20 April 2023
Finance
Sustainable finance to meet growing consumer demand
Kival Singh, Sustainability Lead: Personal and Private Banking notes that RMB Private Bank clients are aware of sustainability, the issues around it, and are generally well versed on the initiatives driving a more equitable tomorrow, from the Paris Climate Agreement to the United Nations (UN's) Sustainable Development Goals, ESG (environmental, social and governance) considerations, and the UN Principles for Responsible Banking - the latter of which lays out the broader responsibilities banks have in society, beyond financial results. In turn, these frameworks inform RMB Private Bank's strategy around sustainability.
Awareness is important since understanding the ESG challenges also unlocks new investment possibilities.
'If we consider why it's important for our clients to understand the opportunities that come with sustainability, then it's important to note that significant investment is required in infrastructure by 2030 to try get us to carbon neutral, net zero, by 2050. This will require a large investment in infrastructure,' says Singh, who points out that the World Bank estimates that US$90 trillion must be invested in infrastructure by 2030.
Singh adds: 'There is a large plus side when it comes to recouping on these investments. So today, when you look at the new economic opportunities that could be unlocked, the prediction is that for every US$1 that's invested, the potential return is US$4.'
The case in Africa
Like the rest of the world, Africa also requires substantial investment to enable a transition to net zero, these new green opportunities could potentially see revenues up to US$2 billion by 2030, says Singh. 'If you just consider South Africa's Just Energy Transition Investment Plan, there is a total investment of about R1.5 trillion that will be required over the next five years. While a lot of development finance institutions are coming to the party and are willing to invest in South Africa to assist, the funding gap is approximately R700 billion. This highlights clear areas of opportunity from an investment perspective.'
In particular, the Just Energy Transition Investment plan highlights renewable energy as the key focus area, but Singh points out that investment into sectors such as transport and green hydrogen - should not be neglected. However, it's in the renewables space - specifically around solar energy - where the government recently announced support for both individuals and businesses installing their own power systems.
'Treasury announced that is it offering about R4 billion in relief for individual households looking to install solar panels, and around R5 billion for companies looking to expand renewable energy as part of the sustainability of their businesses,' notes Singh.
The renewable energy tax breaks being directed towards businesses are particularly exciting.
'I get quite excited about this,' says Singh. 'Businesses will be able to reduce their taxable income by 125% of the cost of the investment in renewables. Unlike private households, this is not specific to only solar panels but applies to the entire system, which is great. Some of the current incentives allow businesses to deduct the cost of the investment over a one-year or three-year period, which automatically starts creating cash flow relief, which is really important for any business. So, for instance, businesses will be able to deduct 50% of the cost in year one, 30% in year two and 20% in year three. Yes, there are some caveats, but businesses can reduce their tax liability as a result of these renewable investments.'
What lending options are on the table?
For RMB Private Bank clients who are currently exploring their options when it comes to solar installations, the eco-system has never been more conducive to tapping into financial support as well as a range of options from buying a system outright, investing in hybrid solutions, to even renting a solar installation - which is attractive due to the maintenance implications.
Hayden Giger, Growth Head: Private Bank Lending, engages closely with individuals and businesses in the RMB Private Bank segment around their lending requirements and structuring suitable financing options. As such, he is truly at the coalface of rolling out solutions to the market which are designed to match client needs.
In light of rising electricity costs, ongoing load shedding and the rapid advancements being made in renewables technology, Giger notes that RMB Private Bank clients are actively seeking information about the best finance options available to them based on their needs. 'As a bank we know the role we need to play in assisting our clients to find the right solutions. Whether clients want a backup for load shedding or to go off-grid, each solution comes with budget constraints as well as long-term savings,' says Giger, who recommends carefully researching suppliers and options before making a final decision.
For those with the means, the ultimate defensive strategy is to install a full solar system; and even if cash is not immediately available Giger points out that there are a range of funding solutions available. For instance, right now using your home loan is often the cheapest form of funding available in the market. 'Yes, this sort of financing might be over 20 years, but this does not mean you actually have to pay off the facility in 20 years. Consider that for a R2 million house, a full solar investment of R200 000 could be paid off over five years if you lift your debit order from R20 000 a month to R24 000. This is probably a more responsible way of managing the facility,' he says.
In addition, Singh notes that 'some clients might consider exploring a Security-Based Loan rather than using their home loan', while Giger adds that the FirstRand Group has seen interest in pension-backed lending, where clients use their pension fund to pay for solar installations. He also notes that personal loans are another consideration.
This range of options highlights that while RMB Private Bank is still on a transitional journey when it comes to sustainable lending solutions, much is being done to support our clients' homes and their businesses as they make their own energy transition, as demonstrated with the recent launch of nav» Energy on the RMB Private Bank App. The new nav» Energy platform is a one-stop-shop for all things energy-related, from educational content to products and financial options, and features the quickest loan application on the market.
Both Singh and Giger suggest RMB Private Bank clients speak to their private advisor about the options available to them.
Awareness is important since understanding the ESG challenges also unlocks new investment possibilities.
'If we consider why it's important for our clients to understand the opportunities that come with sustainability, then it's important to note that significant investment is required in infrastructure by 2030 to try get us to carbon neutral, net zero, by 2050. This will require a large investment in infrastructure,' says Singh, who points out that the World Bank estimates that US$90 trillion must be invested in infrastructure by 2030.
Singh adds: 'There is a large plus side when it comes to recouping on these investments. So today, when you look at the new economic opportunities that could be unlocked, the prediction is that for every US$1 that's invested, the potential return is US$4.'
Like the rest of the world, Africa also requires substantial investment to enable a transition to net zero, these new green opportunities could potentially see revenues up to US$2 billion by 2030, says Singh. 'If you just consider South Africa's Just Energy Transition Investment Plan, there is a total investment of about R1.5 trillion that will be required over the next five years. While a lot of development finance institutions are coming to the party and are willing to invest in South Africa to assist, the funding gap is approximately R700 billion. This highlights clear areas of opportunity from an investment perspective.'
In particular, the Just Energy Transition Investment plan highlights renewable energy as the key focus area, but Singh points out that investment into sectors such as transport and green hydrogen - should not be neglected. However, it's in the renewables space - specifically around solar energy - where the government recently announced support for both individuals and businesses installing their own power systems.
'Treasury announced that is it offering about R4 billion in relief for individual households looking to install solar panels, and around R5 billion for companies looking to expand renewable energy as part of the sustainability of their businesses,' notes Singh.
The renewable energy tax breaks being directed towards businesses are particularly exciting.
'I get quite excited about this,' says Singh. 'Businesses will be able to reduce their taxable income by 125% of the cost of the investment in renewables. Unlike private households, this is not specific to only solar panels but applies to the entire system, which is great. Some of the current incentives allow businesses to deduct the cost of the investment over a one-year or three-year period, which automatically starts creating cash flow relief, which is really important for any business. So, for instance, businesses will be able to deduct 50% of the cost in year one, 30% in year two and 20% in year three. Yes, there are some caveats, but businesses can reduce their tax liability as a result of these renewable investments.'
For RMB Private Bank clients who are currently exploring their options when it comes to solar installations, the eco-system has never been more conducive to tapping into financial support as well as a range of options from buying a system outright, investing in hybrid solutions, to even renting a solar installation - which is attractive due to the maintenance implications.
Hayden Giger, Growth Head: Private Bank Lending, engages closely with individuals and businesses in the RMB Private Bank segment around their lending requirements and structuring suitable financing options. As such, he is truly at the coalface of rolling out solutions to the market which are designed to match client needs.
In light of rising electricity costs, ongoing load shedding and the rapid advancements being made in renewables technology, Giger notes that RMB Private Bank clients are actively seeking information about the best finance options available to them based on their needs. 'As a bank we know the role we need to play in assisting our clients to find the right solutions. Whether clients want a backup for load shedding or to go off-grid, each solution comes with budget constraints as well as long-term savings,' says Giger, who recommends carefully researching suppliers and options before making a final decision.
For those with the means, the ultimate defensive strategy is to install a full solar system; and even if cash is not immediately available Giger points out that there are a range of funding solutions available. For instance, right now using your home loan is often the cheapest form of funding available in the market. 'Yes, this sort of financing might be over 20 years, but this does not mean you actually have to pay off the facility in 20 years. Consider that for a R2 million house, a full solar investment of R200 000 could be paid off over five years if you lift your debit order from R20 000 a month to R24 000. This is probably a more responsible way of managing the facility,' he says.
In addition, Singh notes that 'some clients might consider exploring a Security-Based Loan rather than using their home loan', while Giger adds that the FirstRand Group has seen interest in pension-backed lending, where clients use their pension fund to pay for solar installations. He also notes that personal loans are another consideration.
This range of options highlights that while RMB Private Bank is still on a transitional journey when it comes to sustainable lending solutions, much is being done to support our clients' homes and their businesses as they make their own energy transition, as demonstrated with the recent launch of nav» Energy on the RMB Private Bank App. The new nav» Energy platform is a one-stop-shop for all things energy-related, from educational content to products and financial options, and features the quickest loan application on the market.
Both Singh and Giger suggest RMB Private Bank clients speak to their private advisor about the options available to them.