Mortgage lenders are facing increasing scrutiny over their role in the transition to a low-carbon economy.
As the financial sector grapples with regulatory pressures, evolving industry standards, and the challenge of reducing financed emissions, it has become clear that a proactive, data-driven approach is essential.
It is also clear that in numerous ways lenders are already rising to the challenge. In a recent discussion with Kamma, Coventry Building Society’s (CBS) Energy & Sustainability Lead, Sophie Mason, provided valuable insights into how the lender is navigating the complexities of climate transition planning.
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Only 5% of lenders align with top standards: the challenge of transitioning to net zero
Lenders have long faced the challenge of tackling Scope 3 emissions, given the indirect nature of these emissions within mortgage portfolios. Unlike financial institutions involved in corporate lending, mortgage lenders do not have direct control over the energy efficiency of, or emissions produced by, homes.
Education, innovation, and collaboration across the sector is fundamental to moving the dial on home decarbonisation. However, mortgage providers must balance their duty to support homeowners with their strategic goals for carbon reduction.
One key theme that emerged from the discussion was the role of policy stability. While the new consultation on raising Minimum Energy Efficiency Standards (MEES) to EPC C has now been announced, reporting standards such as IFRS S2 are still evolving. Some lenders are still aligning with the Task Force on Climate-related Financial Disclosures (TCFD) framework, which has recently been taken over by IFRS. Only 5% of lenders aligned with the framework proposed by the similarly disbanded Transition Plan Taskforce (TPT), and 41% are yet to report at all. This inconsistency and change in expectations creates significant barriers to industry-wide progress.
‘Data is king‘: why data quality is the foundation of effective climate transition planning
Data remains at the heart of climate transition planning. A recent survey of mortgage lenders conducted by Kamma found that over 80% identified data quality as the biggest area for improvement in their transition plans.
CBS has taken an incremental approach, focusing first on gathering accurate data for Scope 1 and 2 emissions before shifting its attention to Scope 3 financed emissions. Key priorities in CBS’s data strategy include:
- Engaging with the supply chain to secure more accurate emissions data.
- Tracking mortgage book emissions through EPC data and other energy performance indicators.
- Using improved data granularity to refine climate strategies and measure real progress.
As CBS puts it, “Data is absolutely king – without having as accurate data as possible, your whole foundation, your whole strategy in which you build that from just falls apart.“ A further emphasis is placed on transparency: “while estimates provide a starting point, they don’t always reflect reality. Transparency in data is key – tracking progress and improving accuracy should be the focus.“
One often overlooked insight from the discussion was the idea that outdated data is leading many lenders to overstate their emissions; a phenomenon sometimes referred to as ‘brown washing’. Transparency in data disclosure and assumptions is key to ensuring lenders accurately track decarbonisation efforts.
The retrofit lending gap: why aren’t homeowners taking more action?
While retrofit lending has grown, the industry has struggled with low uptake despite attractive financial incentives.
Although lenders are offering preferential rates for home efficiency upgrades, demand remains low. This is largely due to a lack of clear customer guidance on where to start and the fact that certain technologies, such as air-source heat pumps, still battle against common misconceptions around cost and performance.
To address this, CBS has focused on educating customers about retrofit opportunities. A sector-wide approach, where lenders, government, and industry bodies work together to promote home efficiency improvements, is essential. Public perception and financial feasibility play a major role in accelerating green lending initiatives; a sentiment that was reflected in the Climate Change Committee’s Seventh Carbon Budget.
‘34% emissions reduction in three years‘: Coventry Building Society’s transition journey
CBS has emerged as one of the highest-performing lenders in Kamma’s transition study. Its structured and data-driven approach includes:
- Board-level governance and buy-in to integrate climate into decision-making.
- A phased strategy, where emissions reduction goals are reviewed and adjusted annually based on performance.
- Knowing that ‘quick fix’ Scope 1 and 2 emissions are only the start; reducing Scope 3 financed emissions requires increased borrower engagement through education and financing incentives.
One of CBS’s key achievements is its 34% reduction in emissions over three years through targeted interventions. Sustainability is embedded across the organisation, ensuring that teams across risk, treasury, and procurement are aligned on decarbonisation priorities.
What’s next for CBS? A climate transition roadmap for 2025 and beyond
Looking ahead, CBS faces a period of significant transformation, with the acquisition of The Co-operative Bank in early 2025. This may require a reassessment of its emissions baseline, as well as an updated roadmap to net zero.
The lender will also continue to refine its customer engagement strategies, focusing on guiding homeowners towards cost-effective, impactful energy efficiency improvements.
Conclusion: what mortgage lenders can learn from CBS’s climate transition strategy
Coventry Building Society’s transition strategy demonstrates how a structured, data-led approach can drive real progress in financed emissions reduction. However, collaboration across the industry remains crucial to achieving meaningful decarbonisation.
To learn more about how lenders can navigate transition planning, explore Kamma’s full report on mortgage lender climate transition strategies.
