Foiled by the Banks? How a Lender's Decision May Support or Undermine a Jurisdiction's Environmental Policies that Promote Green Buildings

Abstract

In a report from the United Nations Environmental Program that addressed climate change, the authors point out that the built environment in both emerging and developed countries accounts for more than forty percent of the global energy usage while also emitting at least one third of the world’s greenhouse gasses. They further assert that the built environment offers an unsurpassed opportunity to supply cost effective, lasting, and meaningful reductions in greenhouse gas emissions. In response to such a call to action, many state and local governments turned to a variety of policies to ensure that the real estate developments within their jurisdiction furthered their green building objectives. However, the availability of mortgages to provide long-term financing for the cost of construction or acquisition of a green building will either support or undermine the policymakers overarching environmental objectives. As a result, many lenders will fail to recognize that a green building differs from a traditional one and will undercut these important environmental policies by denying the loan because the underwriters inadvertently misunderstood the unique risks and opportunities associated with these structures. Accordingly, this article seeks to address the unique issues associated with a mortgage for a green building and provide solutions that can mitigate the exposures presented to acceptable levels so the lending community can also demonstrate its support to furthering a more ecologically friendly built environment.

Keywords: Green Buildings, LEED, Green Globes, mortgages, banking, public policy, construction

JEL Classification: K1, K10, K11, K12, K2, K23, K3, K32