Coordinator for the three largest housebuilder transactions last year.

We are committed to expanding the availability and affordability of safe and sustainable housing, particularly Social Housing. We recently transitioned Stonewater, a UK-wide social housing provider, to a Sustainability Linked Loan. This funding has set them on a path to deliver new housing that?exceeds?current minimum regulation standards and has already helped them achieve EPC Band C much earlier than planned. Consequently, their tenants saw their heating bills drop and experienced improvements to address dampness and mould.

This truly emphasises the importance of making sure the most vulnerable communities are supported to ensure a ‘Just Transition’.

Q: On the topic of a ‘Just Transition’, what is the bank doing to bring the industry together to best ensure the transition to net zero is a fair one?

David: We want everyone to come on this journey with us. We think a partnership approach with key stakeholders in the industry will help bring everyone together and, to date, we’ve partnered with:

1. Regeneration Brainery: a non-profit academy that introduces school leavers from underrepresented backgrounds to careers in property and regeneration industries.
2. Real Estate Balance: an organisation dedicated to improving diversity in the industry.?
3. UK Green Building Council (UK GBC): a network aimed influencing policy to drive a 'Just Transition’.
4. Sustainability Reporting Standards: a sustainability framework for the social housing sector.
5. NextGeneration: the sustainability standards for housebuilding.

An added benefit of being a part of these organisations is that it means we can stay ahead of the curve when it comes future trends and regulations. We can provide sector-specific expertise to owners and developers in shaping their sustainability strategies.

Q: What action can someone take today to help drive their sustainability plans forward??

Chinyelu: Sustainability is a journey and different for each of our clients. For those at the beginning to intermediate stages of the journey, we recommend and can support you with these five steps.

1. Understand your starting position: assessing different business areas helps identify opportunities for implementing sustainability changes.
2. Develop a strategy: informed by what is important to the organisation from a sustainability perspective – for example, climate change, nature, waste and/or people.
3. Secure stakeholder buy-in: educate and gain support from senior management on your strategy, especially if it hasn’t been established yet.
4. Set targets and track performance: starting with baseline information, set creditable targets that can be measured.
5. Review and refine: analyse performance and adjust sustainability, business, and investment strategies accordingly.

For all clients, we recommend working closely with your finance teams. It’s essential that you make sure the level of investment required to achieve your objectives is factored into your business plans. That’s where we can help. Speak to us to understand how we can support your real estate and housing business.

For more information about anything mentioned in this article, contact David Cleary and Chinyelu Oranefo or visit our website.

Interested in reading more?

• Our Clean Growth Sustainability Audit Guide can help you get started.
• The Green Buildings Tool is an interactive digital tool that can help you identify energy-efficient investments in your buildings.
• Read our recently published Sustainable Financing Framework which specifies our criteria for Sustainable Finance.?
• The Housebuilding Sustainability Finance Framework sets out how the Group will support housebuilders to access finance to build more sustainable homes.
• Read the Lloyds Banking Group sustainability report, detailing how the Group is progressing towards it’s sustainability ambitions in building a sustainable and inclusive future.