How brokers can discover lenders’ ESG credentials

Ethical values are increasingly important to clients

How brokers can discover lenders’ ESG credentials

Brokers wanting to help their clients when it comes to choosing a bank that takes its ESG commitments seriously are struggling to find appropriate information, according to one of Australia’s largest customer-owned banks.

Great Southern Bank  head of broker Mathew Patterson (pictured above left) said  as the number of conscious borrowers grew, it was more important than ever that brokers took a holistic view of their customers to meet their needs both financially and non-financially.

“A bank’s policies, commitments and performance when it comes to ESG – which includes environmental action, social impact and corporate governance – can be the tangible proof your customers are looking for when it comes to the responsible practices of a prospective lender,” Patterson said.

Great Southern Bank commissioned research last year which showed that 92% of Australians with a home loan would rather borrow from a lender with a high standard of business ethics, environmental commitments, and social and community values.

But Patterson said accessing this information could be challenging for brokers, with no consistent way that banks and lenders disclosed this information to the public.

Lending specialist Darcy Luck (pictured above right) of brokerage Novo Finance, located in Kahibah, south of Newcastle, said she had invested a lot of time researching and educating herself on ESG credentials for her clients.

“I’ve gone bank-by-bank to get an understanding of what their ESG credentials are – and then I’ve spent time verifying this information, confirming their commitments are being actioned, and ensuring I’m delivering the best information to my customers,” Luck said.

“These commitments have become especially important information for a growing number of my younger clients, particularly first home buyers, who are specifically requesting I present them with ethical bank options.”

How brokers can access ESG information

Patterson shared three tips for brokers wanting to access and deliver ESG information to their customers:

  1. Set up a fact-finding mission

Patterson said for most brokers, the best place to start was with their own customers.

“If you don’t know what information they’re actually seeking, it may be hard to find the answers,” he said.

“A customer fact find will help you to get a sense of what matters to them. Not only will you find out about their homeownership goals and borrowing capacity, you’ll also be able to narrow down what lenders will or won’t align to their values around ESG issues, if relevant.”

Research conducted among Great Southern Bank’s customers shows 70% of customers aged 18-29 would strongly consider the bank’s management of environmental issues before choosing to refinance with the bank.

A majority of borrowers in other age groups shared the same interest in the environment, including those aged 30 to 60 (55% interested in environmental issues) and those aged over 60 (65%).

Patterson said over time, fact-finding would help brokers get a sense of lender credentials and “create a clearer picture of just how much ESG matters to your customers:

  1. Take the time to research

Patterson said good things took time – and doing your homework to understand potential lenders’ commitments to being responsible and socially conscious was worthwhile.

“There’s currently no standard approach taken by banks and lenders when sharing their ESG goals and initiatives.  Some may be easier to find than others. The good news is, after you’ve done the research once  you may only need to check back in once or twice a year.”

Patterson shared some common materials brokers could look for online and through broker portals:

  • Aggregator resources – check if your aggregator already has resources around potential lenders’ ESG credentials accessible via their portals or resource hubs
  • Annual reports – most lenders who produce annual reports will include an ESG or sustainability section highlighting their goals and achievements to date
  • Sustainability reports – many banks are now taking the time to thoroughly disclose their ESG practices in an annual sustainability or impact report
  • Climate Action Plan or other environmental action plans – lenders may have set key ESG commitments for themselves
  • Community partnerships, reconciliation action and financial inclusion – it’s important not to forget the S in ESG – social impact
  • Product offerings – green loans are a good example of environmental offerings to customers by lenders. Great Southern Bank, for example, offers a green personal loan to help homeowners buy solar panels and other green energy products, as well as a green car loan
  1. Get face-to-face with lenders

Patterson said sometimes it was simply easier for brokers to talk to lending partners in person.

“By taking the time to actively hear from your network, you’re likely to get a good sense of just how established a lender’s credentials really are,” Patterson said.

“For example, have you ever turned up to a broker event just to be handed a bunch of plastic and paper merchandise? It could be a sign that the lender is not taking sustainability considerations into their practices as much as they could be.”

Gain a competitive advantage with ESG

Patterson said there was evidence that demand for responsible lenders would continue to grow, as younger and more environmentally and socially aware home loan customers, as well as brokers, came through.

“It will become increasingly important for brokers to find ways to cut through to the next generation with the ESG information we know they are increasingly seeking,” said Patterson.

Luck said ESG credentials now provided her customers a way differentiating between lending institutions.

“To support my clients, I’m now just trying to include ESG information in all my initial recommendations,” Luck said. “A lot of the time, it’s a point of difference between lenders who are often offering similar rates and products.”

“Right now I’m seeing the information highly valued by first-home buyers, but I know more people of all ages have ESG at the forefront of their considerations when choosing a lender. It’s only going to become more important into the future.”

How important is ESG to your clients when deciding on a lender? Share your comments below