Banking on Climate

Transcript

Please be aware that this transcript was generated by an AI system and may contain errors or inconsistencies.

Adam Schiabor: Hi everyone, and welcome to Urban Green’s podcast, Building Tomorrow, where we have conversations with climate solvers. Every day we meet people who make a big difference in the built environment and are moving us closer to a low carbon future. And we want you to hear their stories. Before we begin today’s episode, I’d like to thank Carrier, our podcast sponsor. My name is Adam Scheibor and I’m the associate director of research at Urban Green. Today I’m excited to speak with Jamie Horton of the New York City Economic Development Corporation, and Mariana Koval of the NYU Stern Center for Sustainable Business. 

I had the pleasure of working with both of our guests over the past few years on multiple initiatives at the intersection of decarbonization, finance, and the built environment. Jamie and Mariana also co-wrote a recent report, Banking on Climate, the Mortgage-Lending Opportunity in Building Decarbonization. So I hope this conversation helps you better understand how banks, the financial sector, can contribute to decarbonization in New York City and beyond. 

Jamie and Mariana, welcome to Building Tomorrow.

Marianna Koval: Happy to be here and join you today.

Jamie Horton: Yeah, thank you for having me.

Adam: So the first question, can you introduce yourself and tell us your story and what path you took to get to this type of work? Jamie, I’ll start with you.

Jamie:  Thank you, Adam, so I have had  somewhat of a winding path to sustainability, but it’s really been through kind of a lifelong career in urban development. I am a LA kid born and raised there, but had a very formative  year abroad in high school, actually, in London.

And I saw the potential for a functioning city. And that really set me off on a career and kind of planning in urban development. So I started by studying public health and planning in my undergrad at Berkeley. And essentially felt like I was working my way up the ladder of decision making in urban development. I kept kind of asking those questions of, hey, why am I doing this? Why am I doing this?

And so started in design, I worked at a nonprofit design firm called LA Moss that was really focused on design solutions for public health problems. So I became a design practitioner there. Then went to work in an architecture firm, kind of again, moving up a little more to building scale, leading to development for an architecture firm called MAD Architecture.

I worked leading business development for an architecture firm called MAD Architects, based in Beijing, but had been expanding to the US. And a lot of our work was with real estate developers. so again, kind of kept chasing those questions. And from there got my master’s in real estate development at Columbia. So very focused on an applicable degree. And from there went to work for a real estate developer, Janice Properties, that’s based in Harlem, doing very interesting projects, essentially redeveloping about three blocks in West Harlem, right near Columbia’s campus into a commercial mixed use district. Working with the developer, seeing the neighborhood planning scale. I then kept working my way up to EDC and really liked being able to still have a hand in real estate development, but also looking at the kind of policy that shapes it. So started there in the real estate transactions group. And then for the last almost five years at EDC have been in the president’s office where I really get kind of a wide view across. So with that wide view across, I was really interested specifically in kind of climate and sustainability and how do we support the growth of that industry through development. EDC manages a ton of real estate. So I have really focused on developing new kinds of projects that support the growth of climate technology, of climate industry as a whole, what we call the green economy. And specifically as it relates to the policy development side that we’ll talk about today, looking at just beyond the assets that EDC directly manages, but really how can we have kind of more of a catalytic transformative impact and really all kind of with, know, guiding me through all these steps in my career has really been how do we make better cities? and more specifically, how do we do it through a very effective public sector? And that’s where I think EDC really takes a very special position. And I always like to say we have the right amount of bureaucracy. We’re able to navigate those public and private channels. And I think that’s really what it takes to make a better, cleaner, greener city. And so that’s my winding path here to climate sustainability.

Adam: Great, yeah, and it sounds like EDC is like the right place, right balance of place for you. So that’s awesome. And Marianna, can you give us a little flavor about your journey into this work?

Marianna: I’m older so my journey is longer, but I’ll keep it short. I’m actually really impressed. I’ve worked with Jamie now for a number of years, but it’s the first time I’ve heard his whole history. And I think that’s very interesting. And I think as we were preparing to talk today, you remarked, Adam, how people have had such winding paths. And that’s interesting. My path too, has been a winding one. I was an undergraduate at Princeton in the mid 1970s. I’m old, studied political philosophy, went to law school then. I practiced law with some law firms in New York City.

It was very depressing. I didn’t feel like I was effective. I didn’t like the federal rules of civil procedure. And I came to kind of my career place later than many people. I became the president of the Brooklyn Bridge Park Coalition, then Conservancy in 1999 and worked 10 years to help coalesce support politically across the private sector, government, and community  in New York City to build what will probably be a $700 million park when it’s finished. I helped raise the first $280 million and then did the initial programming to build a constituency, a citywide constituency. What that taught me, was the importance of working cross sector, the importance of government, the importance of community engagement. And I hate the term engagement, but the importance of reaching out and talking to a lot of different people and understand what people’s concerns are and drawing on their own knowledge. And that’s how you can build success for very, very large projects that involve state, city and often federal government as well. I pivoted and quit my job after 10 years and at 54 went and did a mid-career MPA at the Kennedy School at Harvard where I spent that year thinking about how to bring public funds to public parks and developed an approach to use clean water financing. To use parks as hybrid areas to manage stormwater. And then I went as a special advisor to the New York City Department of Environmental Protection for a couple of years, in the early de Blasio administration. And then I came to NYU and worked for the Center for Sustainable Business.

More recently, and how I found myself here is I was asked by the director of the Center for Sustainable Business to develop a project to actually affect the United Nations Sustainable Development Goals to drive private investment in sustainability projects in New York City to localize the UN SDGs. So beginning in 2019, I looked…and tried to develop ways in which the expertise of the Center for Sustainable Business and Stern Business School could be useful in looking at sustainability projects. It was a unique and wonderful time because 2019 was when Local Law 96 and Local Law 97 were enacted. And it was a moment where we were in New York City looking at how we were going to decarbonize our building stock.

So initially I looked to PACE, Property Assessed Clean Energy Financing, the program that was enabled by Local Law 96, and thought that PACE lending was the route to go. And, as part of that work, I built a data tool that is called the Decarbonization Compass with a lot of graduate students and incredibly smart volunteers who acted on a pro bono basis and working also together with Urban Green so that we could do something that no one had done before. And that is, look at the buildings that are subject to local law 97, and also see who the underlying mortgage holder was for that building with the high carbon emissions. So that’s how I got where I am. And I feel that this is a moment in history where I think the skills in bringing both the private sector government and community organizations and nonprofits are critically important. So that’s me.

Adam: So, let’s jump into the meat of our conversation today, which is looking at the key aspects of the Banking on Climate report that we all worked on, but Jamie, you and Mariana were critical at. So Jamie I know that this report was the output of a building decarbonization task force, which brought together a bunch of stakeholders. So lenders, building owners, policymakers, nonprofits. What was the overarching goal of this task force? And can you kind of walk us through the key aspects?

Jamie: Yeah, And so first I want to really thank Urban Green too for their participation in putting together the report, contributing to the task force and really helping to shape and also keep this work going. As we stated at the outset of the report, we have big ambitions for lenders being more involved in building decarbonization, but we know that we’re also in the early stages, so keeping up the momentum is extremely important. And Urban Green is a huge part of that with this report, but also kind of beyond it with  all of your programming. So first I wanted to thank you all for that. And so really the purpose of the report was to really catalyze lenders, specifically mortgage lenders, to take a more active role in building decarbonization.

We know that this is extremely capital intensive work. And we know though, that it is going to be extremely beneficial, both for the environment, but also, know, EDC, especially we’re very interested in the growth of the green economy in New York City. And buildings and building the carbonization specifically are going to be a huge part of that. And so that’s the overarching goal of this paper, and the purpose of this task force.

And this is really with the kind of the mind towards actually implementing and mobilizing the work that was kicked off through the passage of Local Law 97, like Mariana just touched on. So I’m sure if you’re listening to the Urban Green Council podcast, you already know exactly what Local Law 97 is. And maybe I’ll get checked on exactly some of the numbers, right? But this is the landmark legislation at the city level,building performance standards that essentially set a path for New York City’s largest buildings, largest emitters to completely eliminate their emissions by 2050, reaching that zero by 2050. And so it’s been a huge mover and catalyst for building decarbonization. But the impacts will only be felt if the work actually happens. And so, this paper is kind of part of a broader set of initiatives, both at the city, and at EDC, to really get that work going. And so to provide just a little more context for why EDC is in the middle of this: we have the mission to create a more vibrant, inclusive and globally competitive New York City. And we really do that through supporting the innovation industries in New York. So those are the green economy, life sciences and technology. And the way that we have really tried to move the market and also size the market of the potential growth of the green economy is through our green economy action plan. So this is a plan that we put out about a year and a half ago that really sized: What is a green job? What is the green economy? And found that, kind of no surprise, I think for us and for the listeners, that the biggest potential growth for jobs in the market is building decarbonization. New York City has a million buildings. They’re two thirds of the source of our emissions. And obviously we are the real estate capital of the US, if not the world. And so our Green Economy Action Plan shows that we expect the number of green jobs to grow from 130,000 today to 400,000 by 2040. And the bulk of that is being driven by job growth in buildings and finance. Of that growth to 400,000, 160,000 of those jobs we expect to come from building and finance sectors, and LL97 and state policy is a huge part of that. So we EDC, you know, do what we can to support building decarbonization through our own assets and through other programs, but also we always partner with other agencies. So MOCEJ kind of a similar timing put out the green economy action plan, put out Getting 97 Done, which was really a mobilization plan again to see those emissions reductions, actually looking at how much money needed to be invested, how all of the workforce development that needed to be done to actually get these, get kind of the trades and kind of get the gears turning on this work actually happening. And so a big part of that, right, was capital availability. So, some of the analysis done on that Getting 97 Done report showed that they estimate we need between $12 to $15 billion to put into place the retrofits that are needed just to reach the 2030 emissions reduction. Huge amount of capital. It’s not only going to come from building owners. And I think that was really, you know, and really credit to Mariana and her team.

You need to expand the number of key stakeholders that are taking part in building decarbonization. So often the focus is just on building owners. But so we wanted to bring in lenders. And so the decarbonization finance task force was explicitly developed with that in mind. We brought lenders on board. It was like, you know, kind of normal mortgage lenders, but also specialty green lenders, building owners, government, nonprofits, to really make sure that lenders understand the evolving climate for building decarbonization regulation. Being able to really evaluate the potential market for green lending, taking that knowledge and then actually building green finance offerings. And finally, embedding climate risk and decarbonization considerations into their loan making processes. Again, the talk of the potential is great, but we want to see it happen. And that’s really what this report was about, was bringing together this set of stakeholders, kind of summarizing that knowledge and hoping to, again, kickstart some of that momentum.

Marianna: I can jump in and add what was beneath the hood, some of the inside of this process. And that’s as we were sitting at NYU Stern Center for Sustainable Business, trying to figure out how we could make PACE, CPACE, Commercial Property Assessed Clean Energy, lending viable.

The big barrier was that you have to get underlying mortgage, the mortgage holders consent to a PACE loan. And so we thought, well, why don’t we go out and start talking to the mortgage lenders who hold the largest number of buildings subject to local law of 97. That’s why we built the data tool. 

And then… I began to realize that while we could go out and start to talk to those lenders, that it was going to be a long, long time for Local Law 97 to finally be effective because of the period of time that it will take for the penalties to come into place and to really put a bite into the process. And so, I don’t know, I was sitting getting my toenails donenand reading an NYU Law School report about carbon trading. And I saw a footnote and realized it was gonna be 10, 15 years. And that’s where I sat down and thought, we need to flip the script. We need more people, as Jamie was saying, we need more people at the table. And the people that need to be at the table have to be those mortgage lenders that have a business opportunity to loan, to create green lending products, mortgages or mid cycle loans, and market them to their borrowers and to building owners in New York City, and be a player. And so the interesting part of how we created the partnership with EDC was, Rit Agarwala, who is New York City’s climate czar, sat next to me at a dinner that the CSB hosted and I talked his head off and…And he, among all the different ideas that I floated with him was bringing mortgage lenders into this process. And it was the one that he thought made sense. And so from sitting next to somebody and talking to them, we were able to then build this partnership and bring these key players together. And I guess I would add another piece of it. It was to understand what mortgage lenders saw was possible. And also what they needed from government, what would make their job easier to do in marketing these kinds of green mortgages and lending products for decarbonization. So it’s just a little bit of the background under the hood.

Adam: Jamie, I think people are aware of climate investment opportunities in electric vehicles or in the power sector with renewables, wind and solar, but what makes building decarbonization such a good green investing opportunity and why is New York City the place for people to be doing that?

Jamie: Yeah, thank you. So it comes down, I think, to kind of the key difference between real estate and some of the other major sectors that you mentioned, kind of green investment, EVs and renewable energy generation and storage. And the key difference is one of transition versus replacement, right? Real estate assets are going to be transitioning from fossil fuel powered heating and cooling. And so these assets are moving from that, fossil fuel powered heating and cooling to electrified heating and cooling. Whereas with EVs and with renewable power, it’s a net new, right? You are replacing gas cars with electric cars. You are replacing fossil fuel power generation with renewable generation. And so we see the kind of huge opportunity that through investing in decarbonizing real estate, you are really capturing the value of the whole asset. And so that kind of fundamentally, you’re investing into a known sector, a highly structured, huge history of financial performance, much more data rich, and also able to invest at scale. And that’s a huge part of this, right? The market size, when you look at commercial real estate in the US, today’s market, or 2024’s market, $22.5 trillion is the value of all commercial real estate in the US, including multifamily, and that’s supported by $5.9 trillion of mortgages. And alone in 2024, there was $532 billion of commercial mortgages coming mature. So it’s really, you’re seeing this incredible kind of volume that is present in commercial real estate. Compare that with the EV sector, which was of course booming at the time, saw $66 billion of investment that year, and then another $200 billion into renewable energy generation and storage development. And so just comparing that scale alone really makes it this really attractive place for green investment to go. And I think, this was what we wrote at the time, December, 2024, and some of the not exactly the most dire, but the negative expectations around renewable energy credits have come to pass. And so for investors that are still seeking the opportunity in green investing. And that can range from a pension fund or an insurance investment fund. If they’re looking for still exposure to environmental or sustainable investments, real estate suddenly becomes this much more attractive asset class and again it’s this idea that you’re capturing the full value of the real estate asset. And so it again provides this scale and really this kind of more predictable advanced and mature market.

Adam: Marianna, I’m going to bring you in here. So we just heard about the opportunity. This is an enormous kind of financial opportunity, trillions of dollars. If you were talking to the finance sector and the banks, why should these people be engaged in decarbonization work right now? What are the benefits to them as investors and and bankers?

Marianna: Well, I think the case that we have worked to make is that there’s a great business opportunity here. One wants to look at sort of the risk mitigation and looking at your own portfolios and the properties in your books and the opportunities when a mortgage refinancing arises to provide capital to decarbonize that building and build value, long-term value. And so we spent a lot of time looking at the market and demonstrating in this paper the increased value of properties that have been decarbonized around the world. And I guess we also spent time looking, particularly in Great Britain and other countries in Western Europe, at the green mortgage industry. And the growing green mortgage industry over the last decade and looked and wanted this to be an opportunity to say, here’s what they’re doing in Western Europe and the US is far, far behind. Take a look as you refinance, you should at least be including an understanding of the carbon emissions of your building as you do that underwriting. And here’s where the opportunity is over the long term.

So we were hoping that it’s not just banks as mortgage lenders, other mortgage lenders, insurance companies and private equity and so forth, that people begin to understand you can reduce the risks in your portfolios and build value. 

Adam: Can you also speak to one of the things I think was really interesting when we were working on the Building Decarbonization Compass was the opportunities to scale. I think one of the stats was that the top 10 lenders in New York City account for 35 % of the emissions from New York City’s large buildings. Do you think that this idea of speaking to a few people to have a big benefit, is that still something that you see as a valuable pathway?

Marianna: Yes, I think it’s really important. And that was one of the things we were able to do with the data that we had collected. And then working with a couple of banks, one in particular that was able to open their own books and look at their portfolio, was to realize that there’s a very small percentage of buildings that generate the majority of carbon. If we focus on those buildings, if we focus on those buildings and we focus on their capacity, to pay for the decarbonization costs when the time comes for them to refinance their commercial mortgage. It’s a win-win all the way around. And we come closer to achieving the carbon reduction goals that we have in New York City and beyond. But it’s prioritizing based on those carbon emissions and evaluating the cash flow in that building owners’ business plan and understand that they have the ability to do it and that they will create value in making that investment.

Adam: Jamie, I’m going to kick it back to you. So, we put out this report last year. There’s been a lot that’s changed in the world in the last six months. But what are some exciting and optimistic trends or projects that you’re seeing in the market or at EDC that kind of give you hope that this type of approach to decarbonization is still active in New York City?

Jamie: Yeah, definitely, you know, there’s some clouds, but definitely some sun shining through. And I think, and I’ll take the opportunity to build on, to note to do this as, from the New York City Economic Development Corporation. But the second part of your last question was why New York City? And I think that feeds into why am I still optimistic and why are there still great opportunities? New York City is primed to be the place for this green building decarbonization lending market to really take off. It’s articulated through the report, but, to cover here, obviously the size of the market is incredible. New York City has about a million buildings. 50,000 of those largest buildings are covered under Local Law 97. So there’s a regulatory pathway for emissions reduction and all the work that goes along with that for Local Law 97. But beyond that, there’s so much work to be done to make buildings more efficient, to reduce their emissions, but also hopefully reduce their energy use and lower operating costs.

So, that’s a huge part of this. There’s also, requirements for new buildings of a certain size to be all electric, which again, just creates the market for this and is as advanced and developed and valuable of a real estate market as New York City. Again, it really allows lenders, but also, you know, other real estate investors to invest into that value. And we’ve seen, you know, New York City’s real estate market, both commercial and residential, has rebounded far better than a lot of other major metro areas when it comes to things like return to office, and just commercial value. And so that again creates this fertile ground. And then not to harp on it, but the regulatory framework of Local Law 97 is really this superpower that New York City has.

The law came into effect over six years ago. And so now that we’re actually into reporting, there’s a whole kind of documentation framework that investors look for. And so one of the things that we came across in the report that was a challenge was not being able to agree on any specific measures. And so here, the City, through its regulation enforcement, is kind of doing that.

The fact that there’s that framework there, really makes it kind of better for these types of investments to come into. And then, you know, specifically some of the things that we’re seeing and that I’m excited about first is, you know, continued progress on Local Line 97. Beyond the kind of investment thesis, there’s also emissions reduction. it’s now about 90 % of buildings are in compliance for their 2025 limits, which is great. That number has decreased over time, which shows that this work is already happening. That number, though, will flip essentially at the 2030 limit when buildings are expected to reduce their emissions by 40%. Only about a third of buildings will be in compliance. So tons of work to do and a clear regulatory framework. But seeing that there’s already that kind of momentum is a huge positive sign. 

The next, and we’ll keep saying it Marianna, we’ll keep believing in PACE, the new C-PACE requirements that allow PACE to be used on new building financing, I think is huge. Again, we’ve had some of the biggest PACE deals in New York. I think we’ll see in the future some of the biggest PACE deals and that, the opportunity to bring that type of financing in, explicitly green financing to help build the gap on new buildings, is huge, especially in a time of really high rates. I think both, making sure investments happen, but also having them be done in an environmentally sustainable way. 

And then lastly, I think, and this is kind of like, not so great news with GGRF funding being held up. We’ve definitely seen philanthropy step up, not to the tune of billions, but to support some of those organizations that receive funding. I know that the Justice Climate Fund recently received funding from Kresge to continue their work. The Wells Fargo Foundation has supported NYCEEC and you continue to see NYSEEC closings on things like pre-development loans for buildings reaching certain levels of sustainability performance. So kind of all of that, there is still that momentum specifically into building decarbonization lending. And then a little further afield from directly this type of lending, we see it every day with the city and state continuing to make investments into climate sustainability. The other major project that, or one of the major projects that I’m working on, is Batworks, which is a hundred million dollar investment that the City is making into the creation of a climate innovation hub in Sunset Park. This is a generational investment into creating a hub that is going to support the development of new technologies explicitly for improving building decarbonization. 

And I think that the fact that the City is investing still into the full value chain and really making sure that business and economic imperative that we harped on through and highlighted through the report, the fact that you’ll have the most advanced technology, the workforce, all of that to be ready to actually implement, shows that New York City is still the place for this work to start and for that momentum to build.

Marianna: I guess I would jump in and add sort of a slightly different perspective. I think what I feel positive about is that with the task force and the report, we tried to focus on the business case. So less emphasis on the regulatory power of Local Law 97. I think we wanted to look for some carrots to add to the sticks and show how other countries have looked at this business opportunity and how New York mortgage lenders, financiers should be looking at this business opportunity. We are going to have a new mayoral administration. 

And I know that Mamdani has talked about his commitment to enforcement of Local Law 97. And I think it will be very, very important to include, whether it’s Mamdani, Cuomo or Adams or Curtis Sliwa, it’ll be very important to include the bankers at the table, mortgage lenders and understand where the money is going to come from to pay for the decarbonization process, and the value to building owners and the value to building lenders. And if we stay there and understand it’s not just risk mitigation, it’s not compliance with draconian regulations, it’s building long-term value in these critical assets in New York City. And so that’s where I feel positive.

Adam: So I guess we’ll leave it there on the positive note. Thank you both, Marianna and Jamie, for joining us today. I really enjoyed our conversation. All the resources from today’s episode will be linked in the description for this episode. Again, we’d like to thank Carrier for sponsoring this podcast. And thank you to the Urban Green members and sponsors. If you’d like to become a member, please visit urbangreencouncil.org. Thank you for tuning in today. If you’re enjoying this podcast,  please consider subscribing so that you don’t miss out on any of the great conversations. See you next time.