Terrafirma warns just one month to go until Bank of England launches climate stress testing
Ground risk specialist, Terrafirma, warns that there is just one month to go until the Bank of England launches regulatory climate stress testing. This will initially affect all the largest banks, building societies and insurers who will have until September to provide initial feed back to the Bank of England. It is then expected to be rolled out to smaller lenders over the next two years.
Terrafirma has updated its pioneering, ground-instability climate risk model NGRM: ClimateTM to help banks and building societies assess the risk to their mortgage book. It will also help them to meet their regulatory responsibilities and feed back to the Bank of England.
The UK’s biggest banks and insurers will take part in the Climate Biennial Exploratory Scenarios (CBES) this year, which is likely to influence the shape of regulation for the wider market. Even without the Bank of England’s initiative, it is sensible that UK mortgage lenders of all sizes begin to familiarise themselves with information on their mortgage portfolio’s exposure to the physical risks from climate change.
Current climate models for the UK, project more extreme weather, with acute events posing greater risk to residential mortgage portfolios. The Bank of England’s Climate Financial Risk Forum (CFRF) provides authoritative guidance for mortgage lenders when it comes to assessing the climate change-related risks associated with residential property, but every lender needs a way to do this. The guide, published in June 2020, refers to a range of relevant data sources for firms to consider including physical risks like flooding, ground stability, natural ground hazards, coastal erosion and transition risks like Energy Performance Certificates.
Terrafirma has therefore updated NGRM: Climate to provide a lender with all the ground data and information recommended by the Bank of England’s CFRF guide. Using NGRM: Climate, banks, building societies and specialist lenders of any size will now be able to access property-level climate data on soil subsidence, coastal erosion, cliff collapse and landslides. Data on mining and other sinkhole-forming natural processes are also included to offer lenders a more complete understanding of the full range of ground instability risks to property.
Dr Tim Farewell joined Terrafirma in January 2020 to oversee the development of NGRM: Climate following almost two decades researching and modelling soil movement and other ground hazards for the insurance and water industries. He explains:
“It is vital that hazards associated with ground movement aren’t considered in isolation, which is why NGRM: Climate offers lenders four key modules covering the potential risk of subsidence and coastal erosion, cliff collapse and landslides, as well as mining and natural voids which can result in sinkholes. Terrafirma is the only company offering a dataset that enables mortgage lenders to begin to understand the risks in their portfolio from all ground hazards.
“A distinctive element of NGRM: Climate’s unique market offering includes direct access to Terrafirma’s ground risk experts to talk through the data and what it means for each individual lender. It is so precise that it can even pinpoint the risk to individual properties. This will support the integration of the new ground risk data within climate stress testing, risk management and underwriting. Importantly, direct access to Terrafirma’s science team will help residential mortgage lenders understand more about the impacts, so they can make safer and sustainable lending decisions.”
Terrafirma’s geologists, scientists and engineers are established leaders in the risk to property from ground hazards. Terrafirma has won several lending industry awards for its mining and natural ground stability reports. As a result, it is uniquely placed to support mortgage lenders as they seek to identify and manage ground risk in their lending portfolios.
Launched at the end of last year, the NGRM: ClimateTM is already in use by leading banks, a leading building society and an insurer.
Published: 19 May 2021