Article originally published in The Intermediary July 2024 – page 89
Never mind the political campaigning around climate change and what we do or don’t do about it going on ahead of the July general election, on the ground there are two realities facing our industry that will not melt away. These are the climate-related asset risk held by lenders and the regulatory risk of not delivering net zero targets.
I’m pleased to say that many lenders are working hard on these issues to the extent that they recognise their enormity and have begun to undertake serious work to address them. There are those still contemplating this and are wondering where on earth to start. In reality it is a two track approach. Small initiatives can make a large sum difference. But we also know that work in isolation too often can lead nowhere. The problem is not the preserve of one department or one champion. It is a cultural one across the entire organisation and indeed the market. Our proposition is designed to work in both scenarios.
Last month we completed our acquisition of Parity Projects, folding their expertise in the domestic housing retrofit sector, retrofit advisory services, tools and data into the broader Corelogic proposition. Having collaborated with Parity Projects for a number of years, we already know how to address these issues. Better use of data is instrumental to enable stakeholders to reduce their housing stock carbon footprint; so are people. To make a team successful everyone needs to be pulling in the same direction, everyone needs to be passionate about where they’re heading and everyone needs to know what they personally need to do to get there.
In order to meet the UK’s legally mandated net zero targets half a million homes across the country need to be retrofitted every year from next year, according to the Climate Change Committee. In just over five years’ time, we will need to be retrofitting one million homes a year, base on official advice to Parliament. What does that mean for your business? How exposed are the assets in your back book? Lenders need to plug into the data that is there.
Meaningful change starts from the top. It’s not enough to get buy-in from the risk department where people understand the consequences of not getting ahead of net zero requirements soon enough. Compliance departments have so much on their plates today that a deadline six years away might be considered important but not as urgent as getting anti-greenwashing processes in place today. Operations want to see efficiencies delivered by technology, better use of human resource, smoother running interdepartmentally – future asset risk and ratings aren’t top of their priority list. Marketing might love the brand value that investing in sustainability brings but they’re not usually in a position to sign off on budget to get the ball rolling fast enough that it doesn’t lose momentum. Treasury has been notoriously batted back by boards under pressure to deliver shareholder returns, too often at the expense of long-term value protection.
Each branch of a lender’s business can work as efficiently as it’s possible to, and still, things get missed. It is imperative, when you are addressing a business issue like climate risk that every stakeholder is on board and shares the same priorities. Every department head needs to know why climate change and net zero matters to them and their division.
Passion and drive are vital but perhaps more important is that everyone in your business knows what they’re supposed to do today. It’s easy to understand that addressing climate change and all the risks it poses to lenders is important. Faced with emails piling up, that presentation deadline, year end, sales targets, performance reviews – getting on with net zero plans may understandably seem less urgent.
It’s often forgotten that people can only focus on one priority – the very root of the word comes from the same as primary, prime – one. There’s no right or wrong for how to go about embedding a net zero strategy – it depends on each business and its individual needs. What is universal is the need to be clear about who is doing what and holding them accountable.
Deciding on a plan and delivering on its objective aren’t necessarily the same thing – particularly when deadlines are long-term. People need constant validation to stay motivated. Validation comes with reaching milestones and marking them. Milestones present the opportunity to review the lay of the land and adjust the next milestone if and when needed – that might be changing the how, the when or the who is working on it. Sounds simple? With our help, it can be.