The Transition Plan Taskforce (TPT), explained for mortgage lenders

Transition Planning

As new regulations reshape the UK’s financial sector, mortgage lenders must adapt to evolving climate-related requirements and ensure they are contributing meaningfully to the net zero transition. 

The UK Transition Plan Taskforce (TPT) is an initiative launched by HM Treasury in March 2022 that aims to provide a ‘gold standard for climate transition plans’. For mortgage lenders, adopting the TPT’s recommendations is essential not only for compliance ahead of IFRS S2 standards, but also for demonstrating competence to customers and investors in tackling the emissions arising from their financed properties.

While 59% of mortgage lenders are reporting on climate in some capacity, ranging from a subset in the annual report to a standalone plan, only 5% are fully TPT-aligned. This translates into just a handful of lenders, with the rest of the industry playing catch up.

What’s covered?

  1. Why was the Transition Plan Taskforce created?
  2. What’s covered in the Transition Plan Taskforce Disclosure Framework?
  3. Why data quality is so important for Transition Plan Taskforce Framework
  4. The UK Transition Plan Taskforce and financed emissions
  5. How can the TPT Framework help your business?
  6. What to do next

Why was the Transition Plan Taskforce created? Setting a gold standard for the climate transition

The UK government set a target to become the world’s first net zero-aligned financial centre, a goal that requires robust climate transition plans across all financial services. 

The TPT was established to support the UK government’s pledge to achieve net zero by 2050, and to address the need for a unified framework to guide firms in creating, implementing, and disclosing their transition plans. Such plans are not meant to just be compliance tools; they provide transparency and direction on how organisations will set and achieve their climate targets, and contribute to the broader transition.

It builds on wider climate-related disclosure requirements laid out by the International Sustainability Standards Board (ISSB) under IFRS S2. These outline several provisions related to transition planning and, while it does require a lender to have a transition plan yet, it does mandate disclosure of any transition plan that has already been developed.

What’s covered in the Transition Plan Taskforce Disclosure Framework?

The TPT’s disclosure framework has five key parts: 

  1. Foundations: The basic ambition of the transition plan, detailing the organisation’s goals, priorities, and its high-level implications.
  2. Implementation strategy: The actions taken within business operations, products, and services to achieve the strategic ambition. For mortgage lenders for example, this means detailing how they intend to decarbonise their mortgage books, specifically scope 3 financed emissions, and support energy efficiency improvements among their customer base.
  3. Engagement strategy: How to engage stakeholders of all kinds to drive the transition. Increasingly, this includes driving consumer appetite for retrofit through education and financing incentives. 
  4. Metrics and targets: How lenders track progress. The TPT recommends clear, time-bound targets that are aligned with international climate agreements. We add to this that they must be supported by accurate data to avoid being just estimates that can vary widely.
  5. Governance: How the transition plan relates to board oversight and management accountability. Internally, having champions at multiple levels that drive consensus and buy-in is critical.

Why data quality is so important for Transition Plan Taskforce Framework

Data quality is one of the top challenges for mortgage lenders.

For climate transition planning, it is critical.

Inaccurate or missing EPC data for a significant proportion of mortgage portfolios complicates emissions calculations and hinders effective target-setting. To address this, the TPT framework encourages firms to be transparent about data limitations and to use estimation models where appropriate to fill data gaps.

For mortgage lenders, integrating high-quality property data into risk assessments and scenario analyses enables a better understanding of potential decarbonisation pathways, and how external dependencies, such changes to Minimum Energy Efficiency Standards (MEES), will add a new framing to achieving targets as they currently stand.

The UK Transition Plan Taskforce and financed emissions

While the TPT doesn’t require mortgage lenders to disclose financed emissions, it is a key disclosure requirement under IFRS-S2 for the UKs largest firms.

Mortgaged homes that are energy inefficient and have high carbon emissions will become high-risk assets as climate policy ramps up. 

This is reflected in the TPT framework which references climate risks as part of the ‘strategic’ element of a best practice transition plan.

It is therefore worth recognising the unique challenge posed by financed emissions from property portfolios, which can be up to 700x greater than operational emissions.

71% of lenders who report on climate do not disclose financed emissions calculations for their mortgage portfolios. The lack of comprehensive data on housing emissions is a critical barrier to accurate reporting, as 35% of the mortgage portfolio lacks valid EPC data.

Properties with poor energy performance ratings (EPC D or below) contribute disproportionately to emissions, increasing the climate risk exposure for lenders. 

According to our findings, the average UK mortgage portfolio contains 58.2% of homes below an EPC C rating.

This means lenders need access to as much available data as possible to accurately calculate the emissions, and risk, posed by inefficient properties in particular, but also modelling capability that cover blind spots in the portfolio.

Intelligent modelling approaches that estimate missing and flawed EPC datasets can significantly improve the accuracy of emissions calculations. 

So, how can the TPT Framework help your business?

Mortgage lenders must move beyond seeing transition plans solely as compliance exercises and instead integrate them into their core business strategy.

To reiterate, the UK government commissioned the TPT to provide the ‘gold standard’ for climate transition planning.

This means aligning with increasingly stringent regulatory standards, such as the new IFRS S2 standards, which from 2024 will require many lenders to disclose available transition plans, including how the company plans to achieve climate targets. 

Nationwide built their transition plan on the TPT guidance. Not only does it help to set and report against ambitious but realistic targets, it crucially sets actions against reducing scope (including financed) emissions. Broad action areas include:

Soon similar transition plan disclosure rules will apply to SME lenders, so building a strong foundation now is critical.

Next steps

To circle back on the key messages:

  1. The TPT supports mortgage lenders to lay the foundations to comply with climate regulations and standards, such as IFRS S2
  2. Disclosure of available transition plans is now mandatory, and lenders without a plan are strongly encouraged to get started now, no matter the size of the organisation
  3. Setting accurate climate targets and reporting on financed emissions requires advanced data and modelling capabilities to ensure plans, and actions set against them, are robust and minimise risk

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