ESG Takes Centre Stage: Rise in Green Bond Issuance by S-REITs (Magazine)
The pandemic and a growing emphasis on corporate sustainability and ESG mandates have been catalysts for REITs to reposition their portfolios to include greener options
July 5, 2021- At the height of the global health crisis in 2020, Real Estate Investment Trusts (REITs) in the region saw an increase in green bond issuance.
In January 2021, Ascott Residence Trust (ART) announced that it had obtained a S$50 million (US$37 million) five-year green loan from DBS Bank Ltd (DBS), making ART the first hospitality trust in Singapore to secure a green loan.
Also, in January, Hong Kong’s Link REIT announced that it had converted two five-year loans totalling £200 million (US$273.6 million), signed with BNP Paribas and DBS Bank (DBS) respectively, in August last year to sustainability-linked loans. This marks Link REIT’s first sustainability-linked loan denominated in the Pound Sterling.
Several REITs also made the move in the same direction.
In March this year, Manulife US REIT (MUST) and Far East Hospitality Trust secured both their maiden sustainability-linked loan.
MUST obtained a US$250 million unsecured sustainability-linked loan from DBS and OCBC Bank, with both banks acting as sustainability advisors for the transaction. This is also MUST’s first sustainability-linked loan.
Far East Hospitality Trust, meanwhile, secured its maiden sustainability-linked loan facility worth S$125 million (US$92.72 million) for a term of 5 years from OCBC Bank, which is the sole lender for this transaction.
Elsewhere in Asia, budding REITs have also expressed their intention to tap “green” sources of funds.
Just recently, the Philippines’ Filinvest Group said it is eyeing support from sustainability-focused investors for its upcoming P14.9 billion (US$310 million) REIT offering in July.
In Malaysia, Sunway REIT and OCBC Bank announced that they are set to collaborate on sustainable finance initiatives in June.
These schemes and efforts come as the corporate commitments towards net-zero carbon emission gain traction globally. According to a JLL survey of 550 corporate real estate leaders released in June, 70% of Asia Pacific corporations indicated that they were willing to pay a rental premium to lease sustainability-certified buildings in the future.
Regulators are also catching up. In mid-June, the Singapore Exchange (SGX) launched what it calls the world’s first environmental, social and governance (ESG) REIT derivatives. These derivatives aim to meet rising demand for integrating ESG considerations into investment portfolios.
While green loans are used to fund projects that meet certain benchmarked green criteria, sustainability-linked loans generally do not restrict the use of proceeds. However, for the latter, borrowers will have to commit to sustainability performance targets and are awarded a reduction in interest rates if they meet the targets.