According to Mr Albanese, his goal is to turn Australia into a “renewable energy superpower” and end the “climate wars”.

Australia’s deteriorating environment

Indeed, it has, for many, felt like they have been under siege as they battle the devastating impacts of the changing climate. The bushfire crisis of 2019–20 – and the following drought –  had only just finished when Australians were hit with another climate crisis, flooding.

Across NSW and Queensland, in particular, the autumn of 2022 brought with it record levels of rain that fell in torrential downpours – resulting in flash flooding across many riverplains and causing dams to burst. More than 80,000 people are believed to have been impacted – with tens of thousands of homes and cars – and mountains of possessions – lost or badly damaged.

The town of Lismore, which has seen four bouts of flooding in as many months, has become the poster child of the need for Australia to be better prepared and better protected from the changing climate.

And protection is key. The recently released Australia State of the Environment report for 2021 makes for sobering (and depressing) reading. It reveals that Australia’s environment is not only “poor” but has deteriorated over the past five years, with at least 19 ecosystems now showing signs of collapse or near collapse. We’ve lost more mammal species than any other continent, and have one of the highest rates of species decline in the developed world.

All of this would have been enough to make anybody call for more to be done to improve Australia’s resilience against climate change – while also reflecting inwardly on what else they can be doing on an individual basis to reduce emissions. But, another catalyst has been feeding into the collective movement to find greener solutions: the rising cost of living.

Russia’s invasion of Ukraine and the resulting sanctions against the country (including prohibitions on the import of oil, refined petroleum products, natural gas, coal and other energy products from Russia) have contributed to rising electricity prices that – coupled with rising inflation – have already caused many to change behaviours and rethink their energy consumption in order to save money.

As such, it’s perhaps unsurprising that demand for green products has been booming.

The green loans in market

According to the Department of Industry, Energy, Science and Resources, Australia has the highest uptake of solar globally at approximately 30 per cent. Moreover, the recent Ipsos Climate Change Report 2022 shows that Australians are also active in improving energy efficiency around the home (36 per cent) and considering products being purchased with respect to how they are made, materials and end-of-life disposal (35 per cent).

More and more lenders are now offering products to help borrowers finance the installation of green products to their home.

Gateway Bank has been one such lender leading the green financing movement.

It currently offers its lowest-rate personal loan (starting from 5.75 per cent per annum, or 6.76 per cent comparison), the Eco Loan, to help more Australians purchase and/or install environmental upgrades to their homes, such as solar panels, solar battery storage systems, solar hot water systems, rainwater tanks, certified double glazing for windows, or energy-efficient LED lights (among others).

Suncorp Bank has been one of the most recent lenders to launch a new “green upgrade” loan product too, enabling eligible home loan customers to borrow between $10,000 and $25,000 at “a special discounted interest rate”, to install energy-efficient features to their homes.

The bank launched the new product earlier this year to help customers “save money on their power bills” after the Australian Energy Regulator announced an 18.3 per cent hike to default market offers (the benchmark price for power), which came into effect in July.

Suncorp Bank’s home lending executive general manager, Bruce Rush, said: “As the cost of living continues to rise, understanding and managing finances is extremely important, but there are alternative ways households can save money, while also making a positive difference for the environment.

“We all have a part to play in looking after the environment. Suncorp Bank wants to help customers make their homes more energy efficient, while saving money and saving the planet.”

Lenders are also rewarding borrowers who have already made the move to greener living, with majors (such as the Commonwealth Bank of Australia), non-majors (such as Gateway Bank) and non-banks (such as Firstmac) all offering discounts to certain borrowers living in energy-efficient houses.

Firstmac noted that amid increased customer demand for financial products that can contribute to Australia’s transition to a more sustainable future, some builders are already starting constructing homes to a 7-star Nationwide House Energy Rating System (NatHERS) energy-efficiency standard, instead of the minimum 6 stars required by law. This not only has the added benefit of reducing the need for artificial heating and cooling – but also enables borrowers to qualify for discounts via the lower-rate Green Home Loans.

For example, the non-bank lender’s Green Home Loans product – which launched last year – provides borrowers with a 0.6 per cent finance discount for up to five years on loans of up to $2 million, while construction loans will receive an interest rate discount of up to 1.58 per cent.

Firstmac’s chief financial officer, James Austin, told The Adviser that, given the economic environment, borrowers are “looking for anything to ease the pain”.

“Firstmac’s Green Home loan can reduce two of these costs, by offering a discounted home loan rate for building an energy-efficient home, which is also less expensive to run,” he said.

“At a time when people are increasingly environmentally-conscious, the Green Home Loan helps them to do something about Climate Change by cutting their greenhouse gas emissions.”

Indeed, borrower demand for this type of product is rising. According to a recent survey of 1,000 borrowers conducted by Gateway Bank, around half of consumers have indicated they would consider a green home loan if the price was right.

Two-fifths (42 per cent) said that if their broker or financial institution recommended switching to, or getting a green home loan, they would consider it, while two-thirds (66 per cent) of consumers said they would consider installing environmentally friendly features required by a green home loan, if they were cost-effective products that were easy to do.

Gateway Bank launched its own green home loan offering last year, enabling borrowers to access a discounted interest rate if their home met certain environmental criteria.

“Our discounted green home loans are designed to help borrowers save money on their home loan as a reward for their efforts to reduce energy consumption and minimise their impact on the environment,” Gateway Bank chief executive Lexi Airey said.

Driving the green wave

Another big trend that has been growing in the green loan space is the move to electric vehicles (EVs). The popularity of green cars, which had been growing year-on-year anyway, accelerated in 2021 after a scarcity of new cars – and even second-hand cars – caused prices to skyrocket and waiting lists to blow out.

Add to that the rising cost of petrol – and Australia’s first National Electric Vehicle Strategy and electric car discount set to be rolled out by the Labor government to make electric cars cheaper so that more people can afford them – the green vehicle loan space has been busier than ever.

For example, for non-bank lender Firstmac, the number of Green Car Loans it has been writing (which provides buyers with a 0.7 per cent discount on their interest rate) has been almost doubling each year for the last four years.

Mr Austin told The Adviser: “In 2018, we made about 100 Green Car Loans, but by 2021, this had increased to more than 600 loans. This is despite the rules being tightened to include only hybrid or electric vehicles [previously, some petrol-powered vehicles that were more fuel-efficient than average had also qualified].

“The increase in the number of loans reflects the rapid rise in popularity of hybrid and electric vehicles, which is also obvious on the streets,” Mr Austin said.

Indeed, the non-banks are leading the way when it comes to financing green vehicle loans. 

Pepper Money reportedly financed 11 per cent of all electric vehicles sold in Australia in calendar year 2021 and Plenti – which saw its auto loan originations rise 177 per cent last year – rolled out its own EV finance products and tools with rates at least 0.5 per cent p.a. less than Plenti’s existing highly competitive car loan rates, late last year.

Major banks have been getting in on the action too. Westpac became the latest bank to position itself towards electric vehicles, announcing in May it would be providing reduced rates for green auto loans.

Westpac CEO, consumer & business banking, Chris de Bruin, said at the time that this introduction came among a growing appeal for a car with a reduced impact and a smaller cost.

“Given the recent increase in petrol prices, electric and hybrid vehicles appeal to the environmentally conscious, and the financially conscious too,” Mr de Bruin said.

“We expect demand for these vehicles will continue to rise, with many Australians already planning to make the change.”

Indeed, a recent report commissioned by automotive, renewable energy and personal loans provider Plenti, prepared by Accenture, projects that the cost-competitiveness of EVs and significant household energy cost savings will lead to $8.9 billion in annual sales of EVs, home solar and battery systems by 2026 if strong policy support and sustainable finance are introduced.

It suggested that the range of EV models available in Australia is expected to almost double by the end of 2022 and thousands of charging points are in the process of being deployed by state governments, which would also lead to greater uptake.

The boom in demand for green finance products represents an opportunity for brokers – both in mortgages and asset finance – to help make clients aware of the options and discounts available for thinking green, whether it’s finance to make their home more sustainable while reducing heating/cooling costs, or finance to buy the latest electric car.