European banks test Green Mortgages in shift to climate-friendly lending

European banks test Green Mortgages in shift to climate-friendly lending

Thirty-nine European banks agreed to test a new type of green mortgage under which borrowers ensure their properties abide by a suite of energy efficiency standards.

The proposed standards are being set by the World Green Building Council (WorldGBC) and backed by companies including French bank BNP Paribas SA and German utility EON AG. They underscore how industry groups and investors are shifting toward climate-friendly lending.

The banks and financial institutions represent a combined lending power of over €3 trillion, equal to around 20% of the EU’s GDP.

“We’re opening up the green-bond market for residential,” said Terri Wills, chief executive officer of the council, said in an interview. Mortgages could be aggregated into green bonds, widening the market which currently focuses on commercial property, she said.

During the tests, banks will consider offering discounted green mortgages to customers willing to spend extra on upgrading properties or constructing new buildings that save power or natural gas costs. The discounts make sense because owners of green properties have lower credit risks because they’re spending less on energy and they face lower future spending on equipment. Also, energy-efficient properties hold their value for longer.

The report comes as European banks are moving to ensure that lending and investments are compatible with global climate-change commitments made under the Paris Agreement.

“Millions of homeowners are missing out on cost savings, higher property values and more comfortable homes because of a lack of easy-to-access, affordable finance to invest in energy-efficiency improvements,” said Michael Lewis, the CEO of EON’s U.K. unit.

 WGBC Report launched

During  World Green Building Week in September WorldGBC launched a new report setting out a vision for how mortgage lenders and borrowers can come together to help tackle climate change by improving millions of properties across Europe. The report calls on lenders, industry and government to grow a new mass market for energy efficient mortgages and make them available to every borrower on the continent.

The report, Creating an Energy Efficient Mortgage for Europe: Towards a New Market Standard, tackles how Europe should finance the building of an energy efficiency revolution needed to slash the 40% of Europe’s carbon emissions that come from its buildings – a staggering 97% of which are inefficient. Estimates show that Europe will miss its climate targets unless it renovates at least 23,000 homes every day until 2050.

The report proposes a new set of standards for property energy performance thresholds that create real reductions in financial and climate risks for mortgage lenders – qualifying borrowers for incentives such as lower mortgage interest rates. The standards have been designed by a coalition of ten national Green Building Councils and are being released as part of World Green Building Week. The report comes at a time when major European banks are increasingly seeking to ensure that their lending and investments, worth hundreds of billions of euros, are compatible with global climate change commitments made under the Paris Agreement.

The report outlines the powerful business case for energy efficient mortgages, explaining how applying the proposed standards reduces risks for both borrowers and lenders by lowering energy bills.  Therefore, borrowers have more financial freedom to meet mortgage repayments and protection against the future devaluation of inefficient buildings in an increasingly carbon-conscious society.

James Drinkwater, Director of WorldGBC’s Europe network said: “Europeans are well aware of the risks of not upgrading their old polluting cars, but we still lack accessible finance to help property owners upgrade their old polluting homes,” said . “Energy efficient mortgages offer a win-win for banks and borrowers here – lenders, industry and governments need to work together to ensure they reach millions of homeowners.”

Further information

WorldGBC announcement

September 25, 2018