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The first Low Carbon Real Estate Show (SIBCA ‒ Salon de l'Immobilier Bas Carbone), held at the Palais Éphémère in Paris from September 22 to 24, 2022, was the meeting place for real estate professionals who are designing, building and renovating the major urban projects and buildings of tomorrow in a changing ecosystem.
Sustainability & Incentives
There is no doubt that energy performance and carbon footprints are becoming priorities and obligations for all stakeholders in the real estate sector. The building industry alone accounts for 40 percent of the world's energy consumption and is responsible, after the transport sector, for the highest greenhouse gas emissions. France aims to achieve carbon neutrality by 2050.
This is not a new challenge. Ten years ago, institutional investors started considering the environmental impact of their real estate properties. This environmental awareness has increased over the last three years, driven by several French laws aimed at improving businesses’ ESG impact. Each actor involved in the real estate industry now assumes its share of responsibility and is paying close attention to the environmental measures implemented by their counterparties to reach carbon neutrality.
Lenders want to participate in the energy transition and improve the environmental impact of their existing real estate financings. Some institutional lenders have already decided that they will only finance the acquisition of green real estate properties. For the rest (representing almost 98 percent of the French real estate properties), debt financing will be subject to borrowers’ undertakings to improve the environmental and energy performance of the buildings.
Overall, the current French hospitality market has been lagging behind in terms of energy renovation, with the exception of a few brands that have focused on the issue. Significant amounts of capital expenditure will be needed to renovate existing hotels in compliance with prolific French legislation pressing for improvements in environmental impact.
Lenders have begun inserting green clauses in loan documentation, under which they may decrease their margin provided that some conditions are fulfilled, such as obtaining environmental certifications (BREEAM, HQE, etc.), prohibiting fossil energy, or sharing annual reports on the energy consumption of the buildings.
It is possible that in the near future, lenders could even impose specific mandatory prepayment events or events of default relating to the environmental performance of the assets.