The Finance & Leasing Association (FLA) has published its manifesto, Making Green Finance Mainstream, which highlights the need for a Green Finance Wholesale Guarantee to help scale up green lending in support of Net Zero.
The trade body says that, with the “vast majority” of consumers and businesses already supportive of the Net Zero effort, 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 FLA says the problem is the elevated risk attached to many green goods – they 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 government needs to share some of that risk in the interim, the FLA says.
The association is recommending a Green Finance Wholesale Guarantee that would run from 2022-26, 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, the FLA claims.
Stephen Haddrill, director of the FLA, 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.”