Sustainability and climate change risk

Mortgage lenders have long been aware of the impact that climate change risk poses to the build environment in the UK. Flooding, coastal erosion, over-heating of homes, increased subsidence, and poor air quality are just some of the climate risks that lenders consider. 

The FCA’s policy statement PS 20/17 requires lenders to include a statement in their annual reports saying whether they have made disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). The PRA’s Supervisory Statement SS3/19 sets out its expectations for lenders to embed consideration of climate risk into their governance and management arrangements, scenario analysis and disclosure of financial risk. 

More recently, lenders have increasingly focused on the transitional risks involved in adapting to climate change. In 2019 the UK passed legislation that set a binding target to reach net zero emissions by 2050. In its Strategy for Net Zero, published in October 2021, the UK government outlined its areas of focus including proposals for heat and buildings. These aim to improve the energy efficiency of housing and non-domestic properties and ensure all new heating appliances are low carbon technologies from 2035. 

The Heat and Buildings Strategy, also published in October 2021, provided further details on domestic properties. The UK government proposes to introduce and enforce minimum energy performance standards for rented properties with new tenancies needing to meet Energy Performance Certificate (EPC)  band C by 2025 and existing tenancies by 2028. The UK government has consulted on proposals to require mortgage lenders to disclose energy performance across their property portfolios and on introducing voluntary targets to improve their portfolios to an average of EPC band C by 2030. Our responses to these consultations can be found here. The government is also exploring opportunities to improve the energy performance of owner-occupier homes, looking at the key ‘trigger points’ of sale, refinancing and repair/improvement as stages in a property life-cycle when requirements could be imposed. Similar measures have been put forward by the Scottish government in its Heat in Buildings Strategy

The UK mortgage industry is committed to greening UK housing and supporting the just transition to net zero for both private rental and owner-occupied homes. We are willing to work with all housing stakeholders to help encourage and create a greener, innovative UK housing market and ensure that there is a clear pathway to net zero with all the necessary measures to enable this in place.

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