CEE Summit Spotlights Green Infrastructure Finance

Transitioning to greener buildings and improved infrastructure will dominate the discussions as the CEE Sustainable Finance Summit concludes today, according to Linda Zeilina.

Discussions will center on transitioning to greener buildings and improved infrastructure, aiming to identify positive outcomes for the built environment through sustainable finance.

Linda Zeilina introduced Goran Jeras, CEO and Co-founder of Echoes, who is presenting on resilience and long-term financing.

Jeras is launching a new ESG-type lender while working through the regulatory complexities of obtaining banking licenses, with the Baltics showing the most progress.

Goran Jeras introduced himself as a physicist with a deep understanding of planetary boundaries, setting the stage for his presentation.

His discussion connects principles from physical science to the broader challenges of long-term sustainable financing, integrating environmental limits into financial strategy.

Goran Jeras, drawing on his background as a physicist with experience in the financial industry, aims to establish a bank that aligns with planetary boundaries.

This bank is designed to pursue long-term goals, operate non-extractively, and finance a sustainable and resilient future.

Jeras defines money as a critical component of infrastructure, serving as the 'heartbeat' that drives the circular economy.

His approach involves integrating scientific understanding with financial principles to create a banking model that supports ecological and economic sustainability.

Goran Jeras stated that nothing in nature grows infinitely because every system reaches an optimal size for processing information.

Exceeding this optimal size diminishes the system's capacity, a cybernetic principle used to calculate ideal scale, he added.

Echoes is specifically designed to remain local to ensure it fully understands and responds to the needs of its community, thereby maintaining its operational efficiency and relevance.

Jeras advocates for a new banking model that would function as a 'common entity,' moving beyond the traditional private or state-owned structures to better serve collective interests.

Echoes prioritizes affordable housing as a stable and well-collateralized foundation for investment, aligning with principles of non-speculative property.

The bank also supports energy communities, collective car sharing, and the development of robust local supply chains.

Strategic sovereignty is defined as a commitment to long-term value over short-term profitability, guiding investment decisions.

The institution explicitly rejects the compatibility of defense and arms production with authentic sustainability principles.

Falling behind neighbors like Poland, the Czech Republic must double its 7 billion euro annual budget to meet project readiness, according to Tomáš Janeba.

To meet project readiness, the country needs to double its current annual infrastructure budget of approximately 7 billion euros.

Plans include completing the motorway network within seven years, spanning 500 kilometers, and building a new 700-kilometer high-speed rail network estimated at 40 billion euros.

He criticized the current use of cheap state-subsidized loans, describing them as 'too costly' and ineffective at crowding in private capital.

There is a need for new financial instruments, such as bond insurance, to support large-scale infrastructure projects.

Enhancing the bank's capacity to attract private investment is crucial for financing future infrastructure growth.

Public-Private Partnerships must align state subsidy levels with EU rules to keep projects off the government balance sheet, Tomáš Janeba warned.

The European Union's 30% investment grant limit complicates financial structuring for substantial rail deals, requiring careful planning to secure funding.

A hybrid funding approach, combining public, state, and European money, is necessary to navigate these regulatory complexities and finance large-scale projects.

Ondřej Viša highlighted a growing hesitation among cities to take on new debt, reflecting a more cautious financial approach.

Reliance on what was once perceived as free money fostered a sense of complacency, he argued.

Cities are now compelled to find ways to maximize output with shrinking financial resources, necessitating greater efficiency and innovative funding strategies.

Ondřej Viša detailed the ELENA program, administered by the European Investment Bank (EIB), which specifically targets the planning and preparation phase of renovation projects.

ELENA covers 90% of the costs for technical and legal planning, including feasibility studies, energy audits, and financial planning.

This initiative aims to convert early-stage planning efforts into concrete investment execution by providing crucial upfront financial support.

Complex public procurement laws and a lack of reliable property documentation often impede project delivery, a difficulty Ondřej Viša explained when discussing the current state of building renovations.

The complexity of public procurement law also poses hurdles, making the process of renovating public buildings cumbersome.

Despite high value-for-money offerings, there is persistently low market demand for renovation services, further complicating project rollout.

Ondřej Viša described an application that allows users to view neighbors' past renovation projects and their financial outcomes, fostering peer-to-peer learning.

The initiative uses personalized AI messages, tailored to different stakeholder personas, to effectively communicate renovation benefits.

A psychological approach addresses non-financial aspects, including mental health benefits, to broaden the appeal of renovations beyond purely economic gains.

This strategy aims to overcome technical skepticism among non-experts by presenting information in an accessible and relatable manner.

Raúl Garcia Rodriguez highlighted that investors now directly link financial outlays with resource consumption, such as water and CO2 emissions.

Sustainability reporting has evolved from a simple data collection exercise into a core financial requirement for investors.

The focus has shifted towards quantifying risks associated with nature and biodiversity, emphasizing the material financial implications of environmental factors.

This transformation means that robust and transparent sustainability reporting is now integral to effective risk management in real estate finance.

While private investors prioritize return on investment, institutional investors require robust ESG integration in their portfolios, Katerina Jarosova stated.

The 'light green' SFDR Article 8 classification provides a strategic middle ground, bridging the interests of both private and institutional investors.

This approach allows firms to explain to private investors that returns remain a focus while demonstrating to institutional investors a commitment to sustainability.

Energy efficiency measures are highlighted as key drivers for long-term building value and reduced vacancy rates, appealing to both financial and sustainability goals.

Institutional knowledge at WOOD & Company is secured by a long-term staff, many of whom have worked there for 15 to 25 years, Katerina Jarosova highlighted.

The company's internal management of property and facility operations provides more granular tenant insights than reliance on third-party reports.

Direct engagement with tenants allows for immediate resolution of complaints, a critical factor for asset retention and tenant satisfaction.

The portfolio strategy balances asset age and performance, including cross-border transactions like selling properties in Slovakia and acquiring new ones in Poland.

Minimum sustainability standards are now a key demand from building occupiers, which directly affects lease agreements and asset desirability, Omar Sattar said.

Banks increasingly scrutinize ESG performance, making sustainability a mandatory requirement rather than an optional consideration for securing financing.

The industry has shifted from abstract discussions on sustainability to a strict requirement for demonstrable, audited proof to combat greenwashing and ensure compliance.

Investment value is now explicitly linked to a property's ability to meet these material sustainability benchmarks, reflecting a fundamental change in market valuation.

Omar Sattar highlighted that developers generally prioritize short-term profit margins over long-term social infrastructure development.

For most developers, community environment initiatives are often treated as marketing tools rather than integral parts of their core mission.

Despite this, examples of community-focused developments do exist in the Czech Republic, such as in Brno, demonstrating alternative approaches.

Developers frequently face constraints from urban planning requirements and municipal mandates, which can influence their project scope and priorities.

Amundi incorporates proprietary social scores into the due diligence process for every building investment, Omar Sattar observed.

He clarified that while social impact is now a component of investment assessments, it is not currently the primary weighted factor in overall investment decisions.

Fund managers must balance social considerations with their fiduciary duty to deliver financial returns for pension fund clients, who often have specific return expectations.

This dynamic reflects the evolving landscape where social factors are gaining importance but still navigate the established financial priorities of investors.