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Here are eight ideas from our panellists on how to make green finance mainstream and secure the UK’s role as a globally-recognised green finance hub.
Click here to re-watch the webinar.
Emma Harvey from the GFI explained a model that’s been very successful in Germany and could be applied in the UK. The government provides concessional funding to banks, which is then on-lent at attractive rates to households and businesses to undertake green activities. For example, KfW in Germany provides 0% funding to financial institutions for this purpose.
Robin Penfold, partner at TLT, explained that the way mortgage funding currently works (by attaching to the borrower and not the home) can be a barrier to green finance, because energy efficiency improvements can be expensive and it may take a long time to see any results.
Emma noted that attaching to the borrower is a well-established practice in the US (called Property Assessed Clean Energy (PACE) finance) and the GFI is actively developing this in the UK. There is an opportunity to do this from first principles, but it requires enabling legislation to be brought in.
Robin noted how the Energy Performance Certificate (EPC) of a building hasn’t historically been treated as a core part of the mortgage process. While homebuyers may be familiar with them and some lenders ask for it, a shift is needed to give this more prominence.
Anecdotally, Robin has heard that one of the biggest challenges for lenders when loans are sold by intermediaries is the extent to which advisers can consider a customer’s preference for certain types of products versus simply the price of a product. If there was a bit more comfort in the market about the regulator’s views on this, it could open up green mortgages.
Internationally, preferential capital treatment has been used to incentivise lenders to offer green financial products, several of which were discussed by the panel.
Robin noted it’s important to look at the market as a whole; not just how the product is structured from a retailer or customer perspective, but the wholesale funding that’s going into selling these products. It’s important to make sure that everyone is on the same page in terms of what is and is not green for these purposes, and what funding is available for those loans.
In February, the government consulted on the role of mortgage lenders in supporting homeowners to achieve more energy efficient properties. Emma believes this will lead to mortgage lenders needing to disclose the funding they’ve provided for these purposes.
The more demand there is from customers, the more lenders will move into the green finance market and develop new solutions. Emma commented that as well as legislation to support retrofitting, we need to put more data in the hands of customers and lenders so that they can see the opportunities.
Issuing a green sovereign bond creates the opportunity to establish green collared jobs across the country, which will have longevity and develop new economies in hydrogen, retrofitting and so on. It’s also a source of low cost funding and a cost-neutral way for the UK to diversify its built investor base.
A wider benefit is the opportunity to showcase the UK’s financial system and catalyse further green bond issuances down the scale, supporting corporate bond issuances and helping to make sterling a green flavoured currency. It can even incentivise further bond issuances in other countries.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions
21 September 2021