In 2019 the UK government launched its Green Finance Strategy. If you’re not familiar with the term ‘green finance’, it’s the use of financial products - for example loans, insurance, investments - in eco-friendly projects. So ultimately it’s about stopping climate change….and saving the planet. Pretty ambitious stuff.
The government’s Green Finance Strategy sets out 10 goals for improving the environment within a generation – approximately 25 years. It details how these goals will be achieved across 10 headings. For example, the first 3 of the 10 headings are: ‘Clean air’, ‘Clean and plentiful water’ and ‘Thriving plants and wildlife’.
Now because public funds can only cover a modest percentage of what’s required to meet the goals, over 75% of funds will need to come from the private sector. That’s why it’s so important people understand how Green Finance works. There are significant financing gaps to fill for all conservation, energy and climate related projects.
Using finance to support firms with environmentally conscious objectives is of course nothing new. Prior to the Green Finance Strategy, many firms used terms other than Green Finance, such as ‘ESG investing’, to represent the flow of money to projects with such objectives. But what is new is the much bigger scope for Green Finance, plus a momentum to get behind the use of the term ‘Green Finance’ compared to other perhaps more traditional terms in this area.
By embedding Green Finance within all aspects of the financial services industry, good progress has been made with helping the transition to a low carbon world. And even if you think your own personal financial situation excludes you from the big-player investment schemes, there’s still plenty you do to invest in more environmentally-friendly schemes.
Many financial service providers offer green savings and investments products enabling you to choose from a menu of green themes to responsibly save or invest in. This involves products which contribute towards the financing of green projects or businesses directly, or products which invest money in investment funds that have a green focus.
Some financial service providers offer green current accounts which enable customers to have influence over how their deposits are used.
A type of loan now embracing green culture is a green car loan. With below-market interest rates, customers are incentivised to purchase cars that demonstrate low greenhouse gas intensity and/or high fuel efficiency ratings. The lower interest rates either reflect the lower risk profile of green car loans (as borrowers will have lower operating costs and electric or hybrid vehicles have higher resale values) or government incentives to support subsidised interest rates.
Many banks have also introduced ‘green’ credit or debit cards. These typically offer a small donation to an environmental charity on many transactions.
Many motor insurers now offer discounts for environmentally-friendly vehicles. In addition, some insurers will offset the pollution caused by the car with schemes such as planting trees or contributing to environmental charities. Some also have the option of upgrading to a more environmentally-friendly vehicles after a total loss. Several insurers also look to help the environment with ‘Pay as You Drive’ (PAYD) programmes, in which miles driven and speed are tracked and policyholders are rewarded accordingly.
And what about mortgages? One provider will now make a commitment to plant eight trees a year over five years for every home bought or re-mortgaged with them. Another offers a discount on its standard rate if you improve the energy efficiency of the property. Meanwhile, one provider will give the customer a free detailed energy report, suggesting ways in which its energy consumption can be improved.
With Green Finance being such a hot topic, we’ll soon be launching a learning pathway on this. As you’d expect from us, the pathway will be highly engaging and interactive. For example, you’ll get to answer interactive questions and make decisions to try and help the environment, learning as you go. Then visually, you’ll encounter some positive or negative consequences to the environment, depending how you answer. In addition, you can also enjoy other engaging content such as videos.
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