Going Green: Eco home loans

Eco Home LoansIt has been five years since eco home loans first came to Australian shores. We look at how the idea of "going green" is growing

All eyes were glued to the television this summer, as the nation watched the dramatic high-seas stand-off between activists and Japanese whalers. Film footage of minke and fin whales being hunted and hauled aboard the fishing vessels roused public outcry and the Australian government renewed its diplomatic efforts to prevent further missions.

It is no surprise Australia has taken a leading role in protecting these gentle giants. The country has a commendable history in championing environmental causes.

Call it necessity. Australia is home to more than one million species of plants and animals - many are found nowhere else on the planet. Less than half have been scientifically categorised.

If there is any single country in the world whose citizens should care about the environment, it is here. And many do.

In the report Who Cares about the Environment? by the Department of Environment and Conservation NSW, 93% of respondents rated the environment as important, and ranked it the third highest priority after family and friends. Nine in 10 people also said they are concerned about environmental problems. The country leads New Zealand, Britain and the US in environmental consciousness.

The mortgage industry has responded to this increasing interest in the environment with green or eco-home loans products. While they are a very small part of the mortgage spectrum, they are gaining popularity.

Green home loans break down into three types:
1. discounted loan products that reward customers for greening their house with environmentally friendly appliances such as rain water tanks or solar panels
2. carbon neutral loans, so-called for the carbon offset measures taken on behalf of the lender. These measures are generated by a project or activity that reduces greenhouse gas emissions, such as planting trees
3. regular loan products that generate a trail commission donated to an environmental organisation

Several organisations have plunged into the green market, including Bendigo Bank, mecu, Wilson National and Myshare.

The originator

Bendigo Bank was the first bank in Australia to offer a green home loan product. The lender launched its Generation Green Home Loan in April 2002. The product was developed to create an eco-incentive by rewarding customers for their environmental efforts.

"To ensure the sustainability of our business we feel it's important to help our customers and the community become more sustainable themselves. That was the base motive," explains Owen Davies, spokesman for Bendigo. But he concedes there are side benefits.

In addition to raising environmental awareness and giving customers practical solutions to making green home improvements, the loan is a "marketing tool to differentiate our offerings from the general market and therefore differentiate our brand," Davies says. The loan offers customers a 0.5% pa reduction on the bank's residential variable rate and no monthly service fee. Customers must meet certain environmental criteria to qualify.

Bendigo also offers a Generation Green Personal Loan that gives customers a 1% discount for environmentally friendly home improvements. To qualify, customers must install a minimum of two green home improvements such as double glazing for windows and a solar hot water heater, or purchase one big ticket item, such as an alternative power supply. Davies says the response in sales has been moderate, but has slowly been trending upwards.

Bendigo launched a third green initiative last year - the Generation Green Carbon Offset product. Customers who opt for a carbon offset can still drive their car or run their normal appliances and, for a fee, Bendigo will revegetate cleared land with native species.

"We're finding the uptake of carbon offsets is increasing quite strongly and that's also prompted some renewed interest in our other brands as well," Davies says.

At present, Bendigo's green products are not available for brokers to sell, and while it recently merged with Adelaide Bank, the company has yet to determine whether the products will be made available through its distribution network.

The innovator

Credit union mecu's green home loan products have evolved since its initial foray into the environmental field in 2004.

"We've been really trying to nail this area for awhile now. We've developed some good learning over the last couple of years, which is now starting to work for us," said Rowan Dowland, mecu's general manager of development.

The lender offers a goGreen Home Loan designed to encourage people to purchase, construct or renovate energy efficient homes. The loan is available to finance homes that achieve a rating of six stars or more according to the Nationwide House Energy Rating Scheme (managed by the Australian Greenhouse Office).

"We went back to how we define a green home loan and looked at the most simple way of developing a product that all consumers could understand and that had credibility," Dowland says.

All states have minimum energy efficiency standards for new homes, but mecu wants to encourage its customers to go further. While a five-star rating is OK, "it's nothing spectacular." By encouraging borrowers to achieve a six-star energy efficiency rating, Dowland says it is making a solid impact.

"Our reputation is absolutely fundamental, so we wanted to ensure we had a product that was really well founded," he says.

Despite the fact that their volume is low, Dowland says mecu places a high priority on their green efforts. "A very large number of our shareholders are people who describe themselves as socially progressive ethical consumers. So they expect us to provide this type of finance because that's the way we're using their money."

The company's environmental stance has been a point of differentiation; it enables it to "show some leadership within the financial sector". "It provides an opportunity for us to innovate," Dowland says.

One of the company's most significant innovations is just about to be rolled out: mecu is launching the world's first bio-diversity offset program.

"For any new home construction that we finance, we recognise that there's a loss of biodiversity," Dowland says.

To offset the loss of biodiversity, mecu purchased 500 acres of land that will be restored over the next seven years.

At this stage, mecu has no relationship with brokers.

The carbonator

Carbon offsets have increasingly become a popular way of contributing to the environment. To become certified, a business must account for its total operational emissions, as well as emissions in the products they sell and use.

Wilson National was the first home loan lender in Queensland to become "carbon neutral" in June 2007, after it underwent an audit by the Carbon Reduction Institute. The certification means all home loans offered by Wilson National are carbon neutral, as the business offsets the emissions produced by each new home loan.

Becoming carbon neutral was the equivalent of taking 20.2 cars off the M1 motorway or turning off 3,600 (60 watt) light bulbs for one day. "We wanted to add value to our business and add value to our business partners... It's the ultimate way of giving back to the community and reducing our carbon emissions which contributes to making climate change better," says Gordon Watson, communications director at Wilson National.

The response from wholesale customers has been really positive, Watson adds. He says being environmentally friendly is a part of every aspect of their business - they have reduced where they can and anything that cannot be reduced is offset. "It's the foundation ... everything that we do over the next couple of years and into the future will be with a green focus."

Wilson National is also instituting a program through which customers receive a green home loan and a tree. Independent mortgage brokers and white label clients can offer Wilson National's carbon neutral products where agreement and circumstances allow.

Strategic alliances

Environmental activism is not limited to product offerings by a handful of lenders. Brokers can make their own personal commitment to the environment by linking to the Green Living Home Loan program. The Green Living Home Loan program was launched in 2007 by Myshare Financial Services in conjunction with Conservation Volunteers, Australia's largest practical conservation group.

Brokers who are accredited with the Green Living Home Loan program can offer their customers the same choice of lenders and products from the PLAN Australia panel at the standard rates and fees. The difference is that through the Green Living Home Loan program Conservation Volunteers receives part of the ongoing home loan sales commission for the life of the home loan.

"The key point is there is no compromise for the customer," says David Gration, managing director of Myshare Financial Services.

Conservation Volunteers uses the money to support its Action for Climate Change program. The organisation coordinates more than 10,000 volunteers, delivers more than 2,000 priority conservation projects and plants more than 1 million trees a year.

"For us as a not-for-profit, non-governmental organisation it's incredibly helpful," says Peter Sacco, corporate and government affairs manager. "Although it's only a small contribution, it's an ongoing contribution which makes an incredible difference."

Myshare Financial Services supports brokers who participate in the Green Living Home Loan program by providing marketing materials, potential leads and an opportunity to develop a relationship with Conservation Volunteers, among other things.

"The whole idea is, with the support that we provide brokers, they have a point of differentiation in the marketplace. It also lines up with those brokers who have a green [commitment]," Gration says.

Brokers receive standard 80/20 commission splits, and the donation to Conservation Volunteers is funded by Myshare.

Myshare also has partnerships with other charity organisations such as CanTeen, an organisation that supports young people living with cancer and the Salvation Army.

For more information, visit www.myshare.net.au or call 1300 653 795.

Target market

Whether you are a lender or broker, offering green products can set you apart from the rest of the crowd. But just who is interested?

The Australian Bureau of Statistics' 2004 report Environmental Views and Behaviour in Australian Households found those aged 45-54 years expressed the greatest concern over the environment.

A similar survey of NSW residents also found that under 35s were less likely to engage in environmental activities.

Dowland says there has been an interest in mecu's green home loan products from both the high-end and low-end markets.

Interest from the $500,000 and up market is not only predictable - it's fashionable. Actress Cate Blanchett and her playwright husband Andrew Upton are transforming their Hunters Hill home into an eco-friendly environment for a cool price tag of $1.5m. They are also greening the Sydney Theatre Company - the first theatre company in the world to be housed in a self-sufficient building.

In the low-end market, Rowland says affordable housing associations have been keen to incorporate green elements into new housing projects. "The one that's missing out is the middle ground," Dowland says. "What it's going to take is some strong public policy support and some incentives around that - stamp duty or rebates for more energy-efficient standards.

"I think it's time that public policy got into this space and provided some encouragement to that middle sector."


TOP-DOWN ECO APPROACH

Should the financial sector play a greater role in encouraging customers to green their homes?

A 2006 report by URS Australia looked at this situation in response to rising concern that a lack of suitable finance was impeding investment in energy efficiency products and technologies.

Among the report's key findings were:

  • Lenders offer few products specifically for energy efficiency
  • Some lenders offer "green loans" involving discounts on home mortgages, personal and car loans
  • Lenders offer these products as part of their general commitment to sustainability. This was found to be particularly true of community-minded credit unions
  • Those offering green loans reported positive benefits such as customer satisfaction, corporate culture and a reputation for sustainability
  • It is impossible to estimate the value of lending these products, as they are a tiny portion of the lending total
  • Financial institutions feel green loans complicate the product range and compete with mainstream products for little economic benefit
  • Financial institutions believe it is not their role and responsibility to drive demand for energy efficiency by providing incentives or educating customers

On this last point, credit union mecu disagrees.

"We take the view that it is our role to play in that space," says Rowan Dowland, mecu's general manager of development. "It's really important for our business that we build these types of products, even despite the fact that our volume is not high. It provides us with an opportunity to show some leadership within the financial sector and it provides an opportunity for us to innovate."


ZERO-SUM GAME

Carbon offsets

A carbon offset is any project or activity that reduces greenhouse gas emissions or sequesters carbon from the atmosphere. Carbon offsets compensate for greenhouse gas emissions from another project or activity.

There are several ways to reduce emissions:

  1. Bio-sequestration - also known as planting trees. Trees soak up carbon like sponges, reducing the amount of greenhouse gas in the atmosphere
  2. Energy efficiency - includes a range of initiatives, from major upgrades to manufacturing processes to using more efficient light bulbs
  3. Renewable energy - derived from wind, solar, biomass and other sources which reduce dependence on fossil fuels
  4. Greenhouse gas avoidance, capture and destruction - usually located on industrial sites, 

Carbon offsetting

Businesses can undergo an audit of their business as a whole, specific activities (such as car or air travel), or lifecycle emissions of a business product or service.

Businesses reduce, avoid or switch certain activities or projects to cut down on emissions where they can. Then they buy "credits" to neutralise their greenhouse gas emissions for activities they cannot avoid.

Apparently, the location incidental. It is the level of greenhouse gas on a global scale that's really important, not the location they are emitted or reduced from. Some companies choose to install energy-efficient light bulbs in other countries they operate in, for instance.

Businesses are acting in response to government regulations, their own goals or employees' environmental convictions. Some are also wearing their carbon neutral status as a badge to attract like-minded customers.


BUYER BEWARE

These days, it seems like everyone is going carbon neutral. Dentists, lawyers, even bar owners are lining up to get their businesses certified with a clean bill of environmental 'health'.

A recent survey found 50% of Australians are willing to pay a price to continue driving their car and maintaining their current lifestyle. A number of carbon offset providers have sprung up in response to this growing demand. But not all providers are equal.

Consumers' concerns about verifying carbon offset claims have led the Australian Competition and Consumer Commission to investigate the carbon offsetting industry and its compliance with the Trade Practices Act. Tree planting schemes have particularly come under scrutiny. Claims that offsets have not been accurately calculated, companies are double-dipping from offset activities and participants have bought worthless credits that do not reduce carbon emissions top the list of the ACCC concerns.

The British band Coldplay was embarrassed by one highly publicised case of poor carbon-offsetting, when the forest they purchased in India to offset their world tour died.

Greenwash is not an unknown concept; the ACCC recently filed legal proceedings against GM Holden over Saab's green claims in ads, alleging they are misleading.

Critics claim offsetting is nothing more than a conscience-salving, and say that people should focus on reducing their carbon emissions before they start buying them off. Some carbon-offset groups do encourage customers to make a behavioural change and then offset unavoidable emissions.

If you are interested in offsetting your carbon emissions, a good place to start is the Royal Melbourne Institute of Technology's website www.carbonoffsetguide.com.au The guide is a resource for businesses, government agencies, NGO organisations and individuals. It provides an independent directory of Australian carbon offset providers.