The easiest because we know exactly what we need to do, simply reduce the amount of greenhouse gases being emitted into our atmosphere. The hardest because our lifestyles and the global economy are underpinned by processes that emit those very same gases.
The challenge with the UK housing stock is a great example of why it’s hard.
Currently residential properties in the UK account for 16 per cent of national carbon emissions. Most of these properties were built more than 50 years ago, so are far from energy efficient, meaning it’s a colossal task to upgrade them “where practical, cost-effective and affordable” to reach an EPC of C by 2035 (the Paris agreement).
It is even more of a stretch to almost completely decarbonise them (net zero objective) by 2050.
Combine this with high retrofit costs, long payback periods (although these are improving as energy costs continue to escalate), and the current – and likely ongoing – lack of government incentives to drive the necessary actions at the required pace and you’re starting to see the true size of the task ahead of the UK.
As a responsible lender, climate risk is a key area of strategic focus and we’re committed to exploring the ways we can support our members to reduce their carbon footprint through education, products and partnerships.
We also need to ensure we satisfy the PRA requirements around understanding and managing the physical and transitional risks of climate change, and support brokers in better understanding their clients’ needs in this evolving market.
Challenges remain
However, this is not without its challenges, with one of the key ones being the quality or lack of data.
For instance, 50 per cent of properties do not currently have an EPC, and even where they do, there are serious question marks over whether EPCs are an accurate gauge of energy efficiency. Smart meter data could provide another lens, however not every home has one and, despite lenders lobbying the government, the data is still currently unavailable.
The other key challenge is customer appetite.
Investing in energy efficient upgrades simply isn’t high on people’s priorities right now. Therefore, as a lender looking to develop new products, instead of ordinarily looking to explore a market opportunity by meeting a specific customer need, in the case of green products, we are in actuality trying to anticipate a customer need that is inevitable but doesn’t yet exist.
The financial services industry needs to focus on initiatives such as creating educational content and messaging, helping to identify the most suitable retrofit upgrades for a customer’s specific property, and ensuring clear and easy to understand information is provided about green products to customers and our broker partners.
However, let’s not forget that most properties do not have a mortgage, which limits lenders’ influence somewhat.
All this means we must work together with wider industry, including the likes of housing developers, property portals, estate agencies, energy companies, technology providers, and specialist tradespeople to innovate. Progress is heavily dependent on government to ensure it provides data, regulation and funds where needed.
I appreciate these sound like small steps but together these small steps could add up to big change. Whether this will be enough to get us to net zero remains to be seen, but this certainly shouldn’t stop us trying.
