A new report commissioned by the Green Finance Institute (GFI) and funded by the Scottish government suggests that up to c.£17bn of private investment could be unlocked in Scotland’s home energy efficiency market if consumer awareness of green finance products improves and supportive policy is put in place.
The report, Scottish consumer attitudes towards green home finance products, finds that Scotland’s total home energy efficiency market is worth around c.£37bn. However, just 4.7% of that figure – equivalent to around £1.7bn – is currently considered reachable, largely due to low awareness of available financial solutions such as green mortgages and loans.
According to the Climate Change Committee, decarbonising Scotland’s buildings will require an additional £30bn of investment, well beyond what the Scottish government can fund alone.
Buildings account for 13% of Scotland’s total carbon emissions and 30% of overall energy consumption, underlining the scale of the challenge facing policymakers and industry.
CONSUMER SUPPORT FOR NET ZERO TARGETS
The research, carried out by insight and communications consultancy SEC Newgate, assessed consumer appetite for green home finance products under a scenario where minimum energy efficiency standards are mandated for owner-occupier and non-domestic properties.
Products considered included green mortgages, unsecured green home loans, Property Linked Finance and Green Rental Agreements.
Public support for the Scottish government’s proposed net zero targets was found to be strong, with 63% of residents and 76% of landlords backing the plans. When respondents were informed about green home improvements and the financial products available to support them, positive sentiment increased further.
Around 65% of residents and 79% of landlords said they felt positive about green home finance products where minimum standards were in place.
The findings suggest a clear link between consumer education and willingness to invest, with awareness of finance options correlating strongly with support for the government’s net zero ambitions.
AWARENESS GAP HOLDING BACK INVESTMENT
Despite the apparent appetite, awareness of green loans, mortgages and other financing options remains low. As a result, only a small proportion of households are likely to consider taking out a product.
The report concludes that greater clarity around future regulatory requirements, combined with awareness-raising, could help unlock the full c.£37bn market, compared with a market currently valued at less than £2bn.
The report highlights Capital Credit Union as an example of how targeted products can mobilise capital. The lender now offers loans aligned with the Green Home Finance Principles, giving around 65% of Scottish households access to community-offered green loans.
Capital Credit Union has already mobilised more than £3m in green home loans in just over 12 months and expects this to reach £5m before the end of the year.
POLICY AND INDUSTRY ACTION NEEDED
The GFI said the research supports the case for the Scottish government to build on positive public sentiment by introducing policy measures aligned with the originally proposed Heat in Buildings Bill.
The report argues that clear targets for all properties, introduced in a measured way to avoid worsening fuel poverty, would help encourage lenders to develop and scale green finance products.
Alongside policy action, the GFI said there is a need to accelerate education, skills development and supply chains to support delivery across the market.
To date, the GFI and the Scottish government have launched the Scotland Green Home Finance Certificate for mortgage brokers, hosted the first Scotland Green Home Finance Summit and developed the Scottish Property Linked Finance Greenprint.
Published alongside the report, the Greenprint estimates the commercial and residential PLF market in Scotland could be worth between £8.7bn and £15bn.
Scottish government cabinet secretary for housing Mairi McAllan said: “It’s absolutely essential that we decarbonise our homes to achieve our twin aims of delivering affordable heat and reducing fuel poverty whilst also cutting carbon emissions.
“New green home finance products will have a big part to play in helping us to deliver this. I am therefore very encouraged that this research shows there is strong interest in Scotland – among both residents and landlords – to improve energy efficiency once they are aware of the financial solutions that are available.
“We have considered this carefully along with the recommendations of the Green Heat Finance Taskforce and will respond shortly.”
Rhian-Mari Thomas, chief executive of the Green Finance Institute, said: “This research shows there is support and appetite amongst the Scottish public for green home improvements.
“The GFI is working with the Scottish government, financial institutions, and industry to introduce policy measures and provide the financial solutions that have the potential to catalyse c.£37bn of private investment needed to unlock the interest evident in this analysis.”
Samantha Homer, chief executive of Capital Credit Union, said: “At Capital Credit Union, we believe ethical finance has a vital role to play in helping Scotland achieve its net zero ambitions.
“Our green loans give members an affordable and transparent way to make their homes warmer and more energy-efficient, with the flexibility to repay part of their loan when they receive a government grant.
“This practical and fair approach supports households across Scotland while contributing to the aims of the Heat in Buildings Strategy and the country’s wider carbon-reduction goals, aligned with the Green Home Finance Principles.”
