Green mortgages help EU meet climate targets – EURACTIV.com
The EU has used portfolio standards to reduce emissions from vehicle fleets, and climate policy advisers are now advocating similar strategies for reducing emissions in buildings, via ‘green’ mortgages to fund major renovations .
On October 14, the Madrid consultancy firm Climate Strategy published a 60-page report on green mortgage portfolio standards, which, if implemented by the European Commission, would inspire homeowners and banks to work together to improve average home energy efficiency.
The proposed portfolio standards go hand in hand with the wave of Commission renovation that started just over a year ago.
There are 220 million homes in Europe, two-thirds of which were built before any form of energy standard existed. Buildings account for over a third of the EU’s carbon emissions, and making them more efficient is a key part of the EU’s plans to achieve net zero emissions by 2050.
The Commission plans to renovate 35 million buildings for energy purposes by 2030, reaching an annual rate of 3%. Currently, it stands at just over 1%.
Climate Strategy CEO Peter Sweatman said new regulations are needed to make the deep renovations required to meet EU climate goals.
“It’s more than just changing the boiler. It’s really about getting into the details of your home and making it very efficient, very comfortable and pleasant to live in, ”Sweatman said.
A major renovation can cost as much as buying a new car, but it’s not that simple. While the automotive market is generally centralized, owners have to work with different entities in order to organize and finance their renovation projects. A major renovation also involves moving your home for an extended period, which comes at a high cost.
That’s where mortgage portfolio standards come in – banks and mortgage companies would provide homeowners with complete home improvement packages.
Sweatman told EURACTIV that people with more energy efficient homes are better protected against peaks in the energy market, which is increasingly important in the current energy crisis.
“It’s the idea of borrowing to lower your future homeownership costs,” he said.
What is there for the banks?
Financiers are under increasing pressure to align their lending practices with the Paris Climate Agreement. The report explains that only 8% of the balance sheets of major banks, which include mortgages, are currently aligned with EU taxonomy on sustainable finance.
“Numerous [banks] are committed to decarbonizing their operations, ”Sweatman said. “What better way to decarbonize your mortgage portfolio than to take all of your customers’ low-energy homes and turn them into much better-performing homes? “
For that to happen, Sweatman said mortgage lenders need to “proactively ask the question” by compiling energy efficiency data, collecting energy performance certificates for clients and contacting homeowners about renovation plans.
It sounds like a lot of work, but Sweatman said it would pay off for homeowners and banks.
“It’s an opportunity for homeowners with mortgages to be able to take money out of the bank and put it in a more efficient house, to become a better creditor and to have a lower bill. “
Simply put, more energy efficient means cheaper mortgages mean better credit for customers.
The mortgage portfolio standards also highlight for banks those who are most at risk of debt, or who may need a renovation in order to pay their energy bills.
And those who live in energy-guzzling homes will experience the biggest gains, Sweatman said. European Union outbreaks are recognized by energy labels, on a scale of A to G. When preparing for large-scale renovations, banks will first target homes with the most room for improvement.
Those who cannot afford mortgages would also benefit from the new standards, he said.
Standards can’t magically “make people bankable who can’t access a mortgage,” Sweatman said. But that’s where national governments come in: EU member states currently offer grants and subsidies to help citizens renovate their homes. And by mortgage portfolio standards, people who can afford loans will receive them, and those who cannot will be subsidized by their governments.
“It’s really important for us to give grants to people who just can’t afford to heat their homes – people at risk and vulnerable,” he said.
“Already enough straw in the wind”
Many banks are already adhering to the new standards or implementing their own versions.
Dutch bank ABN Amro finances more than 10% of buildings in the Netherlands. By 2030, the bank plans to help bring all buildings in its € 185 billion mortgage portfolio to an average “A” rating by 2030. All real estate owned by ABN is expected to be rated “A” from here two years.
The owners will receive discount mortgages whether they are purchasing homes with a registered energy label of “B” or higher, or renovating their existing homes to that level.
ING, another Dutch bank, has joined the Net-Zero Banking Alliance in August. Thanks to his Terra Approach, ING aims to bring each of its nine energy sectors, including residential real estate, towards new low-carbon technologies and away from current methods.
UK Central Bank, Bank of England, on track to reduce ‘absolute greenhouse gas emissions’ by 63% between 2016 and 2030. And Sweatman said all UK banks are expected to achieve an average loan portfolio rating of “C” by then.
“There is already enough chaff in the wind for people to see that this is the approach that is coming,” Sweatman said. “If you look at the science goals initiative, where financial institutions offer roadmaps for the future, the kind of tools they offer would be described as mortgage portfolio standards.
[Edited by Frédéric Simon]