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Guest blog by Emma Harvey, Programme Director, Green Finance Institute. First published in the Winter 2021 edition of Society Matters.

The finance sector is mobilising to take its place at the climate table, with leading organisations across private and institutional finance committing to strategies, targets and products that will unlock the capital needed to mitigate and adapt to the climate crisis.

One area that is experiencing significant levels of innovation is our built environment and the financing needed to help it rapidly decarbonise. The UK’s building stock accounts for 23% of our national greenhouse gas emissions, and the Climate Change Committee has estimated that £250 billion needs to be invested in UK homes by 2050. Given the significant investment gap to achieve a net-zero built environment, financial services is well-placed to play an important role in helping homeowners and landlords access the finance needed to retrofit their properties, while generating attractive returns at the same time.

We are already seeing pioneers in property and mortgage finance positioning themselves to both help consumers and embrace the huge opportunities the retrofit revolution offers. In 2021 alone, we have seen more than 20 UK mortgage lenders launch a green mortgage, and 12 lenders have aligned or committed to align one or more of their products to the Green Finance Institute’s Green Home Finance Principles that offer a consistent and transparent framework for green products.

As demand from ‘able-to-pay’ owner occupiers continues to grow, driven by the economic benefits and personal values, there is a clear opportunity for banks and building societies to respond. At the same time, the Bank of England has introduced climate-related stress tests for financial institutions and the sector awaits the UK Government’s response to its consultation on the proposed introduction of disclosures and targets for lending to improve home energy efficiency.

So what must be done to boost consumer demand for energy efficiency, and support lenders to expand their offering of green products?

Firstly, initiatives to catalyse innovation will be essential. For instance, the UK Government’s recently launched Green Home Finance Accelerator will provide up to £10 million grant funding to UK lenders to design, develop and pilot financial products that help homeowner achieve a more energy efficient home. And the Green Finance Institute’s Coalition for the Energy Efficiency of Buildings continues to provide a community of best practice for green home finance, bringing together over 360 global experts to develop and launch innovative financial solutions, data tools and enabling frameworks that support investment into net-zero homes.

Secondly, early conversations with homeowners are vital to raise awareness about retrofitting and its benefits. Mortgage intermediaries are responsible for around 80% of mortgage originations, therefore are in a position to explore and support customers’ net-zero ambitions – however, the intermediary community need to be supported in their own journey to understand green mortgages and the regulatory landscape.

“We see innovation by lenders being a positive, market-led development and a catalyst for real change. This presents the industry with huge opportunities to continue the momentum and engage with consumers at different touchpoints in the buying and selling transaction timeline. Crucially, brokers have a significant role to play in enhancing customer awareness and driving demand of green borrowing products”, Ana Bajri, Head of Sustainability at Countrywide Surveying, says.

And lastly, policy and fiscal stimuli will play a vital role in driving demand for retrofitting across UK homes. There are many opportunities to support the retrofit finance market, including public capital to offset interest rates or provide low-cost funding for green mortgages, a national loan guarantee scheme, and favourable capital treatments for green lending. In addition, an energy-adjusted Stamp Duty Land Tax – as developed by the UK Green Building Council – could help to nudge consumers to undertake energy efficiency projects at the optimum time in their home ownership journey.

Funding the decarbonisation of UK homes represents a £250 billion investment opportunity.  Public and private finance will play a significant role in helping homeowners decarbonise – and the early movers and pioneers will see significant rewards for helping their customers and the planet.

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