By James Drinkwater, Regional Director, Europe Network – World Green Building Council
If you look deep into the dynamics of the property sector, there are
two groups of actors that have a greater influence than any others:
building occupants and institutional investors. The behaviour of these
two groups will, to a large degree, determine whether or not we meet our
sustainability goals in the building sector, which accounts for over a
third of Europe’s emissions.
In Europe, there is no more central instrument to both consumers and
institutional investors than the mortgage. Mortgages account for around
a third of the total assets of the European banking sector – equivalent
to half of the EU’s GDP (EUR 7 trillion at the end 2016). The potential
of this capital to drive deep energy efficiency improvements to
Europe’s building stock and lower its emissions is enormous, but it
remains almost entirely untapped.
Apart from a few niche ‘green mortgage’ products offered by a tiny
number of banks to reward consumers for purchasing or renovating greener
homes, building performance and mortgage loan conditions are not being
linked. However, in late October 2017 the Energy efficiency Mortgages
Action Plan (EeMAP) initiative published a ground-breaking new ‘White Paper’ aimed at changing all that.
Through its partners, the EeMAP project brings together the separate
worlds of institutional investors, consumer experts, property valuers
and green building experts, to establish a European ‘energy efficiency
mortgage’ product. The White Paper, published on 26 October, sets out a
series of key recommendations for the development of energy efficiency
mortgages across Europe, to create a market that helps fill a
significant part of Europe’s energy efficiency financing gap. Crucially,
given the cross-border nature of banking and capital markets, EeMAP is
looking to establish a pan-European approach to green mortgages.
At the centre of the EeMAP project is the belief that a building’s
energy efficiency has a risk mitigation effect for banks as a result of
its impact on running costs and a borrower’s ability to service their
loan, and on the value of the property. If this can be proven, energy
efficient mortgages could offer homebuyers across the EU better interest
rates or additional capital in return for purchasing more energy
efficient homes or committing to energy saving renovation work. This is
precisely what a 2018 EeMAP pilot phase aims to prove.
“EeMAP has the potential to change consumer behaviour and
encourage energy efficiency investment in buildings via mortgage
finance. In this way, the mortgage market could be a driver of the
improvement of the quality of the EU’s building stock, opening new
market opportunities, stimulating best practices and making banks’
portfolios more resilient; that is why we support the development of the
EeMAP initiative.”
Luciano Chiarelli, Head of Group Secured Funding at UniCredit,
Based on feedback from market-leading banks across Europe, the EeMAP White Paper sets out the following key recommendations:
1. A simple and standardised framework for an energy efficient
mortgage would help to pave the way for the market entry. Similarly, a
clear definition of an energy efficient mortgage would help banks to
make a differentiation between energy efficient and conventional
mortgages in their risk management processes. In this way they can build
datasets, to further demonstrate the risk reduction impacts of energy
efficiency.
2. Banks need clear guidance on how and what to instruct property
valuers in relation to the energy performance of buildings. This would
help to ensure that energy efficiency is appropriately taken account of
in property valuations.
3. Simple and proportionate energy efficiency measurement indicators
would help banks to integrate energy efficiency into credit risk
assessments.
The White Paper builds on four EeMAP reports, which represent the
most up-to-date body of knowledge on the research and principles that
should inform the growth of Europe’s green mortgage market. These
examine current market practices within the areas of green finance,
building performance indicators, property valuation and the impact of
energy efficiency on risk, and are a must read for those who are
interested in how we unlock private sector finance for energy
efficiency. This research is now informing the design of key principles
to underpin EeMAP’s pilot phase, due to launch in June 2018.
The White Paper has already been presented at a number of key climate
events, including Buildings Day at the recent COP23 climate change
negotiations, where focus on green finance is intensifying.
Significantly, there is growing enthusiasm from major investors and
energy utilities to support the EeMAP initiative.
On the launch of the White Paper, Agnès Gourc, Director of Sustainable Capital Markets at BNP Paribas said:
“Financing of energy efficiency projects opens tremendous
social and economic opportunities for households, lenders and
investors. In order to satisfy investor appetite for green bonds, we
need to develop the right mechanism to deliver energy efficient assets.
We need to focus on a simpe, robust and cost-efficient framework
embedding energy efficiency into the mortgage origination and funding
processes.”
Marco Marijewycz, representing EeMAP partner E.ON, Europe’s largest green utility, said:
“Improving our customers’ lives by helping them to reduce
their energy costs through smarter and more efficient energy solutions
is at the heart of E.ON’s business. Affordable finance is key to
unlocking the potential of these solutions at scale and we believe
energy efficient mortgages could offer customers a simple,
understandable solution.”
Importantly, the White Paper also issues a call to action to key
players whose input and support is vital to drive forward energy
efficient mortgages both at EU and at national level across the region.
Ahead of a market consultation in February and March of next year, it
calls on all interested organisations to participate in forming the
proposals for energy efficient mortgages which will underpin the EeMAP
pilot phase. Contact EeMAP@hypo.org if your organisation wishes to join forces with EeMAP and spark a market in green mortgages.