One of the key themes at COP27 is finance, with the aim of making significant progress on this issue to help achieve the goals set out in the Paris Agreement. Achieving net-zero carbon emissions and limiting the rise in global temperature means continuing to mobilise climate finance money and collaboration between investors, businesses, regulators and nations. It’s this recognition that has helped accelerate the development of ‘green lending’ products in the UK and led to increased take-up of green finance.
At Gowling WLG, we have been discussing the subject of ‘green loans’ with both lenders and borrowers for at least 18 months now. There is real interest (and traction) on both lender and borrower sides, so the discussion at the conference today will no doubt seek to frame and further that ongoing narrative and the progress being made in this area.
So what do we mean by green finance? In general, ‘green finance’ describes any financial initiative that beneficially supports the environment or, ultimately, has sustainable investment as its primary purpose to minimise the impact on the climate.
In 2021, ahead of COP26, the UK Government published ‘Greening Finance: A Roadmap to Sustainable Investing’, setting out its ambition to enhance green and sustainable investment and transition to a more sustainable economy. This type of investment will benefit the UK on its journey to net zero by providing businesses with the means of being able to make the shift to a low carbon future.
The UK has made substantial progress in cutting carbon but there is recognition across all sectors that there is more to do. Looking at the construction and housing sectors in particular, the pace of change is rapid as businesses work towards the commitments made nationally and respond to changing regulation and consumer trends. For instance, alongside the requirements around biodiversity net gain for new developments, there is also a focus on the need for existing homes to be retrofitted – ensuring they are properly insulated, use renewable energy and meet climate goals.
A report we published last year, titled ‘Building and Buying Better Homes’, engaged with a cross-section of more than 300 UK housebuilders to better understand their views on sustainable homes. Our research found that in order to meet the net-zero carbon emissions target, 50% of housebuilders expected they would need to divert 11-30% of their profits into building green homes.
Moreover, half of the housebuilders we surveyed (49%) said they were aware of ‘green’ loans and green financing options, with more than one in 10 (13%) stating they have already used this method of funding. While these findings are encouraging, they also show the gap that exists in utilising this type of finance and the take up still needed in the sector to meet net zero.
Post-pandemic, as society and the economy has adapted to new ways of operating, there is an opportunity to rebuild through green finance. We expect the availability of ‘green lending’ products for developers and consumers to grow considerably over the next few years, helping support the transition to a more sustainable future.
Green finance will be one of many finance topics discussed at today’s Finance Day at COP27. The conference provides an opportunity to reflect on the commitments made under the Glasgow Financial Alliance for Net Zero at COP26 and look at next steps. Read more about the issues to look out for at COP27 in our latest article and look out for more blog posts on LoupedIn.
