Malaysia Green Building

Council Webinar on Green

Financing

14 June 2022

Organized by Establish Member of Presented by Ms ARINA KOK

Malaysia Climate Change
and Sustainability Services
Leader and Partner, EY
Disclaimer
► The views of third parties set out in this webcast are not necessarily the views of the EY
organization or any of its member firms

► This material has been prepared for general informational and educational purposes only
and is not intended, and should not be relied upon, as accounting, tax, legal or other
professional advice. Please refer to your advisors for specific advice

► Neither the EY organization nor any of its member firms thereof shall bear any
responsibility whatsoever for the content, accuracy, or security of any third-party websites
that are either linked (by way of hyperlink or otherwise) or referred to in this presentation
Today’s
speaker
Arina Kok Arina is a partner with Ernst & Young Consulting Sdn.Bhd and the Leader of
Malaysia Climate Change Climate Change and Sustainability Service practice. Arina has more than 16
and Sustainability years of experience in providing various types of assurance and business
advisory services to public listed, privately held companies and subsidiaries of
Services Leader and multinational companies (MNCs) in various industries, including financial
Partner, Ernst & Young institutions, energy, shipping, construction, property development and
Consulting Sdn. Bhd. investment, contract services providers, power plant operators, manufacturing
and trading entities, hotel operations, and education
Agenda

01 Introduction to green building

• What is green building?
• Malaysia's plan on green building

02 Sustainable finance: Turning challenges into

opportunities
• Current developments and trends in the area of sustainable
finance in the construction area
• Opportunities, challenges, and enabling conditions to benefit
from growing sustainable investment opportunities
 Introduction to green buildings

Page 5
Building sector: an overview

About 40% of global Construction accounts for

The sector has annual Almost every industry is
catered for by the building
revenues of almost
sector
energy-related greenhouse
around 6% of the world’s US$10 trillion and
gas emissions comes from • Housing 38%
Gross Domestic Product over 100 million
building construction and • Infrastructure 32%
(GDP) and for more than 8% employees
operations. This is expected • Industrial sites 13%
of GDP in developing
to reach 70% by 2050; • Commercial buildings
countries, according to a
primarily due to the 12%
sector report by the World
increase in electricity and • Institutional buildings
water demand
Economic Forum 6%

Source: EY: Built to last - sustainable buildings framework

Page 6
The industry is undergoing a global transformation that is altering
the way we live, work and play

1 Global average building intensity needs to decrease

by 30% from what it is today to reach the objective of limiting
climate change to 2oC

For opportunities to be realized, stakeholders

throughout the building sector value chain – e.g., designers,

2 developers, contractor, owners and tenants – rely on

enablers. Strategy enablers to set the ground rules, financial
enablers to leverage investment and market enablers to
streamline project delivery

No overarching and singular definition of green

buildings financing, given the varying standards and
3 requirements across different nations. Most countries define
this type of financing as that related to commercial, residential
and other building assets that are of sufficiently low carbon
intensity and certified as such to quality for such a label and
financing

Source: EY: Built to last - sustainable buildings framework

Page 7
 1.1
What is green building?

Page 8
What is a green building?
Features of a green building
A ‘green’ building is a
building that, in its design, 1 2 3 4
construction or operation,
Pollution and
reduces or eliminates Efficient use of Use of renewable waste reduction Good indoor
energy, water and energy, such as measures, and the environmental air
negative impacts, and can other resources solar energy enabling of re-use quality
and recycling
create positive impacts, on
our climate and natural
5 6 7 8
environment. Green
Consideration of Consideration of
buildings preserve precious Use of materials the environment in the quality of life A design that
that are non-toxic, design, of occupants in enables adaptation
natural resources and ethical and construction and design, to a changing
sustainable operation construction and environment
improve our quality of life operation

Source: World Green Building Council

Page 9
Overview of a green building across the value chain

1 2 3 4 5
Design Sourcing Construction Operations Decommissions

Certified as green Materials are required Procedures are Building to be at least Materials used in the
under one of the to have environmental established to avoid 20% more energy site are ready for
internally recognized certifications damage to materials efficient than a future use, while
certification and completed baseline building temporary
standards or an surfaces, reducing without energy- construction materials
approved national rework and waste efficient design. will be redeployed or
standard i.e., generation Equipped with recycled
Leadership in Energy resource-efficient
and Environmental facilities
Design (LEED) Gold
certified

Source: EY: Built to last: sustainable buildings framework

Page 10
Green building enablers

1 Strategic enabler 2 Financial enabler 3 Market enabler

National and local government priorities that Institutions and products that provide Operational players that facilitate the
translate into policies, strategies and finance to support the green building development of building projects from design
regulatory framework, laying the ground markets and planning, sourcing of products,
work for green building projects construction, operations to decommissioning
Sustainable finance play a key role as an
instrument for the implementation of green
practices

Malaysia has codes for energy The International Financial Pressure to deliver complex projects
efficiency and use of renewable Corporation has identified a potential under time and resource constraints
energy for non –residential (MS 1525) of US$ 24.7 trillion for green buildings has driven the modernisation of the
and residential (MS 2680) buildings. in emerging markets over the next 10 building sector. Sustainable building
The code has guidelines on energy- years of which 70-80% of the required practices, such as voluntary building
efficient measures relating to the financial investment is expected to be standards and digital technologies
building design as well as systems for contributed by the private sector have emerged as instruments to
new and existing buildings make buildings more sustainable and
efficient

Source: Built to last: sustainable buildings framework, GloabalABC roadmap for building in Asia

Page 11
 1.2
Malaysia’s plan on green building

Page 12
Malaysia’s plans towards green building
CURRENT GREEN BUILDING MOVING FORWARD
GOVERNMENT BUILDINGS GOVERNMENT BUILDINGS

Emission reduction 10.9 Targeted emission reduction

kt𝐂𝐎𝟐 eq (2014) 550 1,750 98.2 kt𝐂𝐎𝟐 eq (2020)
(2020) (2030)
PRIVATE BUILDINGS PRIVATE BUILDINGS

Emission reduction 60.4 Total number of green buildings Targeted emission reduction
kt𝐂𝐎𝟐 eq (2013) 858.4 kt𝐂𝐎𝟐 eq (2020)

SUSTAINABLE CONSTRUCTION PRACTICES

24% 14% 100% 100%

of RM10 million – RM of RM10 million and of RM10 million – RM of RM10 million and
15 million target public above target private 15 million target public above target private
projects achieved 70 projects achieved 50 projects achieved 70 projects achieved 50
IBS score IBS score IBS score IBS score
Note: IBS – Industrialised Building Systems
Source: Malaysia Green Technology Master Plan 2017-2030

Page 13
6/8/2022
Green building initiatives in Malaysia, in the current market

Examples of green building initiatives in Malaysia

Malaysia made a
commitment to
Permodalan Nasional Bhd’s
Greentech Malaysia and
reduce by 2030 its Ministry of Science,
Malaysia has at least 389
registered Green Building
Merdeka 118 is the first
building in Malaysia to satisfy
Technology and Innovation
carbon emissions target to establish and
Index (GBI) projects in
2021
triple Green platinum
accreditations locally and
per unit of GDP by designate 200 low carbon internationally - GBI, Green
zones across the country Real Estate and Leadership in
45% from the level and at least 1,000 Low
Carbon Cities Partners
Energy and Environmental
Design (LEED)
in 2005. To achieve
Malaysian carbon reduction Sustainability Achieved via
this, one of the most and environmental
Public Works Department
has mandated all Energy Efficiency (SAVE) 3.0
important facets is sustainability tool (MyCrest) government building programme by Sustainable
was adopted in 2016 to projects worth RM50mil Energy Development
increasing the encourage the construction and above to adopt Authority (SEDA) Malaysia
of greener residential and offering an e-rebate on
energy efficiency of commercial buildings
MyCrest to reduce carbon
emissions in the energy efficiency household
buildings construction industry appliances

Source: EY Analysis

Page 14
The way forward to boost Malaysia’s green building segment

1 Green building design

and operation 2
Sustainable
construction practice 3
Green building
materials
Improving the industrialized building Policy framework to enable the recycling of
Near zero energy building target and system adoption rate via improved construction and demolition of materials
regulation procurement practices Facilitate equipment procurement for
An Energy Efficiency and Conservation Act Separating Industrialized Building System construction and demolition waste recycling
(ECCA) will be tabled to regulate the (IBS) procurement from the main contract in priority areas and work to amend policies
requirements for comprehensive building can allow direct procurement of IBS that will allow the usage of recycled
energy codes, building energy labelling and components and increase demand for IBS materials in construction
electrical appliance energy performance suppliers
standards The private sector is encouraged to use part-
Project owners can also include recycled construction materials for
This will ensure MS1525 and MS2680 sustainability requirements within the construction
undergo mandatory revisions to keep pace procurement process
with the Building Energy Index (BEI) targets
that the Government intends to set
Reducing and recycling construction waste Further research plans on energy efficient
Building energy retrofits building materials
Implementing a circular economy approach to
Retrofits will contribute to the number of construction waste reduces the utilization of Materials standards that are to be developed
buildings that can be certified green as they raw materials, creates a reduction in disposal will be aligned with future revisions of the
will encourage building owners to take the cost, increases cost gain from recycling and MS1525 and MS2680 since the material
first step to assess energy consumption and cost gains from incorporating waste material specifications will contribute to the energy
identify energy efficiency opportunities into new construction materials and efficiency and environmental
performance of the whole building

Source: Malaysia Green Technology Master Plan 2017-2030

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 Sustainable finance: Turning challenges
into opportunities

Page 16
 2.1
Current developments and trends in the
area of sustainable finance in the
construction sector

Page 17
There are enormous opportunities for sustainable finance in green
building in the region

Rapid expansion of 01 The International Finance Corporation (IFC) estimates that

global investments in green building in 2017 accounted for
building construction about 8% of the resources of the resources spent on

and the need to reduce building construction and renovation. This

represents a US$423 billion market
emissions present a
US$24.7 02 Looking ahead with a focus on emerging market cities, there is
a cumulative climate investment opportunity ofUS$29.4
trillion investment trillion to 2030, of which 84%, equivalent to US$24.7
trillion , is in green buildings
opportunity in the green
buildings sector in Of this, US$17.8
trillion is in East Asia Pacific
emerging market cities 03 and South Asia, indicating an enormous opportunity
until 2030 for this region

Source: IFC Green Buildings: A finance and policy blueprint for merging markets

Page 18
ASEAN6 has shown exponential growth in sustainable bonds and
sukuk
• Malaysia leads in sustainable sukuk issuance with total
sukuk (green, sustainability and social sukuk valued at
US$3.8 billion

• As of 2 November 2021, the value of ASEANN6

sustainable sukuk is estimated to be US$7.0 billion.
Among the sustainable sukuk (green, sustainability and
social), Malaysia is the prime issuer at US$3.9
billion. Two thirds (66%) of ASEAN6 sukuk are green
sukuk, valued at US$4.7 billion

• Sustainable bonds and sukuk in ASEAN6 are mainly

financing energy, green building and the
transport sector. Green building account for 10% of
the ASEAN6 issuance of sustainable bonds

Source: Trending: Sustainable responsible investment in Malaysia and the region (2022)

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6/8/2022
Accelerating green infrastructure investment in Malaysia and the
region through the ASEAN Catalytic Green Finance Facility (ACGF)
The ACGF green financing De- risking and
Enabling green Leveraging resources
initiative focuses on developing financing green
infrastructure and partnerships
and supporting climate-positive infrastructure
and environmentally
sustainable infrastructure ► US$ 1.4b in total project ► 22 projects to provide ► US$ 1.4b pledged co-
projects. The eligibility criteria costs technical assistance financing from partners
to apply for ACGF financing ► US$ 823m in financing during training events ► US$ 7.5m in technical
from Asian Development and international assistance pledged
include having: investor roundtables on
Bank (ADB)
► Six co-financing
1. Clear environmental goals US$ 410m partner
green financing
► partnerships established
and targets resources leveraged
2. A financial sustainability ► US$ 278m in private Did you know?
plan capital to be mobilized for The UK Government, Italian state lender Cassa Depositi e
ACGF projects Prestiti (CDP), the European Union, and the Green Climate
3. A roadmap for attracting Fund (GCF) have pledged their commitment to contribute
► US$ 40m ASEAN
private capital investment Infrastructure Fund (AIF) US$ 665m to support the ACGF’s ASEAN Green Recovery
funding committed toward Platform for low-carbon and climate-resilient infrastructure
ACGF eligible projects projects in ASEAN and accelerate COVID-19 pandemic
recovery in the region
► A reduction of 73,000 tons
of CO2 per year is expected
from ACGF projects
Source: Trending: Sustainable responsible investment in Malaysia and the region

Page 20
6/8/2022
Green construction finance: debt and equity
1
► Green construction practices can be incentivized through financial incentives for CASE STUDY: SHAPING THE
developers, raising awareness and improve capacity in green construction
GREEN CONSTRUCTION MARKET
Bancolombia, Colombia’s largest
2
► Beneficial financing terms such as longer tenor, longer grace period or lower commercial bank, issued a US$117 million
front-end fee green bond with IFC in 2016 and used the
proceeds to offer green construction
financing at an interest rate lower than
► Leverage on preliminary certification to kick in beneficial conditions of a green
3 loan with the clear requirement of a timeframe in which the building must be conventional loans.
completed and certified green The more measurably green the project,
the better the financing rate. Qualified
projects have to be preliminary certified
4 product to the certified building they are financing to build. This allows a bank to
► Banks can offer to cover green certification costs and peg their green mortgage by LEED or IFC’ EDGE and confirm the
certification on the building's completion.
finance the same building twice : through green construction finance and To recover its investment and continue
through green mortgages. The building’s green certification could stratify the expending its green construction
condition for green mortgages without extra appraisal steps portfolio, the bank issued a second green
bond worth US$100million. The bond was
► Banks boost their liquidity and lower their cost of capital through green bonds, oversubscribed 2.8 times and attracted
5 green securitizations, green loans and government programs designed to 72 domestic investors, lowering the cost
incentivize building green to support the development of new green construction of capital for banks
finance products

Source: IFC Green Buildings: A finance and policy blueprint for merging markets

Page 21
6/8/2022
Eligibility criteria for green property projects (1/2)
Aspect Asset Attributes / Actions Building Rating System Credit Environmental Impacts
Categories

Renewable Energy Onsite renewable energy generation powering the Building Research Establishment Carbon emissions
building and/or distributed to the grid Environmental Assessment Ozone depletion
Method (BREEAM) Mineral extraction
• Solar / Wind / Geothermal / Fuel Cell / Other Energy, Pollution Infrastructure needs
Green Star
Offsite renewable energy purchase Energy, Innovation
LEED
Energy & Atmosphere,
Innovation
Energy Efficiency Buildings that demonstrate energy efficiency metrics at BREEAM Carbon emissions
above market performance Energy, Pollution Ozone depletion
• Building Energy Ratings Green Star Mineral extraction
▪ Energy Performance Certificate [EU] Energy, Innovation Air quality
▪ ENERGY STAR [United States] LEED Human health
▪ NABERS [Australia / New Zealand] Energy & Atmosphere, Infrastructure needs
• Net Zero Energy buildings Innovation
Peak load demand reduction
• Thermal energy storage
• Demand response systems
Building energy retrofits
• Equipment upgrades – lighting / HVAC
• Energy management systems
• Deep retrofits – systems / envelope

Source: GRESB: green bond guidelines for the real estate sector

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6/8/2022
Eligibility criteria for green property projects (2/2)
Aspect Asset Attributes / Actions Building Rating System Credit Environmental Impacts
Categories
Sustainable Buildings that demonstrate waste management metrics BREEAM Resource depletion
Waste above the prevailing building codes and/or standard Waste Soil contaminants
Management market practices Green Star Chemical hazards
• Waste recycling rates Management, Materials Pollution prevention
▪ Construction / demolition LEED
▪ Building operations Sustainable Sites, Materials
• Ozone depletion & Resources, Energy &
• Construction activity Atmosphere
• Stormwater quantity / quality
Sustainable Land Use Real estate investments that demonstrate sustainable BREEAM Floodplains
land use attributes regarded as conservation and/or Land Use & Ecology Wetlands
preservation Green Star Prime farmland
• Smart growth development Land Use & Ecology Forest resources
• Wetlands preservation LEED Natural resources
• Historic rehabilitation Sustainable Sites, Materials Historic sites
• Certified forests & Resources
• Organic farmlands

Biodiversity Real estate investments that demonstrate attributes BREEAM Species habitat
Conservation regarded as preserving habitat biodiversity and/or Land Use & Ecology Migratory paths
cultural resources Green Star Land conservation
• Conservation easements Land Use & Ecology Cultural resources
• Land banks LEED
• Carbon sequestration Sustainable Sites
• Ecosystem services
• Ecological connectivity

Source: GRESB: green bond guidelines for the real estate sector

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6/8/2022
 2.2
Opportunities, challenges, and enabling
conditions to benefit from growing
sustainable investment opportunities

Page 24
Key actions for finance in Asia

IMPLEMENTING FINANCIAL TOOLS RATING TOOLS AND LABELLING

Implementing a suite of financial tools to support
investment in zero-emissions, resilient and efficient
Rating tools and labelling are important complementary
buildings. These tools includes:
policies for finance and incentive programs as they
• Revolving loans funds provide independent verification for performance-based
• Grants and rebates incentives
• Infrastructure funds

DATA COLLECTION AND REPORTING SHARING REGIONAL BEST PRACTICE

Build and deploy data collection and reporting systems as Share case studies across the region about successes and
weak or unreliable data availability lowers trust of lessons learned to accelerate the growth of knowledge
financial institutions to lend to sustainable buildings and among buildings practitioners
construction projects

Source: IFC Green Buildings: A finance and policy blueprint for merging markets

Page 25
6/8/2022
Case study: Hines Poland Sustainable Income Fund
Description
In 2014, The European Bank for Reconstruction and Development (EBRD) assisted Hines
Poland – a privately owned, Polish real estate investment firm with a presence in 19
countries – in the development of the first green property fund in the Bank’s Central and
Eastern European (CEE) region. With a capital commitment of €50 million, EBRD is one of
the largest partners of the Hines Poland Sustainable Income Fund, which has valued at €155
million at final closing

Sustainable Finance Impact

1. Raise standards of business conduct through sustainability improvements to its acquired
assets. Requirements include:
a) making sustainability improvements to existing buildings, taking into account best
international practice
b) introducing sustainability-focused facility management at asset and fund level
c) targeting opportunities for more efficient and less resource-intensive use of
buildings by their occupants
d) documenting fund achievements with internationally recognised certification,
following LEED or BREEAM schemes
2. Fund activities are expected to result in the emergence of new policies (e.g., green
leases, sustainable facility management) and standards in the Polish market. The concept is
also expected to be replicated throughout the Central and Eastern European region

Page 26
Case study: Residential Energy Efficiency Credit Line, Bulgaria
Description
The first residential Green Economy Financing Facility (GEFF) was the Residential Energy
Efficiency Credit Line (REECL) in Bulgaria. REECL provides loans to Bulgarian banks to on-
lend to individuals, homeowners’ associations, utility companies and energy-service
companies for energy-efficiency and renewable-energy improvements in residential
buildings. The credit line of over €100 million is the result of cooperation between the
EBRD, the Bulgarian government

Sustainable Finance Impact

1. Launched in 2005, REECL has achieved significant outcomes in Bulgaria’s carbon-
intensive and fragmented residential sector
Including:
a) annual cost savings of €19 million
b) energy savings of 240,132 MWh
c) reductions of 249,680 tonnes of CO2 equivalents

Page 27
Thank You
• Ms ARINA KOK
• +6012 287 3810
• [email protected]
• www.ey.com.my

Organized by Establish Member of Presented by Ms ARINA KOK

Malaysia Climate Change
and Sustainability Services
Page 28 Leader and Partner, EY
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