With the UK set to host the UN Climate Change Conference (COP26) in Glasgow next month, the Finance & Leasing Association (FLA) is calling on the government to introduce a Green Finance Wholesale Guarantee to help scale up green lending in support of its newly announced Net Zero strategy.
FLA members financed more than a third of UK investment in machinery, equipment and purchased software in the UK in 2020, and the association points out the vast majority of consumers and businesses already supportive of the Net Zero effort.
However, the FLA says the main obstacle to increasing the uptake of green goods is cost. Lender involvement is therefore crucial to the government’s plans, as finance will often the only way to put green options within reach – but the price of that finance needs to be to affordable, competitive and comparable to non-green options to make it a viable choice for most users.
The association has identified the elevated risk attached to many green goods as the critical problem. These green alternatives are new to the market and pricing their lifespan, depreciation or obsolescence can be difficult. Ordinarily, this risk would diminish over time as the market develops, but as lenders are working to the government’s timeframe for net zero – which requires green lending to increase now in both scale and pace – then the FLA argues that the government needs to share some of that risk in the interim. In response, the FLA has published its manifesto, Making Green Finance Mainstream. This recommends a Green Finance Wholesale Guarantee that would run from 2022 – 2026, providing cover for funders of both consumer and business lenders on a portfolio basis. If operated on the same semi-commercial basis as the British Business Bank’s ENABLE scheme, with a similarly low rate of non-performing portfolios, the Green Finance Wholesale Guarantee programme could even generate a modest profit for government.
Stephen Haddrill, the FLA’s director, said: “While the vast majority of consumers and businesses are fully behind the government’s green agenda, monthly budgets and bottom lines will make pragmatists of even the most environmentally aware.
“The success or failure of the government’s net zero ambitions will depend on the availability of finance that is affordable, competitive and comparable to non-green options. That in turn makes the Green Finance Wholesale Guarantee a vital requirement to scale up green lending.”
Asset Finance Connect
Find out more about the opportunities and challenges for the equipment finance industry as it comes to term with the increased focus on green finance and ESG (Environmental Social Governance) at Asset Finance Connect’s conference on 9 November.
John Rees, community leader of Equipment Finance at Asset Finance Connect and former joint chief commercial officer at Societe General Equipment Finance, will lead a discussion on ESG, with a panel including Paul Jennings, managing director, JCB Finance; Richard O’Donohue, senior director, partner solutions, Dell Technologies; Ralf Steger, head of financial services, Heidelberg, and Adrian Samareanu, CDO & Group SVP, Volvo Financial Services.
The presentation will take place at the Asset Finance Connect UK Conference and Awards on 9 November 2021 at ETC venues St Pauls, London.
Among the topics John will consider with the panel:
- Understanding ESG and 'walking the talk'.
- Risk and rewards.
- Core capabilities and products.
- Partnership opportunities between lenders and manufacturers.
To find out more and to book for the event, go here.