'Ground-breaking' project examines climate impact on £400m of Scottish Building Society mortgages

The 173-year-old Scottish Building Society has partnered with a climate analysis specialist to examine the potential flood impact on some £400 million worth of mortgages.

The “ground-breaking” project comes after the Bank of England announced this week that it will stress test major banks and insurers amid the shift to a net zero economy as well as for the impact of extreme weather.

Through its partnership with European climate change analyst Ambiental, the Scottish Building Society (SBS) will examine the risks to its mortgage portfolio for up to 50 years. The modelling work will draw on Ambiental’s predictive analytics, machine learning and expertise.

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Paul Denton, chief executive of Edinburgh-headquartered SBS, said: “In the build-up to COP26 in Glasgow, climate change is very much front of mind.

Scottish Building Society’s Paul Denton and Ambiental’s Justin Butler announce partnership at The Kelpies. Picture: Alistair Devine
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“As the world’s oldest building society, with 173 years of history behind us, it is important to ensure that we have a sustainable business for the next 173 years.

“We are delighted to partner with Ambiental, a world leader in the field. Their predictive technology, combined with expert analysis models the risk of different climate change scenarios on our £400m mortgage portfolio, whether from flooding or coastal erosion.”

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Ambiental, part of Royal HaskoningDHV Digital, estimates that an additional 1.2 million properties across the UK could be at a risk of flooding by 2050.

Given that 35 per cent of UK households have property debt, and the average value of a mortgage in the UK is £137,000, this suggests that £60 billion in mortgage debt could be impaired due to climate induced flooding.

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Flood losses in Europe are expected to increase fivefold by 2050, according to the European Environment Agency.

Ambiental is examining every property on SBS’s books to build up a picture of current risks and then future risks over a ten-to-50-year timescale, based on different levels of carbon in the atmosphere and their impact on climate.

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The firm’s chief executive, Justin Butler, said: “As the risk of flooding increases and the impact of flood events becomes more severe, organisations need new ways to see and manage their risks.

“SBS are well ahead of the curve in this respect. They now have an understanding of what the risk profile of their mortgage portfolio is today but also how that risk profile changes into the future, and that can help them to make adjustments if they need to, or to reflect upon different business decisions to support with a sustainable mortgage book growth over time.”

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The society this year announced that it was partnering with Trees for Life in a bid to rewild the Scottish Highlands and support its diverse wildlife.

SBS is helping mitigate its own carbon footprint by supporting the charity’s pioneering conservation work on the Caledonian Forest.

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Denton added: “As Scotland’s building society we understand our responsibilities as a corporate citizen to reduce our carbon footprint. This ranges from looking at the ways we can limit the impact we have on the environment, to launching products to help customers make their homes and properties more energy efficient and sustainable.”

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