As described in Principle 4, we tiered our borrowers by the quality of their decarbonisation commitments to give us an understanding of how aligned they are to our net-zero goals. As many of our borrowers are outside mandatory climate disclosure requirements we used this exercise as an opportunity to engage with our borrowers to understand their level of commitment to a low-carbon economy, verify our database to enable us to improve our own emissions baseline, and understand borrower readiness for, and encourage dialogue around, forthcoming tightening of energy efficiency regulations.
We contacted borrowers by email with standardised written correspondence and then followed up either by email or phone calls. This was useful to explain our objectives, which then elicited more co-operation. We began with those borrowers that represented the largest proportion of our portfolio.
As expected in a well-diversified loan book, we found a spectrum of responses ranging from borrowers that had comprehensive EPC records, a high level of regulatory readiness, sophisticated understanding of the emissions from portfolios and emissions reduction commitments and policies (assessed as leaders) to more limited levels of regulatory readiness and record-keeping (assessed as laggards).
This exercise was a useful opportunity to engage with borrowers and identify those taking a proactive approach and those that need more encouragement. This informs both where we focus our active management activity and our engagement activity within our loan book.
It has helped us put a spotlight on EPC ratings, both in terms of the current regulatory requirements and the expected future regulatory landscape with our borrowers. We have developed our database, improved our understanding of emissions from our loan book and the assets driving those, and communicated our expectations to borrowers that they should keep us apprised of any changes as a result of works at secured properties.
We improved our EPC coverage to 80%, set an EPC target for our portfolio and plan to engage all borrowers assessed as laggards during 2023 as well as those borrowers that generate a material proportion of our emissions.