On 10 July 2023, the Lending Standards Board (LSB) published a report on business customers and green finance. The report examines the provision of green finance products for small and medium-sized enterprises (SMEs), finding that while demand for an interest in these products is growing, many smaller businesses still face barriers accessing sustainable financial products. It provides an overview of where the industry is now, explores the challenges being seen by SMEs and firms as recipients and providers of green finance products, and sets out high level guidance for firms as to how they can use the standards to maintain a customer focussed approach when developing their green offering.

The report is based on the insight that the LSB has gained from its ongoing work in overseeing business lending, discussions with a range of financial services stakeholders and business representatives, and engagement with registered firms.

The observations set out in the report include:

  • The LSB identified only around fifteen products currently being offered to SMEs specifically for green purposes by its registered firms.
  • The number of customers accessing these products ranges across firms and product types from zero to five hundred.
  • Green loans were the most common product offered, most of which were aimed at SMEs looking to make efficiency improvements to their premises or travel arrangements (for example, electric vehicle purchases).
  • Separate research from the British Business Bank (BBB) found that around half of SMEs are open to improving their environmental impact. But, while 47% of SMEs are open to reducing their environmental impact and 22% are prepared to use finance to invest in changes, they are put off by factors like cost, capacity and uncertainty over the lack of information on the green finance options available.
  • Most action on the regulatory front has, so far, been focussed on disclosure requirements for large businesses, as well as the labelling of investment products. However, the wider financial services sector needs to consider how products and services are being used to support green or sustainable initiatives, and this in turn is leading both firms and SMEs to take additional steps to improve their understanding of their environmental impact and how the products they offer or use impact on the environment.

The report notes that the drive to transition to net zero continues to intensify and, as such, firms should be considering, across all finance products, how they can help consumers to achieve their green objectives, whilst balancing the effects of the wider landscape.

The LSB’s review of the Standards of Lending Practice for business customers is currently underway, and will, amongst other things, put the issue of green finance for SMEs under consideration for registered firms and the wider industry. The consultation will also explore how the Standards can further emphasise the expectations on firms on relation to inclusion and support for business customers in financial difficulty, as well as whether the standards require further development regarding the digital channels used by firms to offer products to, and engage with, business customers.