Financial institutions are increasingly focusing attention on the carbon impacts of the money they lend to corporations and individuals. This year, Britomart worked with a group of lending partners, led by Westpac, to restructure Britomart’s lending as Green Loans across our asset portfolio. As chief financial officer at Cooper and Company for the past 18 years, Melanie Barber worked with Westpac and the collective of banks to oversee the transition of Britomart’s lending to Green Loans.
MELINDA WILLIAMS What was your role in this project?
MELANIE BARBER It was really managing from the finance perspective – liaising with the banks as I would normally on a loan facility – and evaluating our buildings and loan allocations under our Sustainable Debt Framework. The Sustainable Debt Framework is a document that governs the Britomart Group in how they will manage their green loans. It sets out the green loan criteria, how Britomart allocates the loans to our buildings. We have to notionally allocate the loans to individual buildings that are classified as eligible projects. And the framework also sets out how you rate a building as an eligible project, through achieving and maintaining Green Star and NABERSNZ ratings.
MW Which banks were involved and was it challenging to restructure to a Green Loan across several banks?
MB It wasn’t challenging in that respect. Our existing lenders are BNZ, Westpac, ASB, ICBC and CCB, and Westpac largely managed the process with each of our lenders, as we appointed Westpac as our Green Loan Coordinator. Westpac had one-on-one conversations with the other lenders and I think they were all very welcoming of it. Sustainability and sustainability reporting is something all the banks are running with now, so they were very pleased to have another borrower convert to a Green Loan. The banks have their own internal reporting, so it helps them with that. And they all recognise that we’ve been doing this for so long, and that it’s intrinsic in what we do.
MW How long did the process take overall?
MB We probably started around July 2022 and finished up in mid-September. We have had discussions with Westpac about it before – all the banks talk to us about sustainable finance, and we give them our sustainability reports. But we felt it was the right time now. We’ve been building with a focus on sustainability for a long time but there’s a lot of focus on it within the banks now, and we felt it was time to formalise what was already in place.
MW How do banks decide whether a project is ‘green’ or not?
MB They look at the New Zealand Green Building Council criteria and whether the building could be an eligible project. It depends on whether it’s a new building or an existing building but in our case, it was mostly existing buildings. We had to have a NABERSNZ rating of 4 stars or above, and all our buildings in the Green Loans portfolio have 4.5 to 6 stars. The hotel was a bit different because it’s not an office building or a retail building but it was reviewed and regarded as eligible because it had a 5 Green Star Design and Built rating. Going forward, we will ensure that new buildings will have at least 5 Green Star ratings. We also had to get an assurance report from an assurance provider and we engaged EY to do that. They met with Sarah Hull (Director of Sustainability and Brand) and me and looked at whether our policies and procedures in our Sustainable Debt Framework were aligned with Green Loan principles, did an audit and certified it all. Some companies do that every year but that’s optional for us. However, we will do it periodically. Annually we also have to report on and certify all those aspects.
MW Were you familiar with the concept of ‘green debt’ before this project or was this something new?
MB I was familiar with the concept but not as much as I am now. There are different types of sustainable finance – green loans, green bonds, sustainability-linked loans – so I wasn’t as familiar with all those different concepts, and that’s where Westpac were really helpful in taking us through all that. There are also sustainable types of interest hedging for swap instruments. We haven’t done that yet but it might be something we look at in the future for our interest hedging.
MW What are the benefits for Britomart in transitioning its loans to ‘green debt’? Does it mean more favourable interest rates, or are there bigger-picture benefits for the company?
MB I think the benefits are more in the recognition of where we are at. There isn’t a benefit in terms of lower interest rates, but it is aligning our debt with our core values and approach to sustainability. I think it also sets us up well for the future, in that it’s becoming a much more common way of financing. If you look at the Reserve Bank, they’re really leading things in terms of sustainable financing and monitoring how many sustainable loans there are out there. So I think it’s going to become more important over time. It enables the public to monitor and appreciate good sustainable assets and investments.
MW What would happen if one or more of the buildings lost their ‘green’ ratings?
MB If one of our buildings lost their green rating, we would stop classifying them as an eligible project. You have to have the value of your green buildings at least equal to the value of the debt. So as long as the overall value of the portfolio of green buildings doesn’t fall below the value of the Green Loans, it's fine. We have 72 percent of our buildings classified as green buildings, so it shouldn’t be an issue.
MW Publicly listed companies may have a higher degree of shareholder pressure to move towards green loans and bonds, but as a private company, Britomart doesn’t necessarily have the same pressure. Is this an unusual step forward for a private property development company to take?
MB I can’t speak for other private property companies, however for Britomart and Cooper and Company it seems natural for us to take this step. We are led by our stakeholders – our leasing partners – rather than shareholders, and sustainability is one of the values of our community. Britomart has held sustainability as a business value and objective for a long time, having adopted a Sustainability Framework in 2017 and evolving it over time. Our commitment to sustainability and constructing and managing buildings to achieve leading green building certifications positioned us well to establish a Green Loans programme. It was timely and made sense to align our financing with our sustainability initiatives and philosophy. It enables us to formalise from a financial perspective our core values of creating a sustainable environment within our Britomart community.
NEXT / The other side of the story - why banks are increasingly encouraging corporates to get on board with sustainable debt, as explained by Kate Archer, Westpac director of sustainable finance for institutional and corporate banking.