It seems that after decades of studies followed by many warnings, the UK has finally woken up to the threat of climate change.
Along with legal commitments to achieve net zero targets by 2050, we heard this week that no VAT will be charged on home energy upgrades. This includes things like insulation, solar panels and heat pumps (ground or air).
Targeting homes is key to achieving net zero commitments, as real estate accounts for nearly 20-36% of all greenhouse gas emissions. Homes also account for up to 40% of the energy consumed, according to a recent report by Plentific.
Households are not short of options or providers. The main challenge is the cost of retrofitting existing homes to be more energy efficient. Estimates vary widely, but the lowest average estimate per household I’ve seen is £10,000. So what does all this mean for banks?
As the saying goes, “Where there is pain there is opportunity”, and although banks have strong corporate statements on ESG and net zero, many have been slow to take advantage of the opportunities that arise. I see at least three big opportunities that most banks could target:
- Carbon calculators
Fintechs like Ecolytic are leveraging open banking to analyze customer spending and identify the carbon footprint of their transactions. Not only that, but they are able to help customers identify alternative spending options that would have had a lower carbon footprint.
As customer awareness increases, the need for guidance towards more carbon-efficient spending will also increase. For banks, this is not just an opportunity to provide a valuable service, they could also potentially generate a new revenue stream by collecting referral fees from organizations providing low-carbon products/services. . Such a service could also increase customer engagement with the bank.
- Home Improvement Loans
As highlighted above, the cost of home improvements can be significant. However, the savings from these upgrades can be just as significant. With the cost of living and inflation on the rise, many households will be looking to save wherever they can.
Again, it is possible to help homeowners understand the potential savings from such upgrades, and then provide loans to spread the cost of the energy upgrades. The recent removal of VAT on energy efficient renovations will increase justification by reducing costs by 20%.
For households that have already invested in improving the energy efficiency of their homes, banks have the opportunity to help them manage their savings through investments that offer higher returns than deposit accounts. Additionally, some banks are already moving towards funds that invest in more energy-efficient companies or that provide energy-efficient products/services.
As I mentioned before, Triodos Bank is the epitome of a bank that focuses on serving customers by saving the planet. While I don’t see all banks being so altruistic, I hope that by seeing the opportunities available to them, a good balance between helping the planet and making a profit can be achieved.
I’m just saying there’s a real win-win-win situation here. Banks can make a significant difference to the planet, to their customers and, ultimately, to their bottom line.
About the Author
Dharmesh Mistry has been in banking for 30 years and has been at the forefront of banking technology and innovation. From the very first internet and mobile banking applications to artificial intelligence (AI) and virtual reality (VR).
He’s been on both sides of the fence and he’s not afraid to share his opinions.
He is CEO of AskHomey, which focuses on the household experience, and an investor and mentor in proptech and fintech.
Follow Dharmesh on Twitter @dharmeshmistry and LinkedIn.
Read all of his “I’m just saying” thoughts here.