Business Development Director, Mortgages
09 January 2023
5 min read
Amid soaring inflation, rising interest rates, an energy cost crisis, the war Russia is inflicting on Ukraine and the often unbearable cost of living strains on household finances, you would be forgiven for putting climate change to the back of your mind.
2021, the year the UK hosted the COP26 climate change negotiations in Glasgow, saw politicians and the media dominated by net zero policy and the ESG agenda. Environment was all. Teenage climate activist Greta Thunberg and US president Joe Biden were descending on Britain with great and complicated expectations.
The former Bank of England governor Mark Carney was deep in the development of climate-related financial disclosures along with his global task force. Carbon credit markets were top of the economic agenda, and almost the whole of the financial services industry was focused on how to lead the climate change clampdown.
However, it wasn’t until April last year that many policy recommendations and statements were implemented. TCFD reporting was mandated for more than 1,300 firms in the UK on 6 April 2022, including the largest listed companies, biggest private firms and banks and insurers.
How this disclosure reporting has fared over the past nine months has been largely swept aside by the mainstream media, which instead focused on the financial trials faced by millions across the country.
Nevertheless, climate change and the UK’s commitment to reduce the country’s carbon emissions to net zero by 2050 are enshrined in law, as are the intermediate target deadlines.
Compliance teams in mortgage lenders have been forced to deal with mounting regulatory requirements to treat customers fairly and, in just months, to evidence a duty of care to consumers.
Preparation for forbearance as the economic environment worsens has taken priority since the end of Q2 2022, rightly. But that has not precluded the legal responsibility to deliver against environmental targets along with social and governance-related standards.
The challenge of helping borrowers and, indeed, other bank and building society customers to embrace and invest in improving their own energy efficiency cannot be overestimated.
Among those recommendations was introducing an Energy Saving Stamp Duty, with a tax rebate available for homeowners who retrofit their property within two years of purchase.
Further financial assistance, either in the form of concessional loans, guarantee schemes or grants, will also be critical to support households in enacting the type of retrofitting required to meet targets.
The challenge of helping borrowers and, indeed, other bank and building society customers to embrace and invest in improving their energy efficiency cannot be overestimated. It is going to be very, very hard – but it’s a challenge we must meet.
But it is not lost on anyone – and our recent Mortgage Efficiency Survey (download it below) underlined this - that along with that considerable responsibility is the legally mandated need for lenders to improve their energy efficiency.
In 2015 the Financial Stability Board outlined the Taskforce on Financial Climate Disclosures rules to aid companies – including many UK mortgage lenders – in demonstrating their impact on climate change.
This impact covers the use of product design to encourage positive customer behaviour, cutting their physical carbon footprint as well as their commercial partnerships’ and investment decisions’ impact on the environment.
Switching from server-based proprietorial systems to cloud-based software as a service is a relatively easy and meaningful first step.
Though ESG reports have been abundant over the past 12 months, evidence of practical action to cut carbon emissions has been relatively thin.
Some obvious ‘hygiene’ factors can help in terms of lenders' footprint.
In spite of the cost, building a new office with grey water recycling, air source heat pumps, and a carbon-neutral supply chain is almost easier than retrofitting existing inefficient commercial premises.
Recycling IT equipment, replacing lighting with LEDs, and even something as simple as providing recycling bins around the physical workspace make a difference.
But it is the carbon impact of running IT hardware and servers, along with heating and cooling the building, that has the biggest effect.
There is not one single solution to managing your carbon footprint. The more you think about it, the more the complexity of that task resembles a giant squid.
You know what they say when it comes to solving problems this big? Don’t try to do it all at once. Don’t even try to plan the end result at once.
Take each step one at a time.
It’s good advice. And given that running IT systems are such a massive part of the problem, targeting that by switching from server-based proprietorial systems to cloud-based software as a service is a relatively easy and meaningful first step – especially when such a step can offer operational benefits and agility that go beyond current platforms.
This article first appeared in Mortgage Introducer.
The past 12 months have brought much change and new challenges for UK mortgage lenders, but the need to process business efficiently has not changed. Using insight from a broad range of lenders, all with different experiences and approaches, this report shows how the industry's thinking and approach have evolved.
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