This blog explores how vital sustainability-focused financing is to reaching net zero targets – and explains how Ireland and the US are leading the way.

The UK is at a critical juncture in its mission to decarbonise the built environment. With buildings accounting for 25% of the UK’s carbon emissions, the pressure to retrofit homes and improve energy efficiency is growing.

If we are to meet the UK’s net zero target by 2050, significant progress is needed in the way we build, heat and power our homes. Yet despite ambitious targets, the UK is at risk of lagging behind, largely due to the challenge of funding large-scale and community led retrofit projects.  

Ireland and the US are examples of countries that have pioneered innovative financial and policy models to meet this demand. 

Ireland’s National Retrofit scheme and the US’s Property Linked Finance (PLF) initiative both provide the blueprints for scaling up the retrofitting of homes and financing green upgrades. By adopting a similar approach, the UK can take steps towards achieving its decarbonisation goals.

Property Linked Finance (PLF)

Arguably, the biggest barrier to retrofitting is the cost. Retrofitting homes for energy efficiency, such as installing heat pumps or better insulation, requires significant upfront investment. It can also take a long time for homeowners to see a return on their investment, known as the ‘payback period’. For example, on average, a heat pump will pay for itself after seven years, depending on the size of the property.

Many homeowners, even if they see the long-term benefits, may struggle to finance these projects – particularly for 28% of homeowners who are mortgage free and so don’t have access to mortgage brokers to negotiate funding. 

This is where Property Linked Finance (PLF) comes in.

PLF, based on successful models in the US such as the Property Assessed Clean Energy (PACE) programme, allows homeowners to finance energy efficiency improvements through their property tax bill. This means the repayment is tied to the property, not the individual homeowner. If the property is sold, the repayment obligation stays with the property, reducing the risk for homeowners and making the investment more appealing.

The Green Finance Institute in the UK has identified PLF as a game-changer for unlocking private capital in the retrofitting market. By lowering the barrier to entry for homeowners and spreading repayments over time, PLF could accelerate the adoption of energy-efficient measures in homes across the UK. 

PLF also creates a sustainable financial model for institutional investors eager to fund green infrastructure projects.

Ireland’s National Retrofit Scheme

Meanwhile in Ireland, the government has launched one of the most ambitious retrofitting programmes in Europe known as the National Retrofit Plan. Designed to make it easier and more affordable for homeowners to upgrade their homes, the scheme provides government grants that cover up to 50% of retrofitting costs, reducing the financial burden on the homeowner. 

In the first quarter of 2024, the scheme had seen nearly 12,000 property upgrades completed, up 18% year on year. This rapid progress demonstrates the power of government-backed programmes, and straightforward access to funding, to support more wide-scale adoption of retrofitting. 

The success of Ireland’s approach has been credited not only to its funding structure but also to its streamlined process, which offers homeowners clear guidance and support from start to finish, demystifying many of concerns at the outset.

What the UK can learn?

This multi-pronged approach would go a long way in decarbonising the UK’s built environment. A recent analysis by Element Energy suggested 210,000 homes need to be retrofitted each year until 2030 for London alone to reach net zero. Meanwhile, across the UK, as many as 29 million homes will need retrofitting before 2050. 

The key for the UK is to blend public and private funding, with educational programmes to highlight the long-term benefits of retrofitting. While adopting a Property Linked Finance model from the US could significantly ease the financial barriers for homeowners and attract private investment into retrofitting projects, Ireland’s National Retrofit Plan shows the impact that large-scale government backing can have. 

Innovative and collaborative approaches are needed more than ever to tackle this significant challenge and improve our housing stock.  

This topic was covered at the recent Sustainabuild Breakfast Club, ‘Unlocking Sustainable Finance in the Built Environment’. Featuring discussion from Marielle Pantin (Associate Director, Sustainability and ESG Finance at Lloyds Bank), Maria Dutton (Consumer Finance Lead at Green Finance Institute) and Elena Perez Celis (Head of Policy and Public Affairs at Banks for Net Zero). 

To join the next Sustainabuild event visit: https://sustainabuilduk.com/events