NACFB: Going for green

Going for green

The race for more sustainable commercial finance

QMike Deacon Board Director NACFB F ollowing COP26, the United Nationsʼ conference on climate change hosted in Glasgow last November, the government committed to reducing the UKʼs greenhouse gas emissions to net zero by 2050. Financial & institutions will play a key role and NACFB Members are well-placed to help borrowers understand how lenders plan to meet the target. We asked Mike Deacon, NACFB Board Director to explain more and share how the Association will guide its Members along the path to a more sustainable future.

Have any of the targets been reflected by financial institutions, and in particular, commercial finance lending activity?

Not yet. There is a lot of work to do, and the scale of the task is huge. In the UK, there are some signs that lenders are gearing up for niche lending sectors that are ‘green’, but the actions taken are yet to be co-ordinated strategically. Lenders still appear to be working in silos.

What constitutes a green loan? Is there an actual definition?

Currently, there is no standard definition of a green loan, but there is a lending aspiration towards a greener future. criteria which will require radical changes in the way they assess risk and reward.

In the 2021 NACFB survey of brokers, 79% of respondents said that they had not seen any increase in clients seeking green funding solutions. Why do you think this is?

Education. Borrower lethargy on green finance will continue until there is a clear government strategy and a common set of guiding principles for financial institutions – including brokers. It could also require legislation. A What can NACFB Members do to make their clients more aware of green funding solutions? Brokers can take the initiative and start to educate themselves about the changes that lie ahead in the commercial finance space. What role do you believe the NACFB can play in pushing forward the green finance agenda? The NACFB is already seeking to influence government, regulators, and lenders by providing them with insight on the issue from the broker’s perspective. Our fast-growing relationships with these key stakeholders will also ensure that messaging and new developments

Following COP26, what environmental targets have been set by the UK government?

According to the UK government’s ‘Building a Private Finance System for Net Zero’ paper the key is building “a virtuous cycle of innovation and investment for net zero”.

This will require modifications to the ways lenders deal with reporting, risk management, returns, and mobilisation (making funds available across a range of sectors through government and public-private partnerships). It’s a lofty set of ambitions which will require much work to bring them into the business and lending world.

In the world of commercial finance lending, what might be

considered ‘greenwashingʼ? Very simply, something that appears to be carbon-reducing but is not carbon-reducing. Governments around the globe have been ‘trading’ carbon credits for decades, i.e., rich countries using poorer countries’ credits in exchange for goods, services, and funding. This is not sustainable. In the UK the Green Technical Advisory Group was established to tackle this issue for a range of investment and other commercial finance funds. Many commercial lenders will need to ensure that their lending meets the government’s regarding green finance are shared with our Members.