21 July 2023

$400m C-Pace green bond programme launched

Calvert Impact is hoping to raise $400 million through an asset-backed green bond that will finance energy-efficient commercial real estate.

The Cut Carbon Note will finance commercial, industrial and multifamily buildings that have received energy-efficiency and clean energy upgrades via the Commercial Property Assessed Clean Energy (C-Pace) programme, or are new builds with strong green credentials.

The C-Pace programme currently operates in 30 states in the US, and allows developers to access financing to upgrade their buildings so they can reduce the amount of energy and water they use.

Justin ConwayProperty owners that choose to participate in a Pace programme repay the upfront costs over a set time period — typically 10 to 20 years — through property assessments, which are secured by the property itself and paid as an addition to the owners' property tax bills.

The notes are issued as the result of a partnership between Calvert Impact and Pace Equity, the originator of the financing to the C-Pace projects.

The majority of the assets in the Cut Carbon portfolio go beyond C-Pace requirements and conform to the CIRRUS Low Carbon Standard, developed by Pace Equity and the New Buildings Institute, which provides measure-by-measure requirements to develop low-carbon buildings.

Justin Conway, Vice President of investment partnerships at Bethesda, Maryland-based Calvert Impact, said the Cut Carbon Note gives impact-minded retail and institutional investors an opportunity to directly invest in the C-Pace market, via an investment-grade fixed-income product "that aims to transform the way we build and reduce carbon emissions".

"Cut Carbon is a small step towards transforming an industry, but it can demonstrate what's possible and generate momentum to move us towards the more sustainable future we urgently need to create."

He argued that Cut Carbon's impact is unique in two ways:

  1. It has high levels of additionality, in that it's driving sustainable upgrades to buildings that wouldn't happen otherwise without this financing because they are too expensive for developers to consider.
  2. It has a high level of transparency around impact. "Investors are eager to be part of climate change solutions, but they require transparency and accountability around impact," he argued. "Alignment with impact management and measurement standards is not enough – they want reporting on the tangible aspects of their green investments."

DBRS Morningstar provided the provisional credit ratings, S&P Global Ratings provided a second party opinion on green bond alignment for the Cut Carbon Note, and BlueMark provided a second party opinion on alignment with the Impact Principles.

Conway told Environmental Finance: "In addition to alignment with the Green Bond Principles and the Operating Principles for Impact Management, the Cut Carbon Note reporting will measure actual emissions reduction over the life of the loans to transparently track and report the impact and compare to the initial engineering analysis.

"For example, once the efficiency upgrades have been completed, the buildings will be enrolled in an automated utility monitoring service, allowing us to track actual energy, water, and gas consumption, which will also be made available to investors.

"Reporting will also attempt to identify and document any changes in developer behavior motivated by the Cut Carbon Note, which is the ultimate goal – to change the way we build so that sustainability is a 'no brainer' in every construction decision."

Calvert Impact hopes to raise some $30 million in the first tranche of issuance.

The notes are issued by a special purpose vehicle called Calvert Impact Climate. There are three classes of Notes that can be issued: Class A, provisionally rated AAA by DBRS Morningstar with a 5.50% coupon; Class B, provisionally rated AA by DBRS Morningstar with a 5.75% coupon; and Class C, provisionally rated BBB by DBRS Morningstar with a 6.50%.

Calvert Impact
Justin Conway