Real estate: the challenge of sustainable finance

Magali Dumoitier

The Principality of Monaco has set itself ambitious goals in terms of sustainability and energy efficiency. Energy demand in buildings accounts for 33.4% of greenhouse gas emissions(*). Real estate financing is therefore a challenge for sustainable finance. – reports Monaco for Finance.

Magali Dumoitier
Magali Dumoitier

Financial institutions need to define real estate strategies that are specific to the Principality and its stakeholders.

The real estate financing must be “impact financing” integrating the Principality’s challenges in terms of environmental protection and energy optimization. Monaco has had a genuine regulatory framework since the end of 2017, with an Environmental Code (**) and energy regulations, the RE-2018 (***).
These regulations, which focus primarily on energy efficiency, set a maximum primary energy consumption (Cep) level for each type of property, and include the notion of renewable energy consumption (LABEL OTIMU).
It is interesting to note that a conventional residential building in the Principality cannot exceed a Cep level of 64 kWhep/m²/year, whereas in France 85 kWhep/m²/year could be tolerated. This requirement perfectly corroborates the Principality’s commitment to environmental protection.

LABEL BD2M, a Monegasque specificity

Monaco has created an organization dedicated to its environmental challenges, the Mission pour la Transition Energétique (Mission for Energy Transition) and an environmental label, the LABEL BD2M – Bâtiments durables méditerranéens de Monaco (Mediterranean Sustainable Buildings of Monaco).
The aim of this label is to have a broader impact than just energy consumption.
It screens each development or renovation project according to 7 themes: Materials, Energy, Water, Comfort and Health, Project Management, Territory and Site, Social and Economic.

A minimum level of 40 points out of 90 must be obtained to validate the first level of the LABEL: the bronze label.
This label is compulsory for all public procurement permits, but for private real estate projects, whether or not it is obtained depends on the sensitivity of each private developer.
This freedom to choose whether or not to “build a sustainable building” is an element that financial institutions can seize on when financing real estate developments if they want to have an impact in terms of environmental protection.

International references

Internationally, the financial sector has already defined two types of financing for property development and renovation: green loans and sustainibility linked loans (SLL). Green loans are mainly used for property development projects that incorporate environmental criteria, while SLLs enable the owner of a “green” building to benefit from economically-optimized financing on condition that the building’s sustainability criteria are maintained throughout its operation.

CFM Indosuez, a leading responsible bank

As Monaco’s leading bank, CFM Indosuez has decided to join in the Principality’s ambitions and has set itself the goal of becoming a benchmark player in supporting its customers’ energy transition, following the example of its parent company Crédit Agricole.
Since spring 2023, CFM Indosuez has taken the strong decision to integrate environmental criteria into all its real estate financing: the environmental aspect is now a fully-fledged component of the conditions for granting real estate loans.

What does this mean in practice?

CFM Indosuez has decided that its real estate strategy will have a lasting impact. To this end, it has gone beyond the regulatory framework and now requires all new financing for real estate development or major renovation projects to be awarded the BD2M label. CFM Indosuez will no longer consider financing without a LABEL BD2M, but in return, the higher the level of label sought, the better the financial conditions attached to the credit granted by the establishment. It’s even possible to make real estate financing virtuous: if they wish, developers can allocate all or part of the benefits obtained to local ESG projects. Today, this approach is unique in the Principality, and several buildings benefit from sustainable financing.

For individual investors wishing to purchase a residential property in the Principality, CFM Indosuez has created an environmental performance report drawn up with local experts ACUNA and APAVE MONACO. The aim of this report is to raise awareness of the environmental quality of the property purchased, and to provide professional advice on the benefits of carrying out eco-friendly work to enhance the value of the property.

(*) CFR National greenhouse gas inventory report 2022 for the Principality of Monaco
(**) Law n°1.456 of 12/12/2017
(***) Arrêté Ministériel n° 2018-613 du 26 juin 2018 relatif aux caractéristiques thermiques des nouveaux bâtiments, des réhabilitations de bâtiments existants et des extensions

Source: Monaco for Finance

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