James Anderson, operations director of fintech property lender at MT Finance shares his thoughts on ESG initiatives and the need for their implementation.
Aside from the pandemic, it has been hard to find a topic as all-consuming as the appalling weather we are enduring this summer. With many of us forgoing overseas holidays and staying closer to home, the seemingly incessant rain has been hugely unwelcome.
It’s not just the UK which is experiencing such extremes of weather – with excessive rainfall and flooding in Germany, China, India, Bangladesh, and Turkey, as well as wildfires in Greece and northern California, it appears as though natural disasters are only going to get worse with every increment of global warming. Indeed, the world’s largest-ever report into climate change, published by the UN, says that record-breaking temperatures, raging wildfires and devastating flooding should be a ‘massive wake-up call’ to governments.
Most people agree that something substantial and meaningful needs to be done. Environmental, social, and governance (ESG) issues and initiatives are climbing higher on corporate agendas – and if they aren’t, they should be. Any company – no matter how big or small – that wants to make a difference and drive sustainable improvements should have an ESG framework in place that measures its corporate responsibility and performance. Below, we set out what various companies are doing, and how they could do more.
Green mortgages
With the government committing to several policies reducing greenhouse emissions and de-carbonising the UK, residential and commercial buildings form an integral part of this. Lenders are doing their bit for a sustainable future by launching ‘green’ mortgages and incentives to enhance EPC ratings in the mainstream market. Some of our biggest lenders, such as Barclays, Nationwide and NatWest, offer some form of green mortgage, although they remain niche products with consumers mostly unaware as to what they are and few borrowers requesting them. Some lenders offer lower interest rates to borrowers purchasing environmentally-friendly properties. Others, such as specialist lender Ecology Building Society, go a step further, offering renovation mortgages for those buying derelict properties who want to make substantial improvements to energy efficiency.
The current crop of green mortgages mostly benefit those buying new-build properties and the industry needs to do more to reward homeowners who improve the energy efficiency of existing homes or buy older properties. While high-street lenders have been offering green products for a while, progress has been more muted in the specialist lending market. At MT Finance, we have tried to address this by launching our own initiative into the green space, giving £250 credit to borrowers who achieve an energy performance rating of A or B at any time during their loan. This is designed to encourage borrowers to purchase more energy-efficient properties or undertake tasks such as improving insulation or upgrading windows and heat sources. This has the added benefit of reducing running costs, making properties more affordable for tenants and owner-occupiers.
The initiatives across the industry so far are welcome, but it is very early days, and they are probably not radical enough to drive drastic change. Lenders are still testing the appetite of the market for greener products and investment in sustainability. It doesn’t help that green mortgages are not always the cheapest solution when taking out a mortgage; more lenders in this space should mean lower-priced products, making them more attractive to borrowers, and increasing the take-up of them. After all, borrowers, like us, want to see sustainability being put at the heart of what we do with the built environment.
A balanced workforce is good for business
While environmental concerns are quite rightly dominating the headlines, ESG covers more than the environment. There are important moves underway to improve quality and diversity in the fintech sector, moving away from the traditional view of finance being white and male-dominated.
Many lenders are promoting diversity in order to get away from this long-established scenario and indeed at MT Finance, we have made significant changes to our board of directors, announcing the addition of new members, creating 30 per cent female board representation. This move is in line with our commitment to the Women in Finance Charter, a commitment by HM Treasury and signatory firms to work together to build a more balanced and fair industry in financial services. To be fair, most companies in the specialist industry are fairly diverse already. But we are doing what we can to promote inclusiveness and diversity so that the latest generation entering the workplace continues to feel that opportunities exist.
Corporate governance
The final pillar of ESG is Corporate Governance. In the lending space, it is hugely important to have transparency with most companies now recognising the need to be accountable. Those companies who are regulated and operate under the approved persons regime already have greater accountability built-in.
However, there are always ways in which this can be improved, benefiting both customers and the companies themselves. The more transparent you are and the more you operate within a structure that improves customer outcomes, the more investable your company becomes. It is in your interest to embrace corporate governance.
In the past few years, we have seen great advances in the consciousness of climate, inclusivity, and opportunity. This is being adopted in the corporate world in a meaningful way. It is early days but fintech companies, who by their very nature are innovators and early adopters, are leading the way with ESG initiatives. Long may this continue.
