While banks have been offering low interest green personal loans with rates as low as 5.99% for a few years now, the recent launch of Australia’s first green home loan suggests that sustainable finance as a trend is growing.

The green home loan offered by Bank Australia is backed by $60 million in funding from the Clean Energy Finance Corporation (CEFC), a statutory authority established under the Gillard government in 2011.

Bank Australia’s green loan provides homeowners borrowing less than $1.5 million with a discount of 0.40% on the Premium Package home loan if their property is rated at least 7 stars under the Nationwide House Energy Rating Scheme (NatHERS).

The big four banks, alongside financial, academic and civil society representatives, are also promoting green finance, with the launch of the Australian Sustainable Finance Initiative (ASFI).

Born from industry discussions at a United Nations Environment Programme Finance Initiative (UNEP FI) event in 2018, the Australian Sustainable Finance Initiative was created to ensure the financial industry supports greater social, environmental and economic outcomes in Australia.

Simon O’Connor, the CEO of the Responsible Investment Association Australasia (RIAA) and Co-Chair of the ASFI, is a strong advocate of sustainable finance who acknowledges the wider economic impact of environmental issues.

“2020 marks the start of a new decade and one in which we as a nation and a world have very clear goals – through the Paris Agreement and the Sustainable Development Goals – that to achieve will deliver a more resilient, stable and prosperous economy, society and environment,” he said.

“But that the failure to deliver [these goals] will impose massive economic costs that will compound the longer we fail to move.”

“Australia’s tumultuous summer of fires has commenced this decade with an insight of just how broad these human and environmental costs can be, and an early insight into just how these will translate to significant economic costs.”

“The finance sector understands it cannot sit on the sidelines, and through the Australian Sustainable Finance Initiative we are working as a broad industry collaboration to set in train a roadmap for a financial services sector that is more than just reacting, but proactively shaping a better future.”

The ASFI released its first progress report in December and the first interim report is due to be delivered in 2020.

Climate risk is investment risk

Investors are also seeing the value in sustainability, with trillion-dollar investment firm BlackRock and the Swedish Central Bank both actively taking steps to recognise that climate risk is also investment risk. As such, they have already either reallocated capital and withdrawn investments in fossil fuels, or are in the process of doing so. BlackRock has already sold more than half a billion dollars in thermal coal shares, and has publicly announced that climate change will be the focus of its investment strategy.

The growing awareness of the financial industry’s impact on both the environment and the economy has led to the wider integration of environmental, social and governance risks into investment strategies, known as “ESG” driven investment.

Used by conscious investors to evaluate potential investments, this set of standards was introduced in 2014 by the ASX Corporate Governance Council in its annual recommendations. It requires ASX-listed companies to “disclose whether [they have] any material exposure to economic, environmental and social sustainability risks and, if it does, how [they manage or intend] to manage those risks”.

It must be noted, however, that investors could be capitalising on the popularity of climate action to attract new clients. BlackRock, for example, is only divesting from companies that obtain more than 25% of its sales from thermal coal, and so are still technically investing in fossil fuels.

If consumers continue to favour brands reducing emissions and investors stand firm in their withdrawal from the fossil fuel industry, politicians and governments could be next to follow suit.

As the economist Gregory Mankiw says: “Politicians, whether we call them elected leaders, are really elected followers. They do what the people want them to do. Once the people are convinced, the politicians will fall in line.”

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