Green and Sustainable Development Finance: ESG Lending in the UK

Environmental, social, and governance (ESG) considerations have moved from the periphery to the centre of the UK development finance market. What began as a niche interest among a handful of impact-focused lenders has become a mainstream factor in lending decisions. In 2026, the majority of institutional development finance lenders incorporate ESG criteria into their underwriting processes, and a growing number offer explicit financial incentives for schemes that meet defined sustainability benchmarks. In our experience, developers who embrace this trend are not only securing better finance terms but are also building homes and commercial spaces that command premium values and sell faster.

The drivers of this shift are both regulatory and commercial. The UK Government's commitment to net zero by 2050, tightening Building Regulations (particularly Part L, which governs energy efficiency), and the introduction of the Future Homes Standard have created a regulatory framework that pushes new development toward higher environmental standards. Simultaneously, lenders — particularly those funded by institutional capital — face their own ESG reporting requirements and are incentivised to deploy capital into sustainable projects. The convergence of these regulatory and commercial pressures has created a genuine market for green development finance.

For developers, the practical question is simple: does building to higher sustainability standards make financial sense? The answer, increasingly, is yes. While the upfront cost of building to EPC A or achieving BREEAM Excellent is higher than minimum-standard construction (typically 3-8% of build costs), the financial benefits — in terms of enhanced sales values, faster sales rates, lower void periods for rental stock, and cheaper finance — often more than offset this additional cost.

A number of development finance lenders now offer explicit green lending products with enhanced terms for sustainable schemes. These products typically offer one or more of the following benefits: a rate discount (usually 0.25-0.50% below the lender's standard rate), enhanced leverage (an additional 5% LTGDV), reduced fees (discounted arrangement or exit fees), or preferential access to funding (faster approval or priority allocation during periods of high demand).

The eligibility criteria vary by lender, but common benchmarks include: achieving EPC A or B on all units, meeting BREEAM Very Good or Excellent, incorporating renewable energy generation (solar PV, air source heat pumps), demonstrating a minimum percentage improvement over current Building Regulations on carbon emissions, or implementing biodiversity net gain measures on site. Some lenders have developed their own sustainability scorecards that assess schemes across multiple criteria.

To illustrate the financial impact, consider a 15-unit residential scheme with a GDV of £6,000,000 and total development costs of £4,200,000. At a standard rate of 8% with a £3,360,000 facility (60% LTGDV), rolled-up interest over 15 months would be approximately £336,000. With a green rate discount of 0.50%, the rate falls to 7.5%, reducing interest to £315,000 — a saving of £21,000. If the green product also offers enhanced leverage of 65% LTGDV, the developer can borrow £3,900,000, freeing up £540,000 of equity for other uses. These are meaningful benefits that compound across a developer's portfolio.

We have arranged green development finance facilities for clients across a range of scheme types and are seeing the product range expand each quarter. If your scheme incorporates sustainability features, it is always worth exploring whether a green lending product could improve your terms. Our deal room can assess your scheme's eligibility across multiple green lenders.

Beyond cheaper finance, there is a growing body of evidence that sustainable buildings command premium values and sell faster. Research from the RICS, Savills, and Knight Frank consistently shows that homes with higher EPC ratings achieve price premiums of 5-15% over equivalent properties with lower ratings. In a market where buyers are increasingly aware of energy costs and environmental impact, the EPC rating is becoming a genuine sales differentiator.

The Future Homes Standard, due for full implementation, will require all new homes to produce 75-80% fewer carbon emissions than those built under current regulations. Developers who get ahead of this requirement — by building to higher standards now — are positioning themselves advantageously. Not only do they avoid the disruption and cost of adapting their build processes at the last minute, but they also benefit from the marketing advantage of offering homes that exceed minimum standards.

For build-to-rent developers, sustainability is even more directly linked to financial performance. Institutional investors are applying ESG screens to their acquisition criteria, and buildings that do not meet minimum sustainability thresholds may face a shrinking pool of potential purchasers. We have seen instances where a building's sustainability credentials were the deciding factor in an institutional purchase, with the buyer willing to pay a premium of £500,000-£1,000,000 for a scheme that achieved BREEAM Excellent versus one that met only minimum standards.

The construction industry itself is evolving to support sustainable development. Prefabricated and modular construction methods — discussed in our guide to modular construction finance — inherently produce less waste and offer better energy performance. Modern methods of construction (MMC) and sustainable building practices are increasingly mainstream, and the cost premium for high-sustainability construction is narrowing as supply chains mature.

For developers new to green building, the landscape of certifications and benchmarks can appear complex. The key frameworks relevant to UK residential development are EPC ratings (mandated for all new dwellings), BREEAM (the most widely recognised environmental assessment method), and the Home Quality Mark (HQM), developed by BRE as a consumer-facing quality indicator. Each assesses different aspects of a building's environmental and quality performance.

EPC ratings are the most straightforward and most commonly used by green lending products. Achieving EPC A requires a fabric-first approach to energy efficiency — high levels of insulation, triple glazing, airtight construction, and typically some form of renewable energy generation. For new-build homes designed to modern standards, achieving EPC B is relatively straightforward; reaching EPC A requires more deliberate design choices and typically adds 3-5% to build costs.

BREEAM is a more comprehensive assessment that covers energy, water, materials, waste, ecology, health and wellbeing, transport, and management. BREEAM certification is particularly relevant for commercial developments and larger residential schemes, especially those targeting institutional investors. Achieving BREEAM Very Good is generally achievable without significant cost premium; Excellent requires more deliberate design choices and early-stage engagement with a BREEAM assessor. We recommend appointing a BREEAM assessor at the pre-construction stage to ensure the design maximises its score cost-effectively.

Passivhaus certification represents the gold standard for energy-efficient construction, achieving ultra-low energy consumption through exceptional levels of insulation, airtightness, and mechanical ventilation with heat recovery. While Passivhaus homes command significant price premiums and are highly attractive to both occupiers and investors, the build cost premium (typically 10-15%) means that this standard is most appropriate for higher-value schemes where the premium can be recovered through enhanced sales values.

If you are planning a development that incorporates sustainability features, the following steps will help you access the best green finance terms. First, define your sustainability ambitions early in the design process. The most cost-effective way to achieve high sustainability standards is to design them in from the outset, rather than retrofitting solutions later. Engage an energy consultant and, if targeting BREEAM, a BREEAM assessor during the design stage.

Second, document your sustainability credentials thoroughly. Green lending products require evidence that your scheme will achieve the specified benchmarks. This typically means providing an energy strategy or SAP assessment demonstrating the target EPC rating, details of renewable energy installations, and any relevant certification documents. The more comprehensive your documentation, the smoother the underwriting process.

Third, work with a broker who understands the green lending landscape. The range of green products is expanding rapidly, and eligibility criteria vary between lenders. A specialist broker can identify which products your scheme qualifies for and negotiate the best terms. In our practice, we maintain an up-to-date database of green lending products and proactively assess every scheme we receive against green eligibility criteria.

Finally, factor the financial benefits of sustainability into your development appraisal. This means modelling the enhanced sales values that EPC A homes command, the faster sales rates, and the cheaper finance. When these benefits are properly quantified, the business case for building sustainably is compelling. To discuss how green finance could benefit your next scheme, submit your project through our deal room and we will provide a tailored analysis of the options available.

ESG is not a passing trend in development finance — it is a structural shift that will deepen over time. Regulatory requirements will continue to tighten, institutional investors will apply increasingly stringent ESG screens, and consumer demand for sustainable homes will grow. Developers who invest in their sustainability capabilities now will be better positioned to compete in a market where green credentials are a prerequisite, not a differentiator.

We expect to see several developments in the green lending space over the coming years. First, a proliferation of green lending products as more lenders enter the space and existing lenders expand their offerings. Second, the emergence of transition finance products that fund the retrofit and improvement of existing buildings — a market that is still nascent but has enormous potential given the UK's existing housing stock. Third, greater standardisation of sustainability benchmarks and reporting, making it easier for developers to demonstrate their credentials and for lenders to assess them.

In our view, the developers who will thrive in the medium term are those who view sustainability not as a cost but as a value driver. The evidence is clear: sustainable buildings are worth more, sell faster, cost less to finance, and create better outcomes for occupiers and communities. For developers who share this perspective, the development finance market is increasingly aligned to support their ambitions.