Joint research released today by Puma Property Finance (“Puma”) and The UCL Centre for Sustainable Governance and Law in the Built Environment (“UCL”) reveals how the current lack of information and transparency around sustainable finance options could be hindering developers’ ability to implement more sustainable solutions into their projects.

The research reviewed 85 lending companies providing development finance solutions, interviews with industry experts, and a questionnaire distributed across the developer community.

The research highlights that many lenders fail to provide clear and transparent information about their sustainable finance offerings and the criteria developers need to meet to access them. In the case of 45% of the lending companies assessed, it was unclear whether they offered sustainable finance; the researchers could only identify that 29% of reviewed lenders offered a clearly-defined sustainable finance offering.

Of those lenders that did present sustainable finance solutions, often there was limited information on lending conditions or detailed product information.  In addition, many of the examples of funded developments presented by lenders had relatively limited aspirations, often based on achieving BREEAM or EPC ratings below the highest level.

Developers consistently reported a belief that creating sustainable buildings and being able to access sustainable finance is significantly more expensive.  In answering questions around why sustainable elements are not being more widely adopted by developers, 100% of respondents cited costs as a major barrier, with 52% highlighting a lack of recognition for sustainable credentials within valuations and 47% pointing to a lack of market demand.  

Almost all respondents (88%) felt that sustainable finance should be cheaper than regular finance. However, the research also found that many developers acknowledged their lack of knowledge on sustainable finance and expressed a strong desire to learn more.  Over a third (38%) said they needed a better understanding of sustainable finance before they could consider it, while 43% reported being unaware even of the opportunity to use such finance solutions.  Interviewees described the perception of sustainable finance processes as 'frictionful,' adding complexity and cost to the transaction.

The research highlights the clear need for development finance providers to offer much greater transparency of their sustainable finance offerings, how they can benefit developers and how they can be accessed, if the current scepticism and inertia amongst the development community is to be meaningfully addressed.

Download the report

Sarah Milne, Head of Impact at Puma Property Finance, commented:

"Our research reveals a significant lack of transparency in sustainable finance options, which is, in turn, holding developers back from committing to sustainable developments. The belief that sustainability is philanthropy needs to be challenged - sustainable properties are not only more resilient, they perform better financially, command premium rents, have higher tenant demand, suffer from lower void periods and enjoy reduced operational costs. They reduce the overall risk of a property and provide value creation.

“There is a significant opportunity for lenders to lead the built environment towards improved environmental performance by sharing knowledge and promoting sustainability. At Puma we seek to place an active role in being part of that solution with our market leading Impact Lending Framework offering.”

Kell Jones, Lecturer in Construction Procurement & Supply Chain Management, The Bartlett School of Sustainable Construction, UCL, added:

“Our findings highlight how the position of both developers and sustainable finance providers align with our expectations from academic studies. Clearly, on both the supply and demand side there are early adopters – those positioning themselves to take advantage of the increased awareness of the need for sustainable outcomes – the early majority, and those who are ignoring the agenda – late adopters and laggards.

“The results of the study highlight a clear path forwards. For a start, there’s a need to demystify sustainable finance. Developers are time poor, with little time to hunt for specifics around a finance offer and how to access it. We should also acknowledge that in a tight-margin business, adoption of sustainable measures boils down to the bottom line. The market needs convincing that taking a more sustainable approach doesn’t have to hit margins but can create value.”