Sustainable Melbourne Fund (SMF) and bankmecu have announced that the customer-owned bank will become a provider of finance for environmental upgrade agreements (EUAs).
L-R: Scott Bocskay, CEO Sustainable Melbourne Fund; Simone Douglas, community banking manager, bankmecu; Melbourne City Councillor Arron Wood
(photo courtesy SMF)
“We are a customer-owned bank, so we endeavour to invest our customers’ funds in such a way that will provide environmental and social returns,” said Simone Douglas, community banking manager at bankmecu. “This is a perfect way to do that, and having the security of SMF involved has been beneficial.”
EUAs are agreements between a building owner, local council and financier to finance environmental retrofitting projects. Under the terms, the building owner is advanced funds for the upgrade by the financier in exchange for having a new council charge, an Environmental Upgrade Charge (EUC), levied on the building by the local council. The council then collects this charge and passes it back to the financier. Because the charge is tied to the building, and not the building’s owner, it is considered less risky. Additionally, the structure of the EUA overcomes the “split incentive” where tenant enjoy energy efficiency savings whilst the building owner pays the charges associated with the upgrade.
The creation of the EUA structure required a change to the City of Melbourne Act to permit the collection of the EUC. The repayment structure and its existence as a statutory charge makes the EUAs a form of senior debt, with significantly less investment risk to investors. It also matches the duration of energy efficiency savings.
Other organisations that have provided finance for EUAs under the auspices of the Sustainable Melbourne Fund include NAB, Eureka Funds Management and Low Carbon Australia.
“We are excited about having bankmecu come on board as a finance partner because we think it adds to the competitive environment that we think enhances the EUA marketplace,” said Scott Bocskay, CEO Sustainable Melbourne Fund.
graphic courtesy SMF
bankmecu said that it would consider lending on terms as far out as 20 years, compared to other banks, which cap their EUAs at 10 years. Additionally, the bank has not set parameters around minimum and maximum sizes of potential EUAs, which gives greater flexibility to potential agreements.
“We see this as a fantastic, safe secure way for us to invest our customers’ fund,” Douglas said. “There’s no reason behind the 20 years – it’s not a time we selected out of a desire to differentiate ourselves. We think that it’s a reasonable and a responsible level.”
Opening up the potential lending terms as far out as 20 years could make EUAs more attractive to potential borrowers,
They’re happy to go out to that term, and that, we think, is an attractive differentiator when it comes to financing energy efficiency and buildings projects,” Bocskay said. “Longer terms make agreements more attractive on a cashflow basis over that term. It puts things like tri-generation, co-generation and solar panels right into the feasibility space for commercial buildings.”
The concept of financing EUAs is in alignment with the bank’s practices, Douglas said.
“We’ve been able to slot it into our normal business practices, which has enabled us to work quite quickly,” she said. “Our legal team looked over it, and once they were satisfied, we were ready to go immediately. We will primarily be getting deals through SMF, because lenders will have to meet the SMF requirements. This has been a Melbourne initiative, but our desire is to support and see it expand.”
See Also:
NAB funds second Environmental Upgrade Agreement
City of Melbourne EUAs extended to include property trusts
- AXA IM develops carbon footpath strategy based on forward climate action - February 28, 2020
- Australian Ethical to cut administration fees, enhance customer experience - February 28, 2020
- J.P. Morgan Asset Management developing ESG scoring framework - February 28, 2020
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