Financing a just transition to net-zero emissions in the UK housing sector

The UK’s 28 million homes are responsible for 12 per cent of the country’s annual carbon emissions, but progress to decarbonise these buildings and make them resilient to the physical shocks of climate change lags far behind what is needed.

Across government, business and finance as well as civil society, there is increasing agreement that a new approach is necessary, one that is fully consistent with the UK’s legally binding net-zero by 2050 target and that upgrades the housing stock at scale and speed. Banks will be critical to this effort. Housing finance is the largest segment of bank balance sheets and decarbonisation means that all housing finance – from banks and building societies – will need to be aligned with the net-zero target.

This policy brief looks at what a just transition in the UK’s housing sector means in practice and how banks can make it happen, underpinned by government policy and institutions.

Main messages

• All of the UK’s 28 million homes need to become net-zero and resilient to climate change impacts well before 2050. Action to green the UK’s building stock lags far behind what is needed to meet this target.
• A just transition in the housing sector has to be inclusive and place-based. This means focusing on customer needs, e.g. ability to pay, as well as the interests of workers in the supply chain, e.g. in skills and working conditions. This needs to be done in the context of specific local opportunities and vulnerabilities.
• Finance, especially bank finance, will be essential to make this happen. Banks can actively support the just transition as part of a strategic approach to climate action. This means introducing new housing-related lending and investment products and participating in collaborative initiatives, such as the Coalition for the Energy Efficiency of Buildings, to drive market transformation.
• Government policy and action is also needed to provide the long-term framework. This would combine post-COVID-19 stimulus with strategic measures such as creating a National Investment Bank and issuing sovereign bonds that deliver green and social outcomes in housing.

This brief is an output of the Banking on a Just Transition project and builds on the recommendations of a longer report published in July 2020, Financing climate action with positive social impact: How banks can support a just transition in the UK by Nick Robins, Sophia Tickell, Will Irwin and Andrew Sudmant.