As the custodians of the world’s finances, banks are uniquely placed to influence the energy transition. Financial institutions love to highlight the low-hanging fruit of Scope 1 and even Scope 2 emissions, but the big gains are going to come when they exert their influence across the value chain and flex their financial muscle to nudge customers towards more sustainable behaviours. So-called Green Mortgages, for example, which incentivise homeowners to invest in improving the energy efficiency of their properties, typically through a rate discount or cashback payable after completion of the improvement, could prove a potent tool in reducing emissions and ensuring a more resilient housing stock for a changing climate.
With homes accounting for 26 per cent of UK emissions,1 it’s a valid sustainability argument even if banks are still running slide rules over the numbers and tend to limit the availability of such products to certain types of property. And, of course, ESG considerations are not the only motivating factor: this is potentially a huge commercial opportunity. The UK Committee on Climate Change has estimated that £250bn needs to be invested in home improvements by 2025 to hit governmental targets.2 Not only this, but there is strong homeowner interest in making environmental improvements to their home.
How, then, to best capture this market?3
We have to make our green mortgages products simple and affordable. Customers are going to want to know if the value of their home will go up, or their bills go down, and we have to be transparent in how we answer those questions.
DAN ROSENFIELD
Managing Director, New Business Net Zero, British Gas
Given that only 38 per cent of UK homes have a mortgage, how will the bulk of property owners be convinced to invest in energy efficiency measures when the pay-off may be too abstract right now? After all, Money Saving Expert estimates that the break-even point for solar panels is between 9 and 19 years so the cost remains a high barrier to entry.4 Other solutions may be needed to help homeowners, and these too must be transparent and offer fair value.
‘If we don’t tackle this, we are going to see a lot of people left behind,’ said Emma Fletcher, Low Carbon Homes Director at Octopus Energy.
Government support is essential, with the increased grant of £7,500 for a heat pump making a real impact. ‘Now we can pretty much do a swap out for free,’ said Fletcher, adding that Octopus is onboarding 1,000 engineers a year to meet demand.
But further than this, banks who genuinely wish to capture the market for green products will need to take a leading role, driving customer engagement with generous offers. Barclays have done exactly this.
Looking ahead Octopus Energy’s Fletcher expects tariff innovation to play an important role, and said banks need to keep pace with these changes. The energy disruptor, which is collaborating with Lloyds Banking Group on how lending can incentivise greener homes, already offers Zero Bills tariffs for some newbuilds that come kitted out with an air-source heat pump, a home battery, and roof-mounted solar panels.
‘With Zero Bills locked in for five to ten years, the banks could lend people more money,’ she said. ‘But when you do your mortgage application, the banks’ legacy processes can’t cope with a zero input for utility bills.’
As green energy technology races ahead, banks need to keep pace and innovate, both to play their part in achieving Net Zero, and to capture the profitable business that this entails.
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