The conversation around how to best transition to Net Zero for businesses is becoming increasingly urgent as the impacts of climate change approach. Like other financial institutions, building societies have a vital role to play in the route to Net Zero and the future low carbon economy.
Customer expectations are also driving the urgency in reaching a more sustainable economic system. According to Deloitte, 61% of UK banking customers want their provider to work harder to create a positive, social and environmental impact. Building societies are increasingly supporting a range of green initiatives aimed at reducing greenhouse emissions. A number of societies are expanding the type of products they offer to include green finance and mortgages.
Saffron Building Society introduced new retro-fit mortgages and Enviro Saver products in 2019 that resulted in not just high levels of sustainability but also attracted customers. Homeowners who improve the EPC rating of their home by one band receive a rate reduction of 0.1% from Saffron Building Society, encouraging more sustainability from customers. Users of the Enviro Saver will also see 0.1% interest donated to an environmental charity to offer customers a green savings product.
“The retro-fit mortgage tackles two key issues; it appeals to those concerned about the environment and their personal impact, whilst also allowing borrowers to purchase older buildings with character that they aspire to live in.
By being able to benefit from a discount on their rates by improving the home and making it more energy efficient, it makes older stock more appealing to buyers and improves the existing housing available, rather than relying on new build properties which are built with EPC ratings already at appropriate levels.”
John Penberthy-Smith, Chief Commercial Officer, Saffron Building Society
Many conventional banking strategies will have to be transformed to keep up with best practices on sustainability. But as countless building societies have already shown, it is possible to become more sustainable at the same time as reaching new customers and improving the products on offer to current clients.
Ecology Building Society is leading the way for others in the sector, with their recent announcement of providing the first carbon footprint for mortgages being an industry first. Using standards established by the Partnership for Carbon Accounting Financials (PCAF), Ecology Building Society calculated its residential lending has a carbon footprint of 1,785 attributed C02 tonnes in 2020.
Ecology made another industry-first by becoming the first building society to join the Net Zero Banking Alliance. This move means that Ecology will commit to setting targets that align with the Paris Agreement within 18 months. As the banks that account for the vast majority of the membership of the Net Zero Banking Alliance continue to grow their green credentials, customers will expect similar actions from smaller credit unions and building societies.
“Given the scale of the climate and ecological crisis the banking sector needs to work together in the urgent fight against catastrophic climate change, unlocking the financial solutions to deliver net-zero.
“Ecology has been pioneering environmental finance for 40 years so signing up to the Net Zero Banking Alliance wasn’t a difficult decision for us.
“Our members expect us to agitate for positive change and we hope that these concerted efforts will rapidly deliver both the ambition and actions to accelerate the shift to a low-carbon economy and build a sustainable future.”
Steve Round, Chair, Ecology Building Society
Customers are voting with their feet when it comes to climate related issues. Deloitte found that 61% of customers would leave their bank if it was found to have a link with any social or environmental harm, even if this bank offered the best offer. It’s clear that those societies that do not take the need to reduce carbon emissions seriously will fall behind and lose customers.
This aren’t issues just for UK financial services providers. Across the continent, action is needed to ensure greater sustainability.
“Buildings are responsible for 40% of the EU’s energy consumption and most of the EU’s building stock was built before 2000. By providing European families with the financing, they need to improve the energy performance of their homes – considering that each European household would on average need to invest at least 20.000 EUR for these upgrades – it is possible to secure enhanced property values in the medium term and immediate increases in disposable income as a result of the reduction in energy costs”.
Luca Bertalot, Secretary General, European Covered Bond Council
Building societies are well placed to take advantage of the continuous migration to sustainable products as they have a reputation for putting people over profits. By embedding ESG issues into their product offering, as well as committing to be as sustainable as possible in operations, building societies can play a central part in incentivising their customers to join them on the journey to Net Zero.
To learn more about what building societies and credit unions are thinking about and putting into practice sustainable products, join us on 6th October for the next edition of FTT Building Societies.
Written by Finabarr Toesland, Editorial Contributor