Atom Bank has published the results from a trial in collaboration with Experian which reveals that both Atom and the wider banking industry are likely over-reporting the emissions linked to residential mortgage lending by as much as 50%.
The results call into question the reliability of EPCs to estimate carbon emissions from all banks’ mortgage lending, with meter readings in the study showing both lower emissions and minimal variations in emissions between properties of very different EPC ratings.
The trial compared estimates of CO2 emissions from 1,038 homes based on their EPC rating with measurements derived from actual meter readings from these same homes.
Atom worked with the Department of Mathematical Sciences at Durham University to create and analyse a representative sample of homes from its mortgage book so that the trial would give a fair view of the broad range of houses that its customers are living in.
Experian’s assessment of the actual meter readings compared to the EPC estimates revealed that Atom is over-estimating the CO2 emissions from its residential mortgages by up to 50%. Experian and Atom believe that this huge difference is likely to be the same for many other banks and businesses who rely on EPCs to measure CO2.
Significantly, the study also shows that actual carbon emissions from properties in EPC bands A-C, regarded as the most energy efficient, are not significantly lower than for properties in EPC bands D-G. Initially, Atom assumed this was due to personal choices by its mortgage customers.
However, experts at University College London’s (UCL) Energy Institute observed a similar pattern across a larger national dataset - finding little variation in primary energy use above EPC band C, even after accounting for factors such as family size and thermostat temperature. The UCL team has subsequently been working to identify causes of discrepancies as part of a government study into EPC accuracy, but this has not yet been published.
Accelerating the journey to net zero
Atom is calling on energy suppliers, Government and the financial services industry to collaborate on EPC reform and to improve the accuracy of housing-related carbon data. Crucially, if this data is correct then the Government and banks should step up funding available for the generation and use of low-carbon electricity whilst also making electricity prices more competitive compared to gas for heating.
1: Clarifying lenders’ roles in the route to net zero
As a first step, Atom, Experian and B4NZ are urging energy providers, other banks, central Government and the Bank of England to share their data, enabling the industry and Government to gain a clearer understanding of actual emissions and the true cost of the transition to net zero. This greater transparency could enable financial institutions to focus efforts on areas where emissions reductions will have the most impact, contributing more effectively to the UK’s net zero ambitions.
2: Spurring EPC reform
Atom is also calling on the Government to accelerate proposed EPC reforms, including shifting from estimated to actual energy performance data, such as from utility bills or smart meters. Accurate EPCs and more rigorous assessments of build quality are essential to ensure homes meet their energy performance claims, and are key in decision-making by home owners, social housing providers and the finance industry.
Using real energy data will enable low-income households and policy makers to identify the actual costs of running a home, creating a better basis for improving housing energy efficiency, and to more effectively target and address issues such as fuel poverty.
3. Shifting to zero carbon sources of electricity
With a growing proportion of mortgages going to first-time buyers and new builds, there is a clear opportunity to align lending with the UK’s net zero ambitions. It is critical that banks reflect on their strategies to ensure they finance genuine low-carbon initiatives and schemes that can reverse the man-made effects of global warming.
Integrating meter data rather than theoretical models of carbon into their mortgages and other loan products has the potential to unlock a much more targeted approach to green lending that will help accelerate progress to a net zero future. But this will only have wide adoption when low carbon electricity is a genuinely competitive alternative to gas for heating. Government should continue to accelerate the transition to zero carbon electricity and to reducing costs to consumers.
Edward Twiddy, Atom’s director of ESG, commented: “The UK has made real progress in addressing the challenge of decarbonising its economy but continuing that momentum will require better data and more targeted action. This study reveals that EPC ratings do not reliably reflect actual household emissions, with inaccurate data being a clear hindrance to reaching net zero. If most households are using similar amounts of energy, the focus should be on where that energy comes from and then how to make that clean energy as affordable as possible.
“The findings of this trial have important implications for green lending, banks’ carbon reporting, and the future use of EPCs in measuring and reducing residential emissions, which has implications for social issues like fuel poverty. Atom is collaborating with organisations such as B4NZ to engage with other banks and policymakers on the reforms needed to drive meaningful change. As the lenders of billions of pounds to households and businesses, banks like Atom have an enormous role to play in meeting the UK’s net zero commitments."
Scott Harrison, director of strategy and innovation at Experian, added: "Collaborating with Atom on this study has reinforced what we at Experian have long understood — EPCs are not a sufficiently accurate way of measuring household carbon emissions.
“This trial highlights the urgent need to shift from theoretical estimates to real-world data. By leveraging actual primary energy consumption through solutions like Experian Meter Insights, lenders can move beyond unreliable proxies and take meaningful steps toward emissions transparency, credible reporting, and real climate impact."
Hannah Cool, COO, B4NZ, said: “Atom bank’s decision to publish these findings sets a powerful precedent for the financial sector. Transparency is essential if we are to accelerate the transition to net zero in a cost-effective and fair way. By acknowledging the limitations of EPC-based reporting and embracing more accurate, verifiable data, Atom is demonstrating real leadership. This also opens up the opportunity to move towards consented data sharing in a frictionless way, empowering consumers while enabling lenders to make smarter, greener decisions.
“We encourage other banks to join this initiative. Only through collaboration and open data can we reform outdated methodologies and ensure that sustainable finance is built on evidence, not assumptions.”
