Green Financing at the Crossroads: From Asset-Level Data to Market Transformation | The Pulse by GRESB

In this episode of The Pulse by GRESB, host Katy Aylward, Director of the GRESB’s Partners Program,  discusses with Antonio Marotta, Regional Director at Catalyst, and Juan Palacios, Assistant Professor at Maastricht University and Visiting Assistant Professor at the MIT Center for Real Estate, how sustainability performance is changing real estate access to capital. The evolution of green financing, from sustainability-linked loans and bonds to new structures that reward quantifiable impact, is examined in relation to asset-level data and benchmarking. They also examine how artificial intelligence, investor expectations, and regulations are assisting in bridging the gap between aspiration and action. Listen to insights from:

Can’t listen? Read the full transcript below. Please note that edits have been made for readability.

Katy: Hello everyone and welcome to The Pulse, a podcast by GRESB where we explore important and timely topics in real asset sustainability, resilience, and performance. My name is Katy Aylward, Director of the GRESB Partners Program, based at GRESB headquarters here in Amsterdam. I’m delighted to host today’s conversation on GRESB and green financing, unlocking capital through more sustainable assets.

I’m joined by two guests, Antonio Marotta, Regional Director at Catalyst, a consultancy specializing in strategy and sustainable finance for real estate, and Juan Palacios, Assistant Professor at Maastricht University and a Visiting Professor at the Massachusetts Institute of Technologies Center for Real Estate. We’re going to dive into the past, present, and future of green finance. Welcome, gentlemen. How are you both doing today?

Antonio: Hi. Good morning Katy. Thank you for having us.

Juan: Hi, Katy. Good morning and it’s a pleasure being here.

Katy: Looking forward to a great conversation today. Let’s start by grounding ourselves in the basics. The term “green financing,” it gets used a lot these days, but it can mean different things depending on where you sit in the market. I’d love to hear from both of you, when we talk about green financing in the real estate sector today, what do we actually mean? Juan, can I start with you on this one?

Juan: Absolutely. It is actually a very hot debate now in the whole sustainability finance literature and academic world, but also in real practice of what is green finance, what should we do? And there’s a whole debate around values versus value. The values side will say that green finance should be just focused on achieving certain societally relevant goals like reducing emissions, better social performance of those investments, getting better human rights for people, better governance for companies. While the value side is telling us that those should be done through the lenses of achieving financial performance and financial return.

And this is a whole debate that you see also in the whole investment landscape of certain sides of the world and certain investors deviating towards more the value proposition and really trying to do things that are only justified through the lenses of reducing risk for the investment or achieving higher returns. And that’s what you see in the world, now and also where platforms like GRESB play a very important role where we are really needing to prove those impacts of materiality and financial materiality of those investments. So that’s where the world is tilting towards more than what it was 10 years ago, that we are going towards a world where investors are looking more for impact and financial materiality.

And for that we need to prove how our dollars are spent and how the performance of the portfolios where we are invested in are going. So that’s where a lot of the platforms like GRESB are playing a very important role, even more important in my opinion, than they were playing 10–15 years ago.

Katy: That’s a super helpful lens to show not only where we’re at today, but how far we’ve come. Antonio, do you have anything to add there?

Antonio: Probably compared to five years ago, we are seeing a shift into measurable and actionable KPIs. Sometimes ago it was just a matter of highlighting and explaining what was the purpose and the commitment. Today probably there is a shift into having transparency and visibility of what has been done.

Katy: Great. So now that we’re aligned on what we mean by green financing and how the market has evolved, let’s shift a bit into the evidence behind it. Antonio, what does the data tell us about the relationship between sustainability, performance, and cost of capital, and is that link getting any stronger?

Antonio: Well, definitely. So, data is of course at the basis of everything because, both in new developments, in standing assets, but also when we are looking at sustainability linked loans at the fund level. In all of those cases, we really need some data that really put the basis and that the commitments are real. So, of course, collecting data is probably the most complicated task at the moment. And that’s why we are seeing in the market that some strategies are being adopted, like the installation of automatic meter readers or platforms driven by AI. So all of those tools that are used, you know, on the ground then help, to collect data also at the higher level and then this data is manipulated and calculated and also validated at the end so that the final results is something really transparent and consistent as well.

Katy: Excellent. Juan, how are you viewing the data and connection here? Are you seeing concrete evidence that investors or lenders are rewarding high performing assets and funds with better financing terms, for example?

Juan: So in the academic literature, what we are seeing is that there is a strong connection here with mainly transition risk, but also physical risk. These are both related to the risk of an asset or a portfolio being exposed to certain changes in regulation that will make them pay penalties or forbid them from certain actions like leasing part of the portfolio and so forth.

But also with exposure to extreme heat, certain climate events or even extremely high energy prices. These are risks that are there and what we know from climate finance, but also for one of the core principles of finance is that returns and what you ask for your money is just a compensation for the risk that you are incurring in any investment as a lender just providing debt or a certain equity investor trying to really have part of the ownership of a portfolio or a building. So, investors will ask for more money, or lenders will ask for more money if they see that an investment is riskier. So if the test that has been done here in the literature and what we see in the literature is are investors requiring less money and therefore requiring less return if the portfolios where they are investing or lending are having a higher degree of greenness or a higher degree of environmental performance. And that has been done in multiple markets, in the bond market, in the mortgage market, in the rate market. And what you consistently see is that greenness correlates negatively with the cost of capital for those types of vehicles.

So the higher the proportion of green assets, the higher of green performance, the lower the cost of capital for those bonds, for those firms, issue in bonds, mortgages, or for those, equity markets, of REITs. This is what you see, this is evidence mainly coming from the US. And this is in line with what basic theory will say, that you will request lower return if you see that those portfolios, those assets are exposed to lower amount of regulatory or physical risk in them. And this is what we see in the data.

Katy: Yeah, so it’s clear the relationship between sustainability performance and capital cost is increasingly quantifiable. As we know, the data only matters if it can be translated into metrics that resonate and narratives that both investors and lenders understand. So, let’s dig into what those metrics are and how they’re being communicated in the capital raising process. Antonio, at Catalyst you help investors and managers integrate GRESB benchmarking SFDR Compliance and Decarbonization Pathways into their strategies linking Asset level data with financial outcomes to unlock green and sustainability linked to financing. What specific metrics are most influential in financing decisions right now?

Antonio: That’s a great question. What we see is a shift between the pure green bond or green loan that can be given to a building. So, in case of new developments or forward funding assets. And this is different than what we’re seeing at the fund level.

When it goes to the Asset level, what we’re seeing are, KPIs that are linked to both construction of the Asset. As well as good governance and good performance of the assets once it turns into operation. Internally, we use our platform called OB. That helps collect all the data and, transfer them into reports that can be issued to lenders, for example. Now, the KPIs that we use at the Asset level are both intensities in terms of research intensities. So, energy use, water use, waste and materials being used as well as credentials that are achieved by the assets. So, green building certificates like a certain level of BREEAM, or LEED, like Duke Taxonomy alignment, the primary energy demand of the assets. So these are really the defined and detailed KPIs.

Then at the fund level, we see it’s more overarching that collects the performance of the underlying assets. So in that case, what we see is a mix of, of course, GRESB benchmarking, so we are seeing different margins reduction in case of the scores that we get with GRESB. That, of course, is the most recognized tool also for the likes of investors. But we also see a certain amount of net zero commitments across the underlying assets, as well as, again, a certain level of green building certificates.

Now to finalize these points, what we see in detail is a margin reduction that can go from maybe five basis points to up to even 30 basis points. This may seem a small amount, but if we escalate it to a loan, that can be maybe in the order of hundreds of millions, the saving can be in the order of hundreds of thousands of euros per year. And this really makes the difference between a deal that can be done from a deal that cannot be done.

Katy: Absolutely. Juan, your research lies at the intersection of real estate, sustainable finance, and environmental economics. With a current focus on the motives and impacts of investor efforts to promote sustainability in the built environment. In your view and experience, are we seeing consistent expectations from investors around linking sustainability performance to capital allocation decisions?

Juan: We are definitely seeing that the investors are seeking more and more, as I mentioned at the beginning of the podcast, to show impact and to show changes in the real world associated with the investments and that has to do with a lot of the discussion that you were having with Antonio where you need to go to the asset level, you need to prove real impact with real data, you need to move beyond also certain certifications that you might be using at the beginning of your investment to more real, hardcore data on emissions, on energy and so forth.

And that’s where you see that the world is going and the journey is of the investment world in terms of the data seeking, that they were doing, they are getting closer to the reality in the built environment, and that has to do with getting to more micro as of more to the asset level and getting to more real hard metrics beyond just white certifications and so forth, and really try to get into what it means for emissions, what it means for energy consumption, what it means for water consumption when it comes more to investors that are now more focused on biodiversity metrics and so forth. And when it comes to climate goals, biodiversity goals, they tend to be associated with these metrics and they tend to be associated with metrics that are really coming bottom up from the asset level. So this is all aligned with the reality that Antonio was describing in his answer.

Katy: Yeah, and this is a great pivot point really to the financial mechanisms themselves. How are these metrics that you both just discussed actually being integrated into the deal structures? And how are tools like GRESB, for example, influencing the terms and availability of financing? Juan, I’m gonna bring this one to you. What innovative financing structures are you seeing emerge that tie directly to sustainability metrics?

Juan: We have more and more versions of the original ideas of green bonds where you have the proceeds of an investment being linked to actual sustainability metrics, which could be energy savings, or it could be CO2 emissions, and now you have climate linked bonds that are trying to link this to more financial, physical risk type of metrics. You also have more innovative solutions in the biodiversity front where you have things like the Rhino Bond of the World Bank that is trying to link the proceeds of a bond to the population of rhinos in certain parts of the world. So, this is something that, what you see is this connection between the financial performance of a vehicle being linked sustainable success of certain mission of an organization like the World Bank. So this connection between reality and impact and financial proceeds are being implemented in multiple vehicles in different shapes and forms.

Katy: It’s exciting to hear how these structures are evolving to more directly reflect sustainability outcomes. Love those examples.

And that brings us to the role potentially here of data and benchmarking, because these financing structures only work when there’s trust in the underlining performance metrics, right? So, Antonio, let’s talk for a minute about GRESB. In practice, how is GRESB benchmarking influencing the terms or availability of sustainability linked loans and bonds?

Antonio: First of all, the the reason why investors and lenders almost, look at GRESB as a minimum requirement to provide green loans is because, if our clients and people we work with are submitting to GRESB it means that they are committed to collect energy data, calculate the greenhouse gas emissions in scope one, two, and three. They’re committed to provide information regarding the management of the fund itself. So, probably, if a fund, is already committed to report onto GRESB, this means that they have a certain level of also internal engagement and knowledge, on those parameters. Now, in concrete, what we see is that, based on the certain level that the portfolio and the fund scores during the final submission we’re gonna have some sort of recognition in the loan.

So what we’ve seen is that there are some thresholds that goes from a margin reduction and then they can also be a margin penalty in the case, you know, GRESB is not even submitted, so, the margin reduction can be, again, up to five basis points, what we’ve seen, while the penalty is in the case of, maybe, the fund that was committed to submit then is not submitted. But this has never happened. It’s only probably an incentive for the funds to submit. Acccording to the final score, we are seeing a different, margin reduction.

Katy: Great. So we’re seeing no shortage of innovation and influence here and clearly seeing progress. Yet we know the reality is that adoption across the market is still uneven. So we’ve talked a bit about the current landscape. Now let’s look forward and dive into what is holding the market back and what will it take to move from innovation pockets to industry-wide adoption. Juan, what are you seeing as the main roadblocks preventing wider adoption of sustainability linked financing in real estate?

Juan: What you see in the market is something that has been a common theme in this podcast that investors has been increasingly pressured to show what the dollars that they are using on behalf of others are making and that is something that is being increasing over the last years is something that the current geopolitical landscape is even making it even more salient that the people really want to know where their dollars are going and what they are being used for, and what are the impact of those dollars and beyond the real estate industry as of the traditional real estate vehicles.

Real estate as an asset, as a key component of the production process of many, many firms in the world is critical for that. And what it means is that if we want to transform the world in terms of climate, in terms of society and so forth, we need to transform real estate assets or real assets. One of the things that is getting on the way to achieving the goals of sustainable finance or sustainability in general is that transforming those assets is hard.

This is what they call hard to abate sectors, but most of the sectors are hard to abate as of if you want to put a strong, criteria to be accomplished by tomorrow. You will probably feel very, frustrated because a lot of companies will not be able to accommodate because a lot of companies will need to go through their buildings, through their equipment, through their infrastructure to achieve those goals, either in social relevant manner, like, trying to give better working conditions to people so that you have to improve most of the cases the workplace of these people, or reduce emissions of your operations, then you need to replace equipment like boilers, install solar panels and so forth.

That has certain lifespan to be done and, that cannot be done so regularly. Like the lifespan of a water boiler is probably in the order of 15-20 years. And that’s something that is coming on the way that we have a physical reality to transform with our dollars and the way that this is being reflected in the market is that there has been some frustration. You’re not only seeing from investor initiative, but also local governments like the New York City government with the local Law 97, has been facing certain struggles to transform the portfolio in the city in the time that they prepare because buildings take a long time to transform.

Where this is going is that we need to link even more strongly the physical reality of the investments that we are making with the goals that we are trying to achieve with the companies in which we are investing or in the portfolios that we are investing. And that is requiring a next layer of data to come in and to support the existing data sets that will allow us to actually be able to time those investments in a way that we can optimize the efforts and we can optimize the use of our dollars, but also the use of our shareholder voting rights when it comes to large investors.

If we, I’m going to file a proposal to ask a company or a portfolio to change certain aspects of their operations, I better do it in the moment that they are ready to accommodate my preferences, because otherwise I send my team, put my effort in things that will be impossible to accomplish.

So this reality needs to be much more connected and that has to go through having better informed decisions, and that has to go through better micro level data sets in my view.

Katy: Absolutely. So we’re struggling to not only see improve that impact, but that timeline is long, right?

Juan: Mm-hmm.

Katy: So it isn’t just about doing the right thing, it’s about that making that connection about value creation, risk management, and competitive advantage. And as the market matures, as you pointed out rightly there, that link between asset performance and capital cost is only going to get stronger. Antonio, how would you augment or amplify that with what you’re seeing on the ground? Are there any examples you can share of barriers your clients are facing in this space?

Antonio: Oh yeah. And completely aligned with what Juan just described and, another point that we often hear from clients, is why are we setting targets to 2050 that is in 25 years.

We need to see some sort of results and evidence before that. So, in reality, what we are doing is having milestones, that probably goes to 5-10 years at the maximum. And then, if the milestones are achieved, then we are in a good way to achieve our final goal by 2050. The main roadblock that we see is regarding data. So, again, the shift that we have seen in the last couple of years is that we are trying to go back to the basics.

Identifying specific KPIs and specific metrics that are really measurable because if it’s too complex then also clients tend to have a sort of fear. They say ‘Oh my God. This may be too complicated for us. I don’t want to commit.’ Well, if we go back to basics and we identify specific KPIs that can be actioned and can be measured, then its a first step. And then when they see the good results, then we can go further. But I think in this landscape that we have at the moment of uncertainty.

I think we need to really provide some sort of benefits that we have seen in the last couple of years, because at the end, it’s not all negative. We have also seen good results, but we need to show it it’s not only about hitting the requirements by the lenders, but it’s also about showing what has been done to define the road also for others to provide a positive, influence to the artists as well.

Enjoyed the episode? Read below the full conversation and additional insights on green financing.

Katy: I love how we’re shifting into the optimism here. As the two of you have shown, there’s obviously momentum in aligning sustainability with finance, but the path isn’t without friction. The physical realities aren’t matching long-term goals. And although there is evidence of premiums, it’s not enough. Sustainability needs to be hardwired into the deal, and timing is critical.

With that mindset, whether it’s regulatory shifts, better technology, evolving investor expectations, or more stringent sustainability-linked lending requirements, as we look ahead, where do we see the biggest opportunities over the next three to five years to better connect sustainability performance with financial outcomes, including capital flows, of course?

Antonio, kick us off with the optimism here.

Antonio: Well, first of all, we haven’t mentioned yet, but it’s not only about financial return, it’s also about a better operation that the building can achieve at the end. So there’s not only a cost reduction for the cost of capital, but it’s also a cost reduction during the operation of the building.

For the next three to five years, I see an environment where best practices can really set the rules for other, let’s say, more complicated projects. And I think it doesn’t necessarily need to come from big players, it can also start from smaller players in the market that are doing things in the right way and where they see benefits.

Again, for the next three to five years, I see a scenario where, probably, regulations are something that is changing along the way. But it’s not only about regulations or market trends, it’s a mix of everything. So I think we need to have a holistic view, and even though we are setting milestones for the next years, we need to have a longer perspective.

That is what investors look at in the end. If we keep this in mind, I think there is a good possibility for us for the next years.

Katy: You mentioned regulation. I think we’d be remiss if we didn’t touch upon that here. Antonio, is regulation an opportunity or a catalyst in shaping the next wave of sustainable real estate investment?

Antonio: A hundred percent, a hundred percent. We have worked a lot with the upcoming regulations in the past months, but also years. And even though they are continuously updating regulations, for someone who is not an expert in the field, it may sound confusing. But in the end, probably the shift that we are seeing in regulations is that they’re trying to make them as applicable as possible.

That’s why it may seem like a sort of pushback from regulators. What we see is that, at the beginning, regulations were not really applicable, while at the moment, the idea behind regulators is to make them as usable as possible.

Again, regulations are not meant to be something that stops you from making deals and from making your projects or doing your developments, they should be a catalyst to do it. Even though it may sound tricky to understand or to navigate the environment, once you understand the points that you need to touch, I think regulators can be a promotion of sustainability.

Katy: Excellent. Thank you for rounding that out.

Juan, can I ask you to speak a bit about technology here to close us off? From your perspective, how is technology, especially advancements like real-time data and AI, helping us close the gap between the physical realities and the long-term goals that you touched upon earlier?

Juan: Everything starts with, hopefully, what we are trying to help here, that is asking the right questions. If we manage to help investors and operators ask the right questions, then there is a bulk of technology that is coming to support implementing the right strategies.

There are two things that are going to be facilitated, in my view, by technology. One is benchmarking and, in general, access to information at a layer that was very hard to access before. The other one is optimization.

And there you have two key technologies that are going to support this, one is AI, and the other is the whole effort being made in developing digital twins and bringing the physical reality into a digital reality, actually being able to pilot-test a lot of strategies on a digital version of your building or portfolio and see how that will respond, and whether that response is going to be aligned with your goals and your strategies.

That is one. And in general, what a lot of the technology that you are seeing with AI is able to do is compile and disseminate information at a much larger scale than we used to. But also now, with the development of AI agents, you can go to a much deeper layer of information. That is going to unlock possibilities that were not there before and will allow us to monitor the impact of those strategies or those asks, not only by the owner but also by the investor, at a level that just was not there before.

Katy: Gentlemen, I just wanna thank you both. These perspectives have brought the conversation full circle, whether it’s regulation, acting as a catalyst or technology, bridging the gap between ambition and reality. The connection between sustainability and finance is only growing stronger. Juan, Antonio, thank you both.

Juan: This has been a very rich conversation.

Antonio: Thank you so much, Katy.

Juan: Thank you very much for having us.

Katy: Thanks to our listeners for tuning in for this episode of The Pulse. We encourage our listeners to keep this conversation going with your teams, your partners, and across the industry, because the more we connect performance with capital, the faster we can scale a more sustainable built environment. I’m Katy Aylward, director of the GRESB Partners Program. It’s been a pleasure. Until next time.