Markets - 19/October/2018

Banks lead green mortgage charge

Creating a financial market for energy efficiency in buildings through green mortgages could be the best way to ramp up building renovations and create a virtuous circle that benefits people, planet and profit

Limiting global warming to 1.5C and having the best shot at keeping the devastating effects of climate change to a minimum will require “rapid and far-reaching transitions” in buildings. This was underlined in the latest report from the Intergovernmental Panel on Climate Change, a group of leading scientists advising governments. For this transition to happen with the necessary speed, regulators need to stimulate the creation of a market for financial products that boost progress on energy renovation

Rapid far-reaching transitions in buildings tends to mean making them net zero carbon. The World Green Building Council (WorldGBC), a global non-profit organisation, defines such buildings as highly energy efficient with all remaining energy supplied from on-site and/or off-site renewable sources.This is far from being the norm. Worldwide almost 40% of energy related greenhouse emissions come from buildings. Energy efficiency measures could contribute to a 48% reduction in global emissions by 2030, with 43% of those coming from buildings, estimates the International Energy Agency. In Europe, 97% of buildings are deemed inefficient and estimates show the region will miss its international climate targets unless it triples its renovation rate from 1% to 3% annually and renovates at least 23 000 homes every day until 2050.

For the WorldGBC’s Stephen Richardson, a good way of achieving that target is by creating a financial market for energy efficiency in buildings through green mortgages. Such a market would not only be beneficial for the climate, but help homeowners improve the health and comfort of their homes and protect banks and the wider economy from the risks associated with having inefficient buildings on their balance sheets. Buildings underpin one-third of the banking sector’s assets in the EU and pose risks in various guises. Owners of an energy inefficient building are more like to default on their mortgage than owners of more efficient buildings. As rising fuel costs push up bills, this may reduce the ability of owners to keep up with their mortgage payments, leading to losses for the owner and the lender. ...

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