Debunking the myth - sustainable banking costs more

If someone offered, you the opportunity to donate a soccer ball a day to an underprivileged school and it wouldn’t cost you a cent - would you do it?

I think that many people would refuse. Not because they don’t want to make the donation – ultimately most people want to be good but because they would be skeptical. Usually when people offer you something for free there is a catch.

Sustainable Banking is very similar – people would like to place their mortgages at a sustainable bank, but incorrectly perceive that there will be a catch.

The focus of this post is comparing sustainable and non-sustainable banks in terms of cost. We draw specific attention to the dynamics of the Australian situation which acts in your favour.  

Internal Costs

Sustainable banks might incur higher operational costs due to additional ESG assessment, ethical screening, and responsible banking practices. They need to spend on additional research to evaluate the environmental and social impact of their investments and loans. Promoting their sustainable practices and educating customers about the benefits of ethical banking also require additional resources.

On the other hand, traditional banks might face reputational risks, and the very high associated costs, if they are seen as not addressing ESG concerns or failing to adopt responsible practices. They face risks related to environmental and social issues, such as lawsuits, regulatory penalties, or reputational damage due to supporting unsustainable industries.

The Cost to You 

Interest rates offered and fees charged on a loan are determined by the characteristics of the individual borrower and security rather than by the sustainable practices of the bank.

Our research shows that in Australia, there is no difference between the rates offered by more or less sustainable banks.

Green Loans offered to builders & buyers energy efficient homes have lower interest rates. There are three reasons for this:

1. they're backed by government incentives,

2. have reduced risk due to their sustainable nature and

3. there is greater competition among lenders.

Ausie banks- the drive for sustainability

In Australia, the drive for banks to be more sustainable comes from the super funds. Australia’s has the 5th largest pension fund market in the world. We punch way above our weight due to compulsory superannuation. Over 43% of investments managed in Australia are sustainably invested.

The Banks NEED to be sustainable to remain attractive to the superfunds.

In other words it is not that the soccer ball is actually free, it is just that the banks are incentivised to cover the cost.

At Sustainable Home Loans, we would like to help as many people as we can to refinance to sustainable banks and take out more green mortgages. We have our reasons from wanting to do right by the planet, looking after our kids and to keep our bottom line in check.  Ultimately, you as the client, are the winner as you get to do something good at no extra cost. 

Imagine if everyone took a moment to see what sustainable banking is really about. Australia's shift to a greener society could happen allot faster. And yes, the soccer ball may be a symbol, but the real game is about making things better without breaking the bank. 

If you would like to review your current loan or find out more about green loans, please get in touch.