2022 Fall Issue - 111

into three large groups: insurances, guarantees,
and fund structuration.
Similarly, ESG tools fit the four structures
of traditional TOD financing. The
most popular means of green financing
are fixed-income debt vehicles such as
green loans and green bonds. Green
policies are typically represented by
carbon taxes and cap-and-trade policies,
followed by energy efficiency incentives
such as feed-in tariffs and loans. ESG revenues
can come from specific operations
(e.g., leasing bike racks), commercial premium
revenues for green certifications, or
specific energy or carbon emission fees.
Finally, the de-risking tools are derived
from traditional de-risking measures, with
additional ESG disclosures or links to
green assets and financial vehicles.
Given the framework of available
green tools, strategic guidance for
making TOD projects attainable involves
six key points.
1. Revenues are the top priority on this
list. Linking ESG inflows to the project
operation core ensures green accountability
and contributes to solving the
current global shortage of bankable
projects. Green inflow also serves to
flag lower risks and future increases in
revenues. An example of direct revenue
streaming is that of green assets
certification.
According to Cushman & Wakefield's
2021 report Green Is Good: The Impact of
Sustainability on Real Estate Investment,
Leadership in Energy and Environmental
Design (LEED)-certificated U.S. assets
have seen a 21.4 percent higher market
sales average than their noncertified
counterparts. Differences are perceptible
among classes: multifamily assets commanded
rental and price premiums of
3.1 percent and 9.5 percent, respectively.
And class A offices garnered a 25.3 percent
premium in urban environments and
a 40.9 percent premium for suburban
typologies. When context-specific constraints
are taken into account, green certifications
could be mandated for specific
TOD developments and thus increase
commercial revenues.
On the other hand, indirect revenues
can come from current popular poli " Recently,
ESG markets have experienced
soaring popularity due to three key
characteristics: improvement in corporate
reputation, market diversification, and longterm
risk mitigation. "
cies such as carbon taxes. For example,
Canada implemented a carbon tax in
2019, and most of the streaming revenue
was reimbursed directly to citizens in
their tax bills. This inflow could be redirected
toward environmentally friendly
infrastructure projects, such as TODs.
2. De-risking liabilities should help link
revenues, financial vehicles, and policies
with legal liabilities. The proper inclusion
of ESG disclosures should state
responsibilities and demands for each
stakeholder, asset, and financial vehicle.
De-risking measures will significantly
affect the project's life cycle depending
on the stage to be covered. For example,
some de-risking actions support only the
construction stages-as was the case for
the Tideway sewage project in the United
Kingdom, which was labeled a resilienceoriented
project-by promising additional
equity and debt in case of construction
cost overruns, according to the Organiztion
for Economic Cooperation and
Development's 2021 report De-risking
Institutional Investment in Green Infrastructure:
2021 progress update.
3. Local policies are significant for TOD's
short-term financial performance. A
policy can work to motivate or deter real
estate market absorption and development.
Positive stimuli could be feed-in
tariffs, as have been used in Germany
for solar energy adoption at the expense
of government grants since 2000. In
contrast, a negative motivation could be
a mandatory energy consumption cap,
such as the Building Emissions Reduction
and Disclosure Ordinance (BERDO
2.0) in Boston, which is intended to
restrict energy consumption for commercial
buildings. However, if implementation
of such policies becomes a trend
among cities, then building grid-efficient
and certified assets for TOD will boost its
market absorption because of a relative
reduction in operation costs.
4. Governance has direct influence over
a project's financial performance. There
is near consensus that private-sector
contributions result in lower operational
inefficiencies and higher capital costs.
In contrast, the public sector is likely to
achieve lower capital costs to the detriment
of operational efficiency
and innovation.
Now, the issuance of green financing
for infrastructure vehicles has been
largely driven by public authorities and
statutory agencies, such as the Massachusetts
Bay Transportation Authority,
which was responsible for allocating
$99 million in self-designated sustainability
bonds in 2017, and the government
of Singapore, which recently made
public the future issue of $25.4 billion
in green bonds for environment-focused
infrastructure. However, private-sector
innovation may add more value to TOD
green leveraging in the future, mainly in
those countries where systematic risk is
not sufficiently mitigated. This can result
in the consolidation of private/public
partnerships as the definitive governance
structures for TOD.
The preceding four key points are
means for developers and policymakers
to consider when thinking of green tools
for TOD. In contrast, the following key
points will play an important role in the
long-term impact and consolidation of
ESG over TOD market supply.
5. ESG market maturity will come from
achievement of a more scalable, transparent,
and liquid market. This transition
will be driven by a larger consumer
sector, endorsement of policies, and
nimble coordination of market facilitators.
Nowadays, some initiatives are
already working to facilitate new sustainFALL
2022
URBAN LAND
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2022 Fall Issue

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