All roads lead to green finance. It is no longer a nice-to-have but a must-have as regulations surrounding green finance increasingly require banks and other lending institutions to quantify and mitigate their climate risks.
Much of the push comes from the UN-sanctioned mandate on Sustainable Development Goals (SDGs) which are geared to achieve global economic growth through environmentally and socially sustainable investments. This is seen as an opportunity for growth especially if the world is to recover from not only the impacts of the pandemic but also from the current war in Ukraine.
The onus is on banks and large corporates to outline how they are going to get to net zero, and this has a knock-on effect on supply chains servicing these institutions as they too must also “green” their operations. This involves a closer assessment of both customers and suppliers that interact with lending institutions.
Yvonne Holmes, chief sustainability officer at AIB, sees that all businesses are striving to reduce their emissions: “This circular impact will reward entities that are making progress in their transition with more favourable pricing and more business contacts. In order to meet this target and do our part to support Ireland’s transition to a low carbon economy we need to ensure our green financial products are priced attractively to support and encourage customers to make this change.”
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Making green finance attractive can be seen as a chicken and egg scenario. So while it is possible to obtain attractive mortgage rates the houses themselves need to meet high standards.
John Lowe of the MoneyDoctor points out that it is possible to get a four-year fixed rate of 1.9 per cent but he stresses that the target house has to have a BER rating between A and B3. “10 per cent of all Ireland’s carbon emissions come from homes so it is important that the lending institutions encourage customers to improve their carbon footprint in their home and one way to encourage that is to offer discounted mortgages for higher BER ratings.”
Banks such as AIB have committed to putting their own house in order (if you’ll excuse the pun) and have said they will reduce carbon emissions from their operations to net zero by 2030.
“This means cutting greenhouse gas emissions to as close to zero as possible through elimination of carbon rather than by offsetting it,” says Holmes. “We then have a target that green or transition lending should account for 70 per cent of overall new lending by 2030 – green lending currently accounts for 23 per cent of all our new lending.
“The bank has evolved its product suite to align to Ireland’s changing requirements – introducing discounted rates for customers who wish to support this sustainable economic activity. Whether it’s buying a new A-rated home, retrofitting an existing home, or starting the transition of your business in order for it to be more environmentally friendly, AIB has a series of attractively discounted financial products to help everyone do their part,” says Holmes
In addition to incentive mortgages is the idea of sustainability-linked loans where businesses can borrow at attractive rates linked to the achievement of ambitious, predetermined sustainability targets. In particular large corporates can benefit from attractive interest rates when they can demonstrate positive outcomes such as reducing energy, water and waste consumption.
Other areas which benefit from attractive interest rates include renewable energy projects and increasingly lending institutions have firmed up their internal teams to include climate specialist engineers to ensure that the outcomes are genuine and not the product of so called “green washing”.
Despite these focused and attractive green finance offerings the market is facing rising inflation which in turn leads to a higher cost of living. Influential to the cost-of-living crisis are increased energy bills so there is an even greater emphasis on transitioning away from fossil fuels to cheaper renewable energy.
People may feel now is the time to make the switch and look at upgrading their home, business or lifestyle choices by availing of discounted offerings whether that be installing solar panels, insulating their attic or switching to an electric vehicle, and again the lending institutions are keen to have green rates for their customers.
“The worsening climate events are bringing home to people that this climate emergency is real and upon us and not 10 or 20 years away. That coupled with the energy crisis will hopefully create accelerated momentum in getting the right supports and infrastructure in place to help to mitigate the risks of climate change,” says Holmes.
“AIB as a financial institution at the heart of Ireland’s economy is taking its role very seriously in being an enabler of this change, But as we continually remind ourselves we have more to do.”