Where does responsibility lie: lenders are agents for change
When the Prime Minister announced that he was scrapping, delaying and reversing a number of environmental, social, and governance (ESG) measures that the UK had committed to, there was rightly a lot of criticism and key questions were asked.
Sunak is very aware that there remain deep climate-related issues and, if we do not do our bit now to solve this, many buildings will not be fit for purpose in the years to come.
However, the recent announcement has also made the issue party political for the first time, providing an unwanted, and arguably unnecessary barrier to real change.
Measures such as improved insulation, sustainable lighting and more efficient boilers will contribute to better buildings in the future. So, we are left with the question: if the Government wants to avoid taking responsibility for positive change, who will?
As an industry, we can recognise that lenders have a moral if not regulatory responsibility to conduct business in an environmentally and socially conscious manner.
In the finance world, there is untapped potential to drive change and encourage developers to meet higher standards in new builds or redevelopments.
Recent discussions on the expansion of ULEZ have highlighted the importance of determining who bears the cost of future-proofing the economy, which is crucial for initiating change.
It is evident that expecting the general public to shoulder the burden alone is not feasible, particularly in the midst of a cost-of-living crisis, surging inflation and a declining property market.
However, the building process presents an opportunity to establish standards that would otherwise be absent.
Responsible lenders are positioned to become catalysts for positive change by responsibly holding borrowers to account. Simultaneously, borrowers should seek financial solutions aligned with their own values and initiatives.
Specialist lenders are renowned for their flexibility and bespoke lending offerings and can bring this positive change by requiring borrowers to incorporate sustainability criteria in their projects.
If we believe that borrowers should be rewarded for enabling social enterprises and charities or preparing their buildings for the future by installing EV charging points, then we need to do our part in supporting that.
As the built environment accounts for 25% of total greenhouse gas emissions in the UK, lenders must prioritise funding homes that support energy-efficient improvements, whether or not it is a Government requirement.
Allowing buildings with poor energy efficiency standards to continue without improvement has far-reaching consequences, impacting not just the environment but also the health and wellbeing of occupants.
The potential cost to the NHS could reach a staggering £1.4bn annually in England due to increased treatment expenses.
Health hazards arise from inadequate energy efficiency, leading to excess cold exposure, health and safety failings and also significant injury-related expenses. Therefore, addressing underlying issues with our buildings is essential, not only for environmental sustainability but also for the overall health of the population and Government coffers.
Future-proofing millions of UK homes to make them energy efficient would require a significant investment estimated at £250bn by 2050. Relying solely on public funding is not sustainable.
So, creating and implementing approaches that encourage private investors and companies to fund home improvements and energy efficiency upgrades is essential.
Unlike governments facing political pressures or lengthy legislative processes, lenders can act swiftly and decisively to encourage ESG standards, putting the industry at the forefront of positive change.
As vital financial partners, lenders can dictate the terms of loans and investments as special conditions and hold borrowers accountable for playing their part in bettering the world we live in.
As key stakeholders in the global economy, lenders understand the repercussions of financing unsustainable projects or businesses.
Embracing ESG principles works as a financial incentive that both aligns with their long-term interests and safeguards against potential financial losses from unsustainable practices.
Making sustainability party political may have cast a shadow over regulation, but it has not changed the reality that change is needed if we are going to have sustainable buildings that embrace the reality of a changing built environment.
We can’t do it alone, but the world of real estate lending can make a start at addressing ESG issues.
We have a choice as to how we, as an industry want to take this forward. It is our responsibility, both immediately and for future generations to drive change.
By incorporating sustainability criteria into lending practices and supporting borrowers seeking eco-friendly financing, lenders can make a significant impact and hopefully our political leaders will follow suit.