Guest blog by Robin Penfold, partner at BSA Associate law firm TLT
The retail financial services sector has played a key part in supporting customers during the Covid-19 pandemic. At the peak of this global event, over 1.6 million mortgage payment holidays were offered to homeowners, meaning a staggering one in seven mortgages was at one stage covered by payment holidays. A similar number of payment holidays was also approved on credit cards and personal loans.
Over the next few months, as the economy emerges from lockdown, never before has behaving ethically and responsibly been so important to consumers’ purchasing decisions. For building societies, the opportunity to secure a role in the green economic recovery is now.
What is already happening?
Green finance covers a wide range of financial products and services, which can be broadly divided into banking, investment and insurance products. In the building society sector, green finance products are typically designed to encourage or reward environmentally friendly activity.
We are starting to see a range of products enter the market, including:
- Mortgages that are discounted in line with a property’s energy efficiency;
- Savings products that offer an environmental benefit, such as carbon offset savings accounts; and
- Credit products designed to finance the next generation of electric vehicles, including home charging infrastructure.
What can be done to accelerate growth in the market?
Anecdotally, we are seeing increasing consumer demand for green financial services products, but more could be done to give retail customers the information they need to understand the environmental impact of their financial decisions.
With the rapid growth of digital channels in the financial services industry, fintechs may provide the key and we are already seeing a number of solutions being launched.
On the supply side, there is still a lot to do. Taking the mortgage market as an example, while we are seeing a growing number of products being introduced, there is further opportunity for growth. Regulatory incentives – such as preferential capital treatment trialled recently in Hungary – and unlocking perceived barriers in the regulatory framework (for example in relation to the advised sales process), may be the solution.
What happens next?
On Friday 12 February 2021, we saw the launch of a new Energy Efficient Mortgage Label. Launched by the European Mortgage Federation, the label aims to act as a catalyst for innovation and channel private capital towards energy efficient buildings and energy efficient renovations. It will also provide greater transparency to borrowers about alignment of the product with the key aspects of the legal and regulatory framework.
The label demonstrates significant international investment in accelerating the availability of finance for energy efficient buildings or renovation. Financial regulators have already indicated their desire to see this market grow in a responsible way. Transparency and trust are likely to be key pillars of their regulatory and supervisory strategy.
In short, green retail financial services products should provide a real growth opportunity for building societies over the short to medium term and one that is very much aligned with the values of a mutual.
The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.