Why funding sustainable development offers lenders brand protection

Everybody recognises the need for more sustainable housing. The question is, how do we get there?

Energy use in homes is a major source of pollution, accounting for 14% of the UK’s greenhouse gas emissions. For this reason, housing is central to the government’s decarbonisation plans. All new homes must be zero-carbon ready — which means emitting 75% less carbon than the current average — by 2025.

Despite these targets and the urgency of the climate crisis, the current development landscape does not look particularly promising. Not enough sustainable housing is being built, largely because it’s not financially viable. High build costs — stemming from the expense of low-carbon energy sources — inflate prices to uncompetitive levels, increasing developers’ risk in the housing market. It’s not surprising that, faced with the choice of installing a ground source heat pump and adding £14,000-19,000 to their costs or putting in a standard gas boiler, most developers are opting for the latter.

However, lenders have an opportunity to make a difference here. By lowering interest rates and fees for sustainable developments, lenders can compensate for high build costs and make projects more viable. This could increase the amount of sustainable housing being built in the UK and significantly bring down carbon emissions. 

Decreasing CO2 levels is not the only benefit lenders can expect from accepting smaller returns. This is because lending for sustainable projects can also boost lenders’ green credentials and protect their brands with clients and customers increasingly concerned about the climate crisis. 

The potential for brand damage from not lending for sustainable housing is pretty big. According to a BBC survey this year, green credentials are increasingly important: 80% of consumers think committing to sustainability adds value to a brand, while 56% would stop buying a product if they discovered it was produced unsustainably. This means that any business responsible for generating carbon emissions — as we all are in the residential development industry — runs the risk of damaging its brand and harming its bottom line.

However, lenders have an opportunity to get ahead of this problem and even gain a competitive advantage. Any lender that invests in sustainable development projects now can develop a reputation for climate action. This will protect lenders’ brands in the coming years, as consumers inevitably become more aware of finance’s impact on the environment and penalise organisations that contribute to emissions.

Discounting for sustainable development projects may mean smaller profits for lenders in the short term but, by looking at this as a long-term strategy of brand investment, lenders can protect both their reputations and the planet.

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