The Canada Infrastructure Bank (CIB) and the Bank of Montreal have quietly formed a partnership aimed at financing energy retrofits in mid-sized residential and commercial buildings.
The two institutions agreed last year “with little fanfare” that the CIB will provide low-interest loans to BMO customers for projects that reduce their buildings’ climate pollution by at least 30%, the Globe and Mail reports. The CIB has set aside C$100 million to cover the cost of the program.
The Globe said a first project, in which a Halifax office tower will be converted to residential lofts, was due to be announced last week, though the details weren’t yet public as Cities & Communities went to virtual press Wednesday evening. A couple of other projects on the banks’ radar will be valued at $10 to $20 million each, the news story states.
Globe climate columnist Adam Radwanski says both institutions are keen to see their first few investments roll out smoothly.
“For BMO, which does not stand to earn revenues off the CIB loans (just a small cost recovery fee), it’s a key component of an effort to establish itself as a leader among Canadian banks in helping commercial clients transition toward a low-carbon economy through broader retrofit supports and other means,” he writes. CIB, for its part, “is in talks with other Bay Street banks about following BMO’s lead, which would help prove the CIB is meeting its mandate of leveraging public dollars to attract private investment in sustainable infrastructure.”
For building owners, a concessionary financing model that offers lower interest rates for higher emission reductions “is meant to ensure that energy cost savings quickly outweigh interest payments,” Radwanski writes. “Ideally, that leads to projects that accrue economic benefits—including upgrading Canada’s existing housing stock during an affordability crisis—beyond emissions reductions.”
The new partnership focuses on the segment of the buildings sector that has been slowest to decarbonize. The expectation is that commercial real estate teams at BMO will encourage customers to try out a relatively unfamiliar form of investment that banks would not have championed in the past.
“If you think about taking an asset and making big changes to it, usually your bank might be concerned about that and say, hold on, how do I know that you’re going to get through to the other end of this retrofit?” said BMO’s head of sustainable finance, Jonathan Hackett. “We can be barriers if we’re not proactive participants.”
While the CIB hopes to turn over its retrofit fund several times over the next five years, it’s still just trying to build momentum in a sector that has many thousands of buildings waiting for retrofits. “Even with our significant pool of capital, it’s not nearly enough,” said CIB CEO Ehren Cory. “There’s got to be something catalytic in what we’re doing that starts a chain reaction.”
Read the rest of Adam Radwanski’s column here.
