Regulatory reporting

An explanation of key terms related to reporting on climate for property-related businesses, including articles on common questions and areas of interest.

Climate-related financial disclosures are formalised reports that outline a company’s carbon emissions and exposure to climate-related risks and opportunities.

These disclosures are integral to showing investors, collaborators and customers that your business is being transparent about risks and opportunities that could reasonably be expected to affect business finances, meeting regulatory requirements like those established by TCFD and the ISSB’s IFRS S2.

Data quality is crucial in publishing meaningful disclosures, setting accurate targets and showing progress over time. Enhancing baseline EPC data and combining with wider sources, such as up-to-date carbon intensity factors from the National Grid and retrofit pricing, helps to address information gaps and improve reliability.

Climate stress testing examines how financial portfolios respond to various climate-related scenarios, including physical risks from flooding or transition risks from changes to energy efficiency policy.

Businesses can stress test climate risk by assessing the cost of the portfolio reaching EPC C, then comparing to LTV headroom or offsetting against property values. These tests often show most portfolio to have overstated risks with simple tests.

High-quality data, such as predictive modelling for EPC gaps, enhances the accuracy of stress tests, helping businesses to prioritise mitigation strategies.

These exercises also align with ICAAP requirements, integrating climate risks into capital planning frameworks.

Scenario modelling makes projections based on various climate pathways to evaluate the impact on property portfolios. This involves but is not limited to assessing potential changes in portfolio emissions, emissions intensity, and average energy efficiency.

Effective modelling requires robust datasets and increasingly advanced analytics to identify vulnerabilities, ensuring strategies are grounded in evidence-based forecasts.

Robust scenario analysis then identifies and quantifies how different policy outcomes could impact their ability to proactively manage risks, ensuring that action plans can reliably hit targets and align with regulatory requirements. 

The International Sustainability Standards Board’s (ISSB) IFRS S2 outlines a global standard for climate-related disclosures, requiring organisations to provide more rigorous information than before on their exposure to climate risks and opportunities.

This includes reporting financed emissions, climate transition plans (if available), and mitigation strategies. 

For mortgage lenders, aligning with IFRS S2 enhances transparency and investor confidence while ensuring compliance with evolving regulatory landscapes. High-quality data, such as that those aligining with PCAF, underpins accurate reporting.

The Internal Capital Adequacy Assessment Process (ICAAP) evaluates how financial institutions manage risks, including those related to climate change. 

Mortgage lenders, for example, use ICAAP to integrate climate risks, such as transition or physical risks, into their capital planning. By incorporating energy efficiency improvements into their strategies, lenders can reduce potential capital requirements while enhancing portfolio resilience.

The Minimum Energy Efficiency Standards (MEES) require BTL properties in the UK to meet at least an EPC rating of E to be legally let. 

By 2030, these properties will be expected to reach EPC C. Properties failing to meet MEES may face devaluation or penalties, emphasising the importance of energy efficiency in lending criteria.