00:05
Davion Ford
Welcome to Better Cities by Design, a podcast brought to you by Arcadis, where we talk to change makers who are working to make our cities better places for people to live, work and play. I’m your host Davion Ford. This week, we're headed to the City of Bath, in the UK, to speak with James Hooton, Managing Director of the Green Finance Institute, which is an organization that’s working to accelerate the transition to a clean, resilient, and environmentally sustainable economy, by fostering practical coalitions, global collaboration, and through green finance education.
00:47
Davion Ford
Bath, a city renowned for its rich history, stunning architecture, and cultural heritage serves as the backdrop for our episode. Nestled in the rolling hills of Somerset, this UNESCO World Heritage Site captivates visitors with its Roman baths, Georgian splendor, and picturesque landscapes. Founded by the Romans in the first century AD, Bath flourished as a thermal spa because of its natural hot springs. Over time it transformed into an elegant spa city during the 18th century renowned for its literature, art, and architecture. The city's Georgian architecture influenced figures like John Wood Senior, Ralph Allen, and Richard “Beau” Nash, evidences the aspirations to create one of Europe's most beautiful cities. However, like many cities, Bath faces its own set of challenges when it comes to creating a sustainable and livable urban environment. From preserving its architectural treasures to managing the impact of tourism and addressing transportation congestion, Bath is a city striving to balance its historical legacy with modern-day needs. The city faces the dual challenge of protecting historical buildings while ensuring they meet the needs of modern residents. Retrofitting these buildings and infrastructure with energy-efficient technologies and other sustainability features is essential for both preserving the city's historical charm and reducing its carbon footprint. By engaging with local homeowners, city officials aim to promote sustainability through eco-friendly renovations, energy-efficiency retrofits, and the use of renewable energy sources.
Officials have set the goal of achieving 65,000 retrofits in Bath and Northeast Somerset by 2030. But doing this requires substantial financial resources. This is where the Green Finance Institute plays a vital role. By leveraging their expertise, the Green Finance Institute collaborates with financial institutions, policymakers, and stakeholders to mobilize the necessary funding for these retrofit projects. They work to develop innovative financial mechanisms and instruments to attract both public and private investment, enabling the scaling up of retrofit initiatives. For more on the important role green finance can play in making cities more sustainable, here is Arcadis’ Market Sector Director for Property and Investment, Richard Warburton.
03:19
Richard Warburton
So we've seen an exponential increase in sustainable and green finance availability over the last few years. Last year, the estimate is that there was over 2.3 trillion USD of green financing available, and that's up from only 5.2 billion USD in 2012. Some of the key drivers for this increase include more stringent sustainability environmental legislation, which impacts financial returns, stakeholder and investor expectations, wanting to deploy their capital into a greener future, financing institutions evolving to meet their own ESG commitments, and it makes business sense with premiums, high returns commanded for more sustainable assets. So effectively, sustainable and green finance addresses how to balance societal expectations and creating social value and equity with more traditional financial returns.
04:12
Davion Ford
To learn more it’s my pleasure to welcome James Hooton to the show. James is the Managing Director of the Green Finance Institute and is also leading the expansion of the Coalition for the Energy Efficiency of Buildings into Europe.
04:35
Davion Ford
Hello James. Welcome to Better Cities by Design
04:38
James Hooton
Hey, Davion. Thanks for having me.
04:40
Davion Ford
So before we get into the nitty-gritty of what the Green Finance Institute does, can you tell us a bit about yourself and how you got involved in making finance more sustainable?
04:52
James Hooton
Yeah, great. Thanks. So I have had a career in banking for the last 22 years in London and Southeast Asia and now in the Southwest of England, and having spent 17 years in financial services, by then living in Singapore, I wanted to come back to the UK, I wanted to have more impact. I worked at a charity as a finance director for a couple of years, and then the opportunity to get into green finance at this time particularly was just too good to miss. And so I moved to Green Finance Institute just over two years ago.
05:24
Davion Ford
So, in our program, we've really been focused on cities around the world and efforts to make them better places for people to live, and of course, money is a big part of that you can have the best plans in the world, but you have to finance these things. So what do you think are the biggest challenges towards getting money where it needs to be to have that sustainable impact? And what is your organization doing to address those challenges?
05:49
James Hooton
I think there are public sort of policy challenges around creating the right environment for not only consumers but also people in the supply chain, businesses, SMEs, large corporates to invest into that public policy that is going to be there for a period of time; we know that policy changes that are done on a sort of a short term basis do not help catalyze the investments that's required. We also need people to be educated, for consumers to understand the challenges themselves in what they can do themselves to help with those challenges. And frankly, the way with GFI, with a Green Finance Institute is we need some of these financial products, accessible by consumers to and corporates and local authorities, some of these financial products in the market that are going to get money to move into some of these solutions. And so those three things, I think, is where we try to play across those areas.
06:45
Davion Ford
When you talk about financial products, what do you have in mind? Can you sort of fill that in a little bit for the listeners?
06:51
James Hooton
Sure, yes. So for instance, there are a number of market barriers in renovating properties, for instance. So if you're a landlord in the UK, you don't renovate your property, because the proceeds of that renovation will be a low energy bill, and the tenant pays the energy bill, so it's a classic split incentive. If you are a consumer, for instance, who owns your property, and you're thinking, “Well, I'm gonna sell my property soon, but I might do a renovation,” there are a couple of issues around that if you borrow 20,000 pounds to make your property more energy efficient, and then sell your property, unless you're sure that your property has gone up by at least 20,000 pounds, you're now paying off a debt that is accruing to the new owner. So we are creating some of these financial products that will change that, overcome those market barriers, be their green lease type arrangements between the landlord and the tenant, where the tenant can pay back some of the not more than their energy savings, but some of the money back to the landlord, or looking at linking the debt to a property rather than a person. Some of these financial products is what we are currently innovating with market practitioners in the UK.
07:57
Davion Ford
Looking at the consumer side of things, which you already brought up, you're there in Bath. What would you say to someone they're living in your community? Who says that on an individual level, nothing that they do really can make much of a difference? What incentive do they have to actually do the right thing in terms of sustainability, let's say relative to their property that they own?
08:20
James Hooton
It's a key challenge, Davion, you're absolutely right. I think actually, the three challenges we've got now, this is the climate crisis, the cost of living crisis, and the energy crisis. Some of those coming together have brought a lot of this to people's attention. So if someone says to me, “What can I do?” and if I say to you, “You can renovate your home, and the cost of doing that, the monthly repayments of doing that will be smaller than the amount that you will save on your energy bill,” that person will be better off, their pocket will be better off, they will have more money on a monthly basis. And so that for me, if you can make it commercial, and then as a benefit to that consumer, that's exactly what we're trying to do. And so I think, yes, it's difficult to say the glaciers melt less. These connectors are much more difficult to make, even though that is true, actually. And it's like, why do people vote? Well, you should vote. There's one of those, and if we can make it really kind of obvious in people's pocket. That helps.
09:14
Davion Ford
And it is clear that we should all as individuals be doing what we can to try to at least not make the situation worse. But how do we really motivate those property owners, whether they are real estate investors, or developers, or individual homeowners to retrofit buildings for better sustainability performance? We know that in cities around the world, the big challenge that we have is the existing building stock, and that's a big problem, and I don't think we have a line of sight on that actually being solved at this stage anytime soon. So what are your thoughts about that?
09:48
James Hooton
We don't. I mean, they're looking, in Bath for instance, I think it's 74% of properties in Bains are EPC D or worse, right? So what are the incentives? Well, is the classic carrot and stick sort of answer to this, I think, Davion, which is, sort of the stick is that policy piece, right? So minimum energy performance standards, whereby you can't rent, you can't buy or sell a property unless it is of a certain energy performance. I think those absolutely needs to be put into regulatory law, the government, I think, has an ambition to have EPC C in the UK by 2035. That's currently not in law. Now, there are some minimum energy performance standards in the private rental sector, but they're not in the owner-occupied sector. So there's that piece there. And then I think in terms of the carrots, it goes back again to what are those financial products that are going to be affordable to consumers. And these are consumers, by the way, that don't need grants. So some people absolutely that need eco-plus type models where utility companies are paying for installation. But for someone in the sort of able-to-pay bracket, which is super important that we have the products that are there that are financially acceptable to them, and we get those to the people that need them, and therefore the retail banks, or the institutional investors, whoever might be, are able to execute on some of their plans to avoid having the assets that will be stranded.
11:10
Davion Ford
You know, it also occurs to me that part of the issue, at least at let's say, the consumer level of the individual homeowner level, has a lot to do with the information, and almost warnings that we are giving people so that they understand what they're getting into with property ownership. Let me see if I can flesh that out a little bit, but, I'm a homeowner here in Amsterdam of a small apartment, I know that you are a homeowner there in Bath. When I purchased my place, I was certainly not really thinking about the fact that I was taking possession of a space that has a sizable impact on the world. So I'm wondering what your experience was like as far as that goes, and what your thoughts are about giving better information to folks so that they know not only the rights that they're taking on, but their responsibility to everyone else, and let's say property ownership.
11:57
James Hooton
Yes, really good question and I fell foul to this. I'd like to have had my eyes open to this much earlier. I bought my property in 2018, and I paid no attention really to the EPC rating, and that's on me, that's not on anyone else. But I think we can help people realize that when I bought my house, it was consuming oil at an incredible rate. So I'm burning oil every single day to heat it. And I'm struggling now to change that because of planning laws in the area that I live. And I haven't got access to some of the financial products. But there are things out there in the UK Green Building Council, for instance, has suggested a stamp duty rebate so that when you buy your property, you are made aware of that EPC rating, and you're given a small nudge of a rebate by the Chancellor of the Exchequer effectively to do a renovation on that property. So these things are already been proposed, some of the financial products that we're proposing will come to market, but it's that education piece as well, that is so important. You're right that people are aware of the energy liability, you're tying yourself to, you know, that what's your energy bill going to be when you buy this property. Are you factoring that into your budget? I think people probably don't do as much as they need to.
13:05
Davion Ford
Yeah, and I think also really understanding, like I said, that responsibility piece. So it's the awareness bit, I've been thinking about it a bit as not only, let's say a nutrition label, so that you sort of understand the status of the property and what its performance is. But on top of that, almost like the kind of warning label that you see on cigarettes that become quite prevalent, that let people know that you have a sort of stewardship, you're taking on this big responsibility. And you should be about the business of leaving the property in a better state than it was when you purchased it from a sustainability standpoint.
13:39
James Hooton
And if I can just elaborate on that, Davion, I think that's exactly right. So you have the minimum energy performance standards, which would give people a very clear understanding of where they need to be by when. And that there should be government support for that, by the way. And also, therefore, that government support could crowd in private finance so people that are getting given the opportunity to meet those, those regulatory targets. I think the warning label is also that EPC, and the EPC is there should be made available to everyone is by law, but also that data should be made more available to market practitioners, like banks and others that are trying to help their customers become more energy efficient.
14:16
Davion Ford
So your organization's mission is to accelerate the transition to a clean, resilient, and environmentally stable economy. What will success look like for you and the Green Finance Institute? And when will you know that you've achieved it?
14:29
James Hooton
Great question. So my standard answer I think, to this, I quite like this, Davion, it works out that I will be 73 in 2050. And so maybe I should still be working and so maybe you can come back and ask me in 2050 If we are net zero. I think the more practical answer to that question is we want to see the housing stock across the UK and in Europe, where we are starting to operate, get to a deep renovation level of 3 and 4%, way above kind of where it is now. We want to see financial products in the market that people are taking up and banks entering the green lending space in more volume than they are now. We need to see 600,000 heat pumps going into UK homes every single year. That is a good target the government has, and those kinds of things will be successful measures. We are part of the Energy Efficiency Task Force at the moment, and those are some of the outcomes that we will be driving. But I think by 2030, we will be seeing a lot of that and a lot of momentum behind that in the real estate sector. We could talk about mobility as well, charging infrastructure, utilization of existing infrastructure. I think we would like to see more of that too. But we have targets and we are ambitiously going to meet them.
15:42
Davion Ford
So, James, the Green Finance Institute has been around since 2019. What has your organization accomplished so far? And what's on the horizon?
15:51
James Hooton
Great question, Davion. So what have we done so far? So in the real estate sector, we formed the Coalition for the Energy Efficiency of Buildings in 2019, and that has now convened over 400 members across the real estate supply chain. One of the things that we have created with that group is a growth, I want to say a 10-fold growth, in green mortgages in the UK. One of the things that we understood was there was a lack of education, there was a lack of data. And it was also a fear of greenwashing by retail banks and others in issuing green mortgages and green lending. And through the rollout of our green home finance principles, through some of the data enablers and educational solutions, such as the lenders and brokers handbook, we've now seen from I think, four green mortgages in 2019, over 50 green mortgage products across the UK. So those are real measures of success in terms of our program, and we want to see that grow. And you can see on our website, the green mortgage hub, we want to see that continue to grow here in the UK, as well as getting into some of the other products I alluded to earlier in the program. The next big step for us, you know, building off the back of that success is looking to Europe. We see the UK as a lab, we see we've had some success here, and we want to see if that success translates into a European context, firstly, but secondly, where what's happening in Europe can absolutely be brought back into the UK. So we're currently exploring setting up offices in Spain and Denmark, those two countries have great ambition in the real estate sector, they have great public financing forming sort of Recovery and Resiliency funding coming into local governments there. Denmark, in particular, has been a leader for building red codes for decades and decades, and so we feel we have a lot to learn from that, but a lot to give to. And so with the 275 million Euro a year investment gap in the European real estate market, we feel that we can be a real active player, translating some of the work that we've done here in the UK into Spanish and Danish contexts. But also bringing that back is some of the work that's happening in Spain and Denmark, bringing that back into the UK so that we all win. And we can create the momentum that's required, the scale and pace that we need to overcome some of these amazingly huge challenges.
18:02
Davion Ford
So James, thank you so much for joining the program. We really appreciate it.
18:05
James Hooton
It's been a real pleasure talking to you and thanks for having me.
18:08
Davion Ford
That's it for this episode of the show. We hope you enjoyed our conversation with our guest, James Hooton, Managing Director of the Green Finance Institute. Stay tuned for our future episodes as we continue to bring change-makers to the table who are driving progress in urban development. And if you haven't already, be sure to subscribe and check out our other episodes. I’m Davion Ford, and you’ve been listening to Better Cities by Design, a podcast brought to you by Arcadis, the world’s leading company delivering sustainable design, engineering, and consultancy solutions for natural and built assets. You can learn more by visiting our website arcadis.com or by following Arcadis on LinkedIn or Facebook. Stay curious, get inspired, and remember, the future belongs to those who dare to make a difference in the cities we call home.
