Ivanhoé Cambridge Issues its First Sustainability Bond, Adopts Green IRR
Montreal, July 13, 2023 – As part of its sustainable finance program, Ivanhoé Cambridge announces the successful issuance of its first sustainability bond, rated AA (low) by DBRS1, in an amount of C$300 million. The issue carries a coupon rate of 4.994% and matures on June 2, 2028. Ivanhoé Cambridge becomes the first real estate investor to issue a senior unsecured sustainability bond2 in Canada. This sustainability bond has enabled Ivanhoé Cambridge to broaden its investor base and marks another important step in the company’s ambition to be a leading global sustainable investor.
The bond was placed with 35 investors, the majority of whom considered the sustainable characteristics of this instrument to be a decisive factor in their investment decision.
The funds raised through this sustainability bond will be used to finance or refinance eligible projects as defined in the new Sustainable Financing Framework available on Ivanhoé Cambridge’s website. Sustainalytics, a global leader in research and ratings, has issued a positive opinion that reinforces this new sustainable finance program, which focuses on green buildings and affordable housing. The proceeds of this bond issue will be allocated to the CICB SQUARE building at 81 Bay Street in Toronto and to certain buildings of a US multifamily portfolio.
“For a number of years, we have sought to reconcile the ESG performance of our portfolio with the company’s financing strategies,” explains Simon Lauzier, Chief Financial and Business Performance Officer, Ivanhoé Cambridge. “This first sustainability bond follows our inaugural green bond issuance in 2019. By incorporating new criteria, particularly in terms of affordability, it represents a real innovation in the market and confirms our desire to play a leading role in the property industry in terms of sustainable investment. This approach also enables us to deepen and strengthen our relationships with our financial partners by demonstrating our ability to innovate in the field of sustainable financing.”
Stéphane Villemain, Head of Sustainable Investment, Ivanhoé Cambridge, added: “We are convinced that sustainable investments are profitable in the long term and, more than ever, we want to combine environmental and financial performance together. This first sustainable bond will help to fund initiatives aimed at improving our assets’ environmental and social performance, and thus further our ambition to have a significant and lasting impact on our communities.”
The bond issuance was carried out with TD Securities Inc., CIBC World Markets Inc., RBC Dominion Securities Inc., and Scotia Capital Inc. as bookrunners, and Desjardins Securities Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., and Laurentian Bank Securities Inc. as co-managers. TD acted as sustainability structuring advisor.
This transaction is part of a sustainable financing approach initiated several years ago. Over the past five years, Ivanhoé Cambridge has issued more than C$14 billion in sustainable financing through a variety of instruments. In 2019, the company led the way by becoming the first real estate company in Canada to issue C$300 million in senior unsecured green bonds. The proceeds of this green issue were allocated to refinancing work on the Édifice Jacques-Parizeau, Place Ville Marie, and Maison Manuvie in Montreal, and Place Ste-Foy in Quebec City. That green bond has improved Place Ville Marie’s energy performance and reduced its operational carbon footprint by modernizing the envelope of the various towers and installing heat pumps, which should eventually reduce carbon emissions by around 40%. The Édifice Jacques-Parizeau, for its part, has introduced rigorous practices aimed at better managing its indoor air quality, as well as a high-performance green cleaning program. In addition, to ensure continuous improvement in Maison Manuvie’s energy and carbon footprint, an ongoing monitoring program has been implemented to monitor data in real time and identify further opportunities, such as reductions in energy demand, reduced lighting schedules or adjustments to heating and cooling. Finally, the investments made in Place-Ste-Foy have led to improvements in energy, water and waste management policies and practices.
1 DBRS Morningstar is a leading provider of independent rating services and opinions for corporate and sovereign entities, financial institutions, and structured finance instruments globally. DBRS is the fourth-largest credit rating agency in the world (
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2 The purpose of a green bond is to finance green buildings. The purpose of sustainability bond is to finance green buildings and affordable housing projects.
My summer rules are to blog less and enjoy life more, so I will keep this short.
Ivanhoé Cambridge becomes the first real estate investor to issue a senior unsecured sustainability bond in Canada. This sustainability bond has enabled Ivanhoé Cambridge to broaden its investor base and marks another important step in the company’s ambition to be a leading global sustainable investor.
The key part of the statement is here:
“For a number of years, we have sought to reconcile the ESG performance of our portfolio with the company’s financing strategies,” explains Simon Lauzier, Chief Financial and Business Performance Officer, Ivanhoé Cambridge. “This first sustainability bond follows our inaugural green bond issuance in 2019. By incorporating new criteria, particularly in terms of affordability, it represents a real innovation in the market and confirms our desire to play a leading role in the property industry in terms of sustainable investment. This approach also enables us to deepen and strengthen our relationships with our financial partners by demonstrating our ability to innovate in the field of sustainable financing.”
Stéphane Villemain, Head of Sustainable Investment, Ivanhoé Cambridge, added: “We are convinced that sustainable investments are profitable in the long term and, more than ever, we want to combine environmental and financial performance together. This first sustainable bond will help to fund initiatives aimed at improving our assets’ environmental and social performance, and thus further our ambition to have a significant and lasting impact on our communities.”
As global warming grips large parts of the world, it is worth thinking long-term about real estate investments and wondering how their sustainability score impacts their value.
Ivanhoé Cambridge CEO Nathalie Palladitcheff told me two years ago that a moment of truth is coming to real estate.
She wasn't referring to Offices and the working from home debate, she was referring to the obsolescence of real estate assets that don't incorporate sustainable finance in their framework.
At one point, she told me, there will be no bids for these assets as investors and consumers will shun them.
Now, as far as improving IC's assets ESG performance, the devil is in the detail.
Stéphane Villemain, Head of Sustainable Investment, talks up a nice game with his distinctly French accent but the truth is it's not that easy retrofitting old real estate assets to improve their ESG performance.
It's costly, very costly and sometimes very difficult decisions need to be made.
Over the weekend, the Montreal Gazette had an article on how sparsely populated office towers in downtown Montreal be turned into apartment buildings to help solve the housing crisis.
It's debatable whether Montreal has a "housing crisis" as we are not Toronto, most of the one million immigrants that enter Canada go live there, not here.
But it's also not easy retrofitting these old office towers to modernize them and put them up to code with the city's standards for residential buildings (plumbing, HVAC, sound proofing, etc).
In many cases, it's easier and better to tear down existing buildings and start anew but that too is costly and isn't better for the environment.
How to do you measure all this? That's a good question for Stéphane Villemain and his counterparts across Canada because so far, I haven't seen any compelling data.
But in a blog post, Villemain explains why we need to rethink the financial valuation of our properties:
To meet the climate emergency challenge, it is imperative that real estate players shift gears and incorporate carbon transition impacts into the valuation of buildings. Implementing a “Green IRR” (internal rate of return) will allow property appraisals to take into account the energy and carbon improvements that must be carried out to adapt those buildings to the highest environmental standards. This will be an indispensable tool in preventing the obsolescence of properties and thereby meeting the growing expectations of tenants and users for low-carbon, sustainable buildings.
The world has embarked on a profound and essential climate and environmental transition. The worldwide multiplication of energy- and carbon-related regulations serves as a reminder—if any were required—of the urgent need to act and to adapt current practices. Naturally, real estate is no exception to this groundswell. Real estate accounts for nearly 40% of global greenhouse gas emissions. More importantly, we know that 80% of existing buildings in urban centres must be retrofitted to achieve a 1.5°C pathway. In the face of the climate emergency, the status quo is clearly no longer an option. As a property owner managing a worldwide portfolio, it is therefore critical that we adopt proactive measures and redouble our efforts to accelerate the decarbonization of existing assets and ensure a sustainable and healthy future.
Preventing risks and seizing opportunities
The issue is far from trivial. Failure to act will put existing buildings and properties at serious financial risk. If we do nothing, the result may well be mounting operational losses in the years ahead, tenants who are less inclined to rent our spaces and, consequently, higher vacancy rates. Cash flows from our assets could also be impaired over time, likely resulting in a decline in value. All these elements demonstrate that we urgently need to decarbonize our buildings to avoid the risk of those assets becoming obsolete sooner rather than later. In fact, 3% to 10% of asset value is at risk of obsolescence due to the carbon transition.
All property portfolios are exposed to this risk, especially when one considers that the impact of the carbon transition is still greatly underestimated by the market: current property valuation methods rarely take into account environmental and energy performance and the impact of the changing climate on asset value. In most of the markets in which we invest, carbon has no price. In fact, only 30% of global carbon emissions are currently covered by pricing. And yet we know that climate change is one of the key threats to real estate. As a result, building valuations and returns can sometimes be overestimated, while the value of low-carbon assets tends to be underestimated. We therefore need to be proactive and ahead of the market to protect the value or our assets and, in so doing, strengthen the resilience of our portfolio.
Climate change is synonymous with risk for the real estate sector, but it also heralds a host of investment opportunities. Greening buildings must create value, through greater responsiveness to tenants’ and users’ expectations. Moreover, such an approach has the potential to generate operational benefits from reduced energy costs for us and our tenants.
Integrating carbon price into valuations
It is thus imperative that we gear up and evolve our property asset valuation methodologies, starting today. In that regard, applying a Green IRR is an optimal solution for integrating a carbon value into our financial modelling. A Green IRR factors in a carbon-related operating cost as well as a “green premium” or “brown discount” on portfolio assets, based on their environmental and carbon performance. This tool will enable us to identify which of our assets are most financially sensitive to the risks associated with the low-carbon transition. As such, a Green IRR will help inform our investment decisions, and also deliver insights to our asset management teams on what improvements to pursue to optimize environmental performance. By providing a more comprehensive analysis of carbon-related costs and benefits, this new indicator will strengthen our assessment of value creation via green investments in our properties.
We encourage all of our peers and stakeholders in our value chain to join us by factoring carbon risks and opportunities in their asset performance evaluations, to help expedite this much-needed transition in the real estate sector.
I agree, it's about time the pension industry adopts a green IRR for all its private investments, not just real estate.
Below, Stéphane Villemain, Head of Sustainable Investment at Ivanhoé Cambridge makes the case for a Green IRR. Unfortunately, I cannot embed this video here, only a pic of it but you can watch it at the end of this blog comment here (hint: put clips on YouTube channel or allow access to embed code on Vimeo).
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