Skipton uses climate risk intelligence to enhance its responsible lending approach

The Skipton Group is headed by the UK’s fourth-largest building society. It also includes Connells, the UK’s largest estate agency, and Skipton International, which carries out mortgage lending in the Channel Islands and the UK and accepts deposits in Guernsey. In total, the Group has consolidated total assets of over £37 billion, over 1.2 million members and a 10% share of the estate agency market.

Skipton has worked with Rightmove Data Services since 2008 using several services, including its Automated Valuation Model. So when it came time to look at climate risk intelligence, it was a natural progression.

That’s when Twinn, formerly under the Ambiental brand, came in. Twinn is the global leader in physical climate risk analytics for financial services – and a long-time Rightmove partner. Together, Rightmove and Twinn offer a solution that combines cutting-edge property and climate risk data.

And that’s how this years-long, three-way collaboration began.

Early goals: Complying with Bank of England regulations

“The catalyst for investing in climate risk data was the Bank of England’s push for the industry to incorporate climate risks into our risk management framework,” explained Skipton Group’s Senior Credit Risk Lead Aidan Walker.

“A climate solution to satisfy Bank of England requirements was a natural extension to the services we already offer Skipton. We’re in a unique position having access to virtually the entire UK property market, and predictive data is vitally important to help businesses with planning and compliance,” said Edward Burgess, Strategic Manager in Data Services at Rightmove.

Rob Carling, Twinn Channel Sales Manager, added: “Climate disclosures require lenders to stress-test their portfolios against physical risk perils, namely coastal, fluvial and pluvial flooding; subsidence; and coastal erosion. We provide property-level risk ratings for various Representative Concentration Pathways (RCPs) and emissions scenarios, so Skipton can quantify climate risk across its portfolio and easily comply with disclosure requirements.”

Updating processes: Setting new standards for climate risk mitigation

When it first analysed its back book using the Twinn climate data, Skipton was reassured to discover its portfolio had below-average flooding exposure and low coastal erosion exposure.

Using that as a starting point, the organisation has implemented several changes to the ways it approaches climate change. These include:

• Annual scenario analysis – to identify risk segments and assess qualitative and quantitative impacts on Skipton Group under different climate risk scenarios
• Applying quantification to key challenges – for example, considering credit losses and regulatory capital
• Enhanced reporting for senior committees – demonstrating mortgage exposures against the 3 physical risk perils and considering climate transition risks based on Energy Performance Certificates (EPCs)

When it comes to adapting lending controls, Skipton is taking a proportionate approach because there’s so much uncertainty: “Some of the highest-risk areas today may get better flood defences tomorrow. We don’t want to create trapped borrowers by making areas un-mortgageable,” Aidan added.

As a building society with member shareholders, Skipton’s ethos is a guiding factor. “We need to make proportionate decisions to ensure we’re sustainable and support members while balancing regulatory requirements and managing financial risk,” explained Aidan.

Delving deeper: Integrating climate risk intelligence into decision-making

Climate intelligence has since become important to Skipton’s risk management and ESG approach.

“One of the biggest challenges for us has been understanding how climate risk will impact mortgage valuations and mortgage performance for defaults,” said Aidan. “For example, even properties on the same street can have different flood risks. Drilling into this detail using the Twinn/Rightmove data has enabled us to integrate climate risk intelligence into our decision-making.”

He added: “The ability to model future scenarios has also been a game-changer – and something Skipton hadn’t previously had access to. In financial services, we tend to look at a 5-year window for corporate planning. Now, we can think about the impact of climate change in 2030, 2050 and 2080 – it’s a completely different mindset.”

Expanding the impact: Embedding knowledge of climate risk

“Since that first set of data, we’ve expanded our climate understanding in many directions,” said Aidan. “Skipton’s approach to climate risk management has shifted. It started at board and executive level, and now it’s filtering down into BAU decision-making. We’re now 4 years into this journey, and knowledge is spreading across the organisation.”

Based on its successes, Skipton has extended climate risk intelligence capabilities to Skipton International Limited. They invested in new LiDAR data captured by Bluesky International Limited and worked with Twinn to facilitate an aerial survey of the Channel Islands. As a result, Twinn has modelled the islands’ flood data with greater granularity, and Skipton is enthusiastic about the results: “It was a very worthwhile investment, the benefits of which we’ll see in the years to come,” commented Aidan.

Looking to the future: Responsible lending at the core

In the short term, Skipton plans to expand use cases for climate risk intelligence, including:

• Enhancing insight during the mortgage application process – Skipton wants to understand risks better and ensure the right properties are getting formal physical valuations based on local expertise from a qualified surveyor.
• Understanding the impact of physical risk events – being able to understand how physical risk events impact property valuations can shape how Skipton manage risks and support our members.

Over the medium term, Skipton remains determined to ensure it accounts for climate risks without creating trapped borrowers. This will help it make the right financial decisions without bringing forward physical risk impacts that affect house prices and affordability. Skipton aspire to offer more proactive support to homeowners affected by flooding, subsidence and erosion.

Skipton, Rightmove and Twinn all agree that data holds the key to understanding climate risk and mitigating its impact. From benchmarking exercises to sharing best practices, Skipton’s approach is based on collective upskilling as an industry to ensure everyone collaborates to support customers.