As saving energy and reducing carbon emissions are becoming more important property sector issues, Lloyds Bank has decided to deploy £1bn in cut-rate loans to property owners aiming to improve the energy efficiency of their buildings. Companies interested in obtaining the discounted loans from the fund will have to undergo an eligibility test.
Believed to be the first of its kind – at least from a high street bank - this loan will offer discounts of up to 20 basis points on loans of £10m or greater to those clients that achieve their sustainability targets. The better clients perform, the better the rates they will be able to access up to the above limit.
The bank believes that its initiative should help reduce CO2 emissions by around 110,000 tonnes – the equivalent to the annual energy use of more than 22,000 homes. Since UK buildings are responsible for almost 40% of energy consumed and 36% of CO2 emissions, such a scheme clearly has significant potential to improve building energy efficiency and carbon emissions.
Lloyds has collaborated with environmental consultancy Trucost to devise benchmarks that will be used to assess individual buildings so that efficiency targets can be set. Clients that have borrowed on this scheme will need to meet their targets to continue receiving the improved loan margin.
Why?
But why is Lloyds Bank offering this innovative scheme? It says that in this way, it can support its clients’ sustainability programmes and incentivise better energy efficiency. However, the bank also hopes that the scheme will interest investors for sustainable fixed income products for the UK market. It cites green bonds as an example. So the bank hopes that its new fund will prompt others to launch similar schemes.
Furthermore, if the scheme is widely taken up, there will be positive knock-on business effects for those electrical contractors and installers involved in sustainability work and the use of – for example – low energy LED lighting and associated control gear and presence detection.
Commented MD, Head of Capital Markets at Lloyds Bank, James Garvey: “With the built environment responsible for almost 40% of energy consumption as well as 36% of carbon emissions in the UK, incentivising and supporting green improvements for our real estate clients is a priority area of focus.
“At the same time,” he said, “we see significant investor interest in green and sustainable assets across the capital markets spectrum. Therefore, we want to continue to take the lead in innovating products in order to help spur growth in this essential market.”