The climate crisis and cost of living crisis are both well underway and wreaking considerable damage on the livelihoods and fiscal capabilities
of the UK public.
Financial institutions and the government need to step up green initiatives to make housing more sustainable and more affordable. While these
may seem like two different, and even opposing ambitions, more can be done to combat the climate and housing crises.
Co-founder and CEO of property investment firm Shojin, Jatin Ondhia comments on how the cost of living crisis is impacting green lending for housing: “It’s
a complex landscape; on one hand, it’s putting pressure on developers to reduce costs (with more expensive green initiatives falling to the wayside), but on the other, the sharp rise in energy costs over the last couple of years has only increased the appeal
of energy-efficient homes. Higher demand for these properties is maintaining interest in green lending, alongside the broader environmental prerogative.”
Where does the UK stand with EPC ratings and policy?
The energy efficiency standards have been flip-flopping and pushed around in the last few years, with different eras of governing incumbents
having varying priorities on environmental impact. The deadline for the minimum energy efficiency standard for commercial landlords and property owners, which is an EPC rating of ‘C’ or above, was previously 2025, 2027, and has now been pushed to 2028. Many
properties in the UK currently are not meeting these standards, and so it will be a long haul to 2028. This is gearing up towards all properties levelling up to a rating of ‘B’ and above by 2030. Properties that do not meet the
Minimum
Energy Efficiency Scheme requirements will be unlettable.
The lack of policy weighing in is a problem in the housing market. Gigi Zappel, CEO and co-founder of IMMO, a London-based technology real
estate platform, states that the UK is falling short on meeting minimum energy efficiency standards: “The Government’s Department for Levelling Up, Housing and Communities
has estimated that 25% of the UK housing stock is substandard, with 12% of housing conditions representing a category 1 hazard. There is still significant work to be done to bring the majority of UK homes up to the required energy efficiency levels.”
According to the
UK’s Climate Change Committee
(CCC), the UK needs to be retrofitting 500,000 homes per year by 2025 and 1 million per year by 2030 to achieve net zero targets.
Zappel explains: “Many institutions are pivoting from ‘brown’ to ‘green’ strategies, focusing on how retrofitting can improve EPC ratings. To support these
projects, our capital expenditure calculators provide highly detailed, precise, and transparent assessments of potential retrofit projects. These tools enable investors to make informed decisions about energy efficiency improvements, balancing costs against
potential EPC rating changes and long-term energy savings."
Can we allocate capital to climate change objectives?
Financial services can step into supporting homeowners in the process of managing mortgages and assessing value of investing in retrofitting.
Proptech (property technology companies, who are using technology to advance real estate the real estate industry) and financial services can
provide solutions and incentives, offering mortgaging solutions as a way to bridge the gap for the underserved to influence people’s behaviour to become greener.
Proptechs offer homeowners a clearer view of affordable retrofits to make their homes greener and provide further insight into the lending process.
AI and data analytics can predict the outcomes of retrofitting, anticipate energy savings, and value increases that can increase investments. Zappel says
that proptechs such as IMMO can offer greener solutions in retrofitting existing properties, which can also reduce carbon emissions and improve the environmental performance of homes in the UK.
What needs to be addressed in the lack of incentives for homeowners to make sustainable home improvements, pain points such as upfront costs
and lack of policy guidance are obstacles to home energy upgrades and retrofitting.
Commenting on the obstacles facing home energy upgrades, Ondhia points to the existing housing stock as a challenge: “Managing diverse portfolios requires
tailored approaches for each property, increasing costs and complexity. Additionally, the lack of transparent data on the return on investment (ROI) for energy upgrades makes it difficult to justify the upfront costs. Regulatory and compliance challenges further
complicate the process, as navigating different jurisdictions' regulations is cumbersome and time-consuming. Consistent and streamlined regulatory frameworks are needed to facilitate easier planning and execution of retrofitting projects.”
Ondhia outlines how their company is focusing on moving capital into green lending, citing two key strategies. The first is to develop sustainable financial
products, and the second is to collaborate with investors to focus their funds on green properties that align with ESG standards.
“By educating investors and demonstrating the financial viability of green projects, we're seeing a gradual but steady shift in capital allocation towards
sustainable lending options.”
Where is fintech making progress?
Ondhia notes that fintech is driving progress through tokenised green bonds blockchain-driven carbon credit trading systems that can increase
the liquidity of green capital. He furthers that the development of tracking and verification of sustainability metrics will make data collection more accurate and clearer.
“The fintech space is helping prioritise carbon emission reductions within the real estate and development finance sectors. One key area of progress is
in the development of advanced analytics tools, and through a growing ecosystem of technology providers, more accurate measurement and forecasting of a property's carbon footprint (throughout its lifecycle) is possible.”
To address the urgency of climate change, financial services must evolve by working towards reduction of carbon emissions and aligning financial
incentives to sustainability objectives. A transformation of data infrastructure, governance, and policy is required to achieve energy efficiency standards and effectively mitigate climate catastrophe.