What is an ‘ethical lender’?
An ethical lender – also known as a social or sustainable lender – is a lender concerned with the social and environmental impacts of its investments and loans.
It’s generally accepted in Australia that an ethical lender is one that doesn’t invest in fossil fuels (specifically coal and gas), but there are other ways a lender can be considered to be ethical or sustainable.
These may include but are not limited to:
- Striving for (or attaining) carbon neutrality
- Implementing sustainable work practices (ie. eco-friendly lighting, paper-less offices)
- Choosing not to invest in industries that support tobacco, firearms and/or live animal export activities
- Only investing in industries that advance social and economic causes
- Offering niche lending products to assist borrowers with their environmental initiatives (i.e. specialised loans to assist with installation of solar panels)
- Providing ethical investment options for financial planning clients
- Donating profits from selected products to charities and/or environmental causes
- Having good corporate social responsibility practices
A shift in corporate responsibilities
Read an annual report from any company these days and you’re sure to find comments summarising company efforts to improve sustainability and environmental outcomes. Triple bottom line accounting (i.e. a focus on People, Planet, Profit) is not a new concept; having been around for more than two decades.
However, with an increased awareness of – and demand for – transparency of the social and environmental impacts of corporations, priorities are shifting. Organisations are placing a greater focus on being good corporate citizens, in addition to their objective of keeping shareholders happy.
How do you know if a lender is considered ethical?
A lender can be considered ethical or sustainable for one or many of the reasons noted above. Often excellence in one area may come at the expense of another.
It’s interesting to note that there is no standard way to deem a lender as ethical. Even the bodies reporting on ethical lenders use different assessment criteria.
Some primarily look at investment into fossil fuel, extending the assessment to ensure that owners of the lender (often a larger lender) does not invest in fossil fuels either.
Others review ethics from a broader organizational perspective, checking to ensure anti-corruption and sound corporate responsibility programs are in place internally.
And some perform their assessments by reviewing lender values, looking for them to consider sustainable economic, social and environmental impacts.
Determining which lender will be a good fit for you, is ultimately up to you.
Determining what factors go into that decision, is also up to you.
Do I pay more for a loan from an ethical lender?
This is a tricky question to definitively answer because sometimes you will pay more for your loan and sometimes you won’t.
It depends on your situation, the lender in question and the lender’s ability to offer – and then efficiently deliver – a lending product that suits your needs.
If you select a lender for their focus on sustainability, and they don’t offer the most suitable product and/or charge a higher rate of interest, then you will pay more for your home loan.
It’s all about getting the balance right. You want to be comfortable that the lender and loan product is right for you, based on your own set of priorities.
So, how do I ensure I select the right loan from the right lender?
You ask for help, from professionals!
There are many different loan products available in the market, from a host of lenders. Determining which one is right one for you is not as easy as it sounds.
You’re already taking into account credit policies, servicing capacities, restrictions around security and loan types plus trying to compare what lenders offer competitive rates (and the likelihood those rates will STAY competitive given the historic behaviour of the lender in question).
If you add consideration of an lender’s organisational practices into the mix, you’re going to need some help!
Which is exactly where we come in!
We can help determine which lender and loan will be right for you, given YOUR individual objectives and priorities.
That’s what we’re here for, because it’s what a good mortgage professional does.
It’s exactly what we’ve been doing for the best part of two decades and we can do the same for you.
You can get started here: https://mmo.com.au/new-client-enquiry/
