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Page 1: Executive Summary - Energy Efficient Mortgages€¦ · Executive Summary This report is ... Energy efficient mortgages can act as a tool to drive innovation in lending institutions
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Executive Summary

This report is intended as high level guidance to understand how the Energy Efficiency Mortgage (EEM)

market might develop and what the role of different market participants could be. It comprises a set

of sector specific recommendations and calls for action for individual organisations operating in this

market.

What is unique to EEMs is that they involve a wide range of participating actors: financial institutions,

regulators, public authorities, energy assessors, utility companies, contractors and valuers. Therefore,

the successful growth of the market will depend not only on lenders and financial institutions but on

a range of other actors not previously engaged in the delivery of traditional mortgages.

At present, partly due to the fragmented and heterogenous nature of the EEM value chain and partly

due to the immaturity of the EEM market, the relative costs of EEM origination, due diligence,

underwriting, documentations and other “transaction costs” are making the entry into this business

unattractive for many lending institutions.

The following recommendations have been developed in close consultation with market actors, in

particular, the EEMI pilot banks. These are intended as potential solutions to grow the market and

overcome current barriers identified and discussed in the previous EEMI reports.

Source Activity: WP6/CO Editor: Z. Toth (EMF-ECBC), L. Bertalot (EMF-ECBC), J. Johnson (EMF-ECBC), D. Leboullenger (EMF-ECBC), Stephen Richardson (WorldGBC Europe) Author: Z. Toth (EMF-ECBC), L. Bertalot (EMF-ECBC), J. Johnson (EMF-ECBC), D. Leboullenger (EMF-ECBC), Stephen Richardson (WorldGBC Europe), Marco Marijewycz (E-ON) Status: Final Date: 07.05.2019 Contractual Delivery Date: M22

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Table of Contents

1. Introduction: unpacking the business case for lenders – why embark on an energy efficiency mortgages journey? ................................................................................................... 4

1.1 Rationale ..................................................................................................................... 4

1.2 The risks of inaction .................................................................................................... 4

1.3 The rewards ................................................................................................................. 5

1.4 The customer perspective ........................................................................................... 5

2. The EEMI product framework ............................................................................................ 8

2.1 The EEM Definition ...................................................................................................... 8

2.2 The valuation checklist ................................................................................................ 9

3. Practical Implementation of EEMI framework ................................................................ 11

3.1 Pilot Scheme & Market hubs ..................................................................................... 11

3.2 Market barriers and enablers – feedback from pilot banks ..................................... 12

3.2.1 Barriers ............................................................................................................... 12

3.2.2 Recommendations ............................................................................................. 13

3.3 Common data reporting template in the support of transparency .......................... 14

3.4 EEM Label .................................................................................................................. 16

4. Sector specific recommendations to develop the EEM market ...................................... 17

4.1 Lending institutions ................................................................................................... 17

4.2 Governments/public authorities ............................................................................... 18

4.2.1 Institutional support and “regulatory sandbox” ................................................ 18

4.2.2 Energy efficiency data capture and effective enforcement of energy efficiency legislation ......................................................................................................................... 18

4.2.3 Financial Institutions “Regulatory Issues” ......................................................... 19

4.3 Built Environment Community .................................................................................. 20

5. Summary of market development recommendations .................................................... 21

6. Further reading ................................................................................................................ 22

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1. Introduction: unpacking the business case for lenders – why embark on an energy efficiency mortgages journey?

Energy efficiency and wider sustainability considerations are becoming increasingly relevant in today’s

real estate markets that are shaped by demographic and market changes, resource scarcity, and

progressive environmental legislation. The exposure of each bank to these developments is directly

related to the composition of their portfolio. Crucial factors are the sensitivity to new policies and

regulation, as well as potentially stranded assets.

On the other hand, the resilience of portfolios is immediately related to responding to the energy

efficiency needs of the building stock and thus positive impacts of the financed projects. Identifying

opportunities for financial products and services with environmental and social benefits moves the

needle on from viewing energy efficiency mortgages (EEMs) simply as a risk mitigation strategy to

approaching EEMs as a business opportunity.

1.1 Rationale

The way mortgage lenders grant real estate loans is of crucial importance, both financially and socially.

There are material asset value improvements and long-term risk reductions that can be achieved by

the integration of energy efficiency considerations into lending practices. The value proposition of

EEMs has been proven through numerous research publications, practical case studies and existing

market products. Energy efficient buildings are more comfortable for occupants and cheaper to run

in terms of utility bills, leading to higher occupier satisfaction. Linking these benefits to property values

and financial risk, making dwellings more energy efficient could result in lower risk of mortgage

default, increased risk mitigation capacity and could help to futureproof portfolios against value

decline.

As an extension of the business case from a lending perspective, EEMs also potentially constitute a

new asset class which could be used for the purposes of energy efficient (covered) bond issuance,

responding to the ever-increasing demand for green investments and, as such, providing access to a

more diversified investor base and potentially lower funding costs for issuers over time.

1.2 The risks of inaction

Social and environmental risks may only become evident over a longer term, yet there are clear

examples of how lending institutions can be affected by quickly changing regulatory and market

environments:

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• Loss of business opportunities and financing options through a failure to adapt to changing

market realities

• Linked to the previous point, in the current context FinTech has the potential to impact the

funding landscape of lending institutions, for example making deposits more volatile and

increasing the strategic importance of capital markets funding through covered bonds,

securitisation and green bonds in asset liability management techniques

• Higher overall risk exposure through a failure to understand the materiality of environmental

and social risks

• Potential pressure or disengagement of investors prioritising sustainable investment choices

• Lack of preparedness for regulatory and policy changes

• Risks to reputation, credibility and image of the bank through a failure to respond to

stakeholder expectations

1.3 The rewards

Energy efficient mortgages can act as a tool to drive innovation in lending institutions and attract

investors. Over the longer term, this will also result in financial benefits that accrue from increased

competitive advantage and regulatory future-proofing:

• New business opportunities and diversified financing options often allowing for a competitive

advantage

• Stronger, more resilient bank through improved understanding and management of

sustainability issues, including environmental and social liabilities

• Increasing demand from ESG responsible investors

• Managing regulatory risks, lower capital requirement and better risk profile via increased loss

mitigation capacity, lower probability of default and reduced loan-to-value ratios

• Customer retention and enhanced borrower relationship

• Improved reputation and credibility

1.4 The customer perspective

Reducing risk exposure is a priority not only for lenders but also for borrowers. The mutual benefits

for mortgage lenders and mortgage holders of taking joint action to reduce these risks make energy

efficient mortgages a powerful tool to improve the standard of Europe’s building stock. At the heart

of energy efficient mortgages are energy efficient buildings, and thus, the people that own and occupy

them. The success of the energy efficient mortgage market therefore depends to a large degree not

only on meeting lender’ needs but also, crucially, meeting the needs of borrowers.

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Figure 1: Factors driving the appeal of energy efficient mortgages for residential borrowers. Adapted from:

forthcoming EeMAP/GBC Guidance Note: Creating an energy efficient mortgage for Europe

The consumer research undertaken through this project has generated key insights which can form

the basis of EEM product development by lenders and potential energy service partners across

Europe. The main highlights and contribution of this work which should be reflected on by lenders

embarking on development and piloting of this new value proposition are as follows:

• The drivers of appeal of the concept are now well understood and fall into 5 benefit themes,

‘finance’, ‘energy’, ‘property’, ‘home improvement’ and being ‘green’. These themes can be

shaped into full propositions for inclusion in the pilot phase of the project.

• The primary and secondary barriers to appeal are also now understood. These need to be

carefully managed through intelligent product design.

• There are clearly two acceptable routes to energy efficiency improvement installation,

discussed in this report as a fully managed project option and a do it yourself project option.

Both have equal appeal to respondents and even with the added requirement for the

customer to take out a performance guarantee under option B there are still likely to be good

levels of appeal.

• Some of the ancillary features tested alongside the green mortgage have a limited appeal in

their own right and from this research would not strongly influence a decision to take one out.

The home energy passport and tiered mortgage are two good examples of this. The cost and

complexity of providing them may not be justified.

• On the other hand, some of the additional features and government incentives tested have a

strong appeal, for instance property transaction tax rebates, fee free mortgage application

and a zero loan interest rate. These features would add to customers’ interest in taking an

EEM.

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• There is good evidence that a partnership involving banks and energy companies working

together to deliver the EEM, would provide customer reassurance.

These results are important because they can inform the formulation of targeted EEM value

propositions delivered to different market segments and adapted for different EU mortgage markets.

Importantly, they also point to the fact that the successful growth of the market will depend not only

on lenders and financial institutions but on a range of other actors not previously engaged in the

delivery of traditional mortgages.

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2. The EEMI product framework

Key barriers to growing the market for energy efficiency mortgages have typically included the lack of

consumer demand, as well as the absence of a common market benchmark for all relevant

stakeholders. The EEMI grew from the recognition of the need for a common framework for evaluating

energy efficiency investments and assessing the associated risks that will allow exchange of best

practices and capacity building around standardised processes and understanding.

The EEMI product framework is built around a common definition complemented by the valuation

checklist. The framework adopts a principle-based approach so that lending institutions may apply

them in a way that is appropriate to their internal practices, national market realities and legal

landscape. The framework and underlying guidelines are intended to be valid for new and existing

residential (single family and multi-family) and, potentially, commercial properties.

2.1 The EEM Definition

Transparency of the underlying asset is vital from a risk management and therefore macro prudential

and financial stability perspective. Robust, consistent and widely-supported guidelines about what

should be considered as qualifying characteristics of an energy efficient property will provide certainty

for investors facilitating their due diligence processes as well as for lenders in financing the purchase

or renovation of properties.

The success of the EEMI initiative thus depends on an accepted definition of an energy efficient

mortgage. This has been established as a result of extensive cross-sectoral, market consultation of and

subsequent consensus between the lending institutions piloting the energy efficient mortgage

framework and of the EEM Advisory Council. The definition provides clear eligibility criteria for assets

and projects that can be used for issuing new green loans or to tag existing assets in banks’ portfolios.

It will also provide a market benchmark to integrate energy efficient mortgages into the business lines

of lending institutions.

Definition of the Energy Efficient Mortgage

EEMs are intended to finance the purchase/construction and/or renovation of both residential (single

family & multi-family) and commercial buildings where there is evidence of: (1) energy performance

which meets or exceeds relevant market best practice standards in line with current EU legislative

requirements and/or (2) an improvement in energy performance of at least 30%.

This evidence should be provided by way of a recent EPC rating or score, complemented by an

estimation of the value of the property according to the standards required under existing EU

legislation. It should specifically detail the existing energy efficiency measures in line with the EEM

Valuation & Energy Efficiency Checklist.

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The EEM definition is intended to provide principles-based guidance that will be regularly revised and

updated to reflect future policy and market changes. An EEM Label Committee will ensure over-

arching coordination at EU level and will align with the EU Taxonomy on Sustainable Finance as soon

as it becomes mature and operational.

Further information about the definition and framework is available here.

2.2 The valuation checklist

The EEM definition explicitly mentions the value aspect of the energy efficiency measures of the

property for which an Energy Efficient Mortgage is being sought. The EEMI valuation checklist is the

result of an in-depth consultation with valuers and lending institutions from across Europe and is

designed to complement existing instructions given to valuers. Currently there is no standard

reporting template for valuers which asks they for their assessment of the relationship between value

and the energy efficiency aspects of the property although much of this information may already be

collected and used implicitly to inform the valuer’s opinion of market value.

The checklist provides a list of property characteristics which may affect the energy demands of the

building. Many of the indicators on the list will look familiar to valuers and banks as they are already

part of existing valuation instructions – the difference is that they will be assessed specifically from an

energy efficiency perspective. Therefore, if the instruction allows, valuers are advised to consider and

make specific reference to those indicators and observed subsequent energy efficiency characteristics

and implications which potentially could impact the value of the property and, indeed, consider this

relationship in their final estimate of the subject property’s market and mortgage lending value.

The widespread market uptake of the valuation checklist will depend on valuers’ ability and willingness

to make a professional judgement on the potential value impact of energy efficiency characteristics

of a property. Currently, not all valuers may have the necessary knowledge to assess technologies that

impact on energy efficiency and performance in order to appropriately complete and rate all

indicators. Thus, additional reporting guidelines support the practical application of the checklist by

providing explanatory notes on each of the checklist’s core indicators as well as the items under the

commentary section and the overall assessment summary. In addition to the explanatory guiding

notes, a tailor-made set of energy efficient mortgage valuation training resource has also been

developed.

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Indicators with potential impact on energy demand

Description (if not already included in valuation report)

Red (does not meet market norm/average)

Amber (in line with market norm/average)

Green (beyond market norm/average)

Comments

CORE INDICATORS

A1 Availability of EPC / EPC rating

A2 Calculated &/or measured energy in kWh/m2/pa

A3 Availability of Building

documentation

beyond EPC (guarantees etc; evidence of regulatory compliance)

A4 Building age, type and overall condition

A5 Level of insulation and air tightness (walls, roof, floor, windows, doors)

A6 Age, type and condition of heating system

A7 Age, type and condition of cooling / ventilation system (if any)

COMMENTARY REGARDING ADDITIONAL ENERGY PERFORMANCE-RELATED RISK CONSIDERATIONS

B1 Evidence of, or potential for, renewables on site (electricity and/or heat

B2 Primary energy source

B3 Orientation, exposure, evidence of external solar control

B4 Lighting system

B5 Smart controls

ASSESSMENT SUMMARY

C1 Requirements for upgrade

C2 Ease of upgrade

C3 Market expectations

C4 Risk of value decline based on energy assessments

Figure 2: EEMI Valuation Checklist

EEMI valuation checklist

Red: Below market ‘norm – value

actually/potentially at risk over

period of proposed loan

Amber: At or towards the lower end of

market expectations – may be at

risk in medium-term

Green: Above market expectations

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3. Practical Implementation of EEMI framework

3.1 Pilot Scheme & Market hubs

A number of ingredients are key to ensure the success of the EEMI and secure large-scale market

uptake. First, the energy efficiency mortgage framework relies on confidence and a carefully aligned

incentive chain among all the participating actors: lending institutions, investors, regulators, energy

assessors, utility companies, contractors, valuers and borrowers. This mutual confidence is

underpinned by market transparency and reliable performance data. Green financing is a quickly

growing market, however market actors still struggle with the current lack of standardised definitions,

adequate data and robust measurement indicators. Finally, consumer demand for energy efficiency

mortgages is crucial and this can only be ensured by increasing awareness of the benefits of energy

efficiency and confidence through independent advice to make the right choices.

The EEMI is the result of more than three years of extensive and wide-ranging engagement and

consultation of all participating actors. Currently, 45 lending institutions, which represented 55% of

mortgages outstanding in the European Union equal to 25% of EU GDP at the end of 2018, have signed

up to the Energy Efficient Mortgages pilot scheme, in the context of which they have been tasked

with analysing the feasibility of implementing the Energy Efficient Mortgage Product Framework into

existing product lines and processes. The Pilot Scheme is a unique opportunity to work with lenders

and relevant stakeholders to understand how the market can grow and what barriers need to be

overcome.

In this respect, national market hubs have been set up under the EEMI with the purpose of overcoming

market barriers at country level and identifying the right solutions for that jurisdiction to enable the

development of an EEM market (see below section 4.2 on market barriers and enablers). The

objectives of the market hubs are to:

• Address and overcome market fragmentation and barriers to the deployment of EEMs

• Promote and facilitate dialogue and cooperation between relevant stakeholders from the

financing and banking communities, property and construction sectors, as well as

policymakers

• Raise awareness among consumers/borrowers and lending institutions about added value of

EEMs and investment in energy performance

• Sensitise banks and representatives of the property/construction sectors about their role,

responsibilities and possibilities in contributing to scaling up finance for energy-efficient and

sustainable buildings

• Help in building the business case by presenting country- and city- specific initiatives

• Advise banks, valuers, energy assessors and other stakeholders in developing guidelines and

training

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• Drive alignment and comparability to address data gaps, valuation instructions and

improvements to building codes/standards, and evaluations of performance

• Facilitate the verification of compliance with thresholds and guidelines set out in definition.

A terms of reference, outlining the key roles of a national market hub can be found in Annex 2 of the

Technical report on the complete design of the energy efficient mortgage and was prepared as part of

the EEMI as a resource to help national stakeholders to convene these groups.

3.2 Market barriers and enablers – feedback from pilot banks

As mentioned above, lending institutions involved in the Pilot Scheme are currently testing the

implementation of the EEMI framework and analysing the viability of new and existing energy efficient

mortgage product. The pilot phase kicked off with a mapping of the main barriers that need to be

overcome to grow the market. Lending institutions grouped in 7 task forces also explored market-

based solutions which could help overcome these barriers. Many of the issues and concerns reflected

in this analysis have also been taken into consideration in the design and drafting of the market

development roadmap below.

3.2.1 Barriers

Customer Experience & Bank Processes

• Lack of awareness among consumers/borrowers and lending institutions about energy

efficiency and the potential value and risk implication of energy performance

• Potential complexity of journey and additional process costs

• Lack of coordination of and between all relevant partners

Asset Eligibility / Impact Reporting

• Lack of harmonised framework for impact reporting

• Fragmentation of energy performance criteria and targets

• Current lack of robust quantitative evidence linking energy efficiency to value and risk

• Regulatory inconsistencies

Data & IT

• Lack of publicly available and accessible EPC data in a digital format

• Lack of quality and representative data (limited data history)

• Lack of data tagging, harmonisation (definitions & methodologies) and comparability

between financial, valuation & building performance data

• Dynamic data monitoring and analysis of non-bank data (energy savings and real-time

energy consumption)

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• IT system updates and implementation costs

3.2.2 Recommendations

Reinforcing the business case

• Highlighting of the cost-effectiveness of energy efficiency investments (via partnerships,

the use of energy efficiency calculators and comparison websites)

Product processes

• Integration of energy efficiency criteria in valuation instructions and reports by use of

the valuation checklist

• Capacity building and provision of training packages tailored to EEM stakeholders (e.g. to

bankers, valuers, energy advisors)

• integration of relevant policy actions and regulations (subsidies and market regulations

on energy efficiency) in the process

Partnerships

• Building of partnerships with energy companies and other energy services providers

(e.g. ESCOs) to monitor energy savings and provide renovation work guarantees

• Accreditation of contractors e.g. installers and SMEs, and use of nationally-recognised

quality labels for work undertaken by these contractors

• Engagement and involvement of local/national authorities

Asset Eligibility/Impact Reporting

• Development of harmonised framework for impact reporting

• Highlighting of positive regulatory impacts of EEMs from a macro-prudential

perspective, including from an overall financial stability perspective

• Highlighting of positive impacts in terms of climate goals, energy security and growth

and innovation

• Grandfathering of existing green loans to support accumulation of data history

Data & IT

• Improve the accessibility of EPC data, e.g. through online database

• Mapping of current EPCs to determine which certification level meets EEMI standard

• Establishment of a unique key identifier for all assets to tag and collect relevant

information

• Creation of a harmonised data portal with easy real-time access, clear structure and

definition of each data point and unique key identifier (EeDaPP)

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3.3 Common data reporting template in the support of transparency

The EEMI is at turning point as it moves on to the practical implementation phase and the translation

of the high-level principles and mission statements into the operational aspects of day-to-day

business. At present, a consultation is being conducted under the EEMI on a common data reporting

and transparency template which will be the backbone of the soon to be released technical platform

to collect and provide access to large-scale empirical evidence relating to EEM assets. This will allow a

comprehensive analysis of de-risking potential of energy efficiency features of buildings. In the mid-

to longer term, this common market transparency template is intended to develop into an Energy

Efficiency Mortgage Label.

Benchmarking energy efficient mortgages in terms of market performance will only be possible if data

is captured and analysed in a consistent way. With benchmarking in mind, the consistent organisation

of data should also facilitate linking building performance to value and financial risk. In other words,

what is practically needed is a common data template that will allow a systematic organisation of data

flows across the whole EEMI value chain, with the capacity to link loan information, property and

energy efficiency characteristics in one single space rather than having this scattered across different

bank departments and information service providers.

Ideally, the way in which the new additional energy performance data is reflected will complement

existing mandatory reporting requirements for lending institutions in Europe. The white paper on a

common data template for the gathering, processing and disclosing of data related to energy efficient

mortgages1 proposes a list of data points (‘meta-template’) based on existing regulatory reporting

templates including: European Central Bank Residential Mortgage-Backed Securities (ECB RMBS),

European Securities and Markets Authority Simple Transparent and Standardised templates (ESMA

STS) and European Banking Authority Non-Performing Loan (EBA NPL). The aim is to build on already

existing practices and commonly used data fields. These templates already cover loan level (loan and

borrower characteristics and underlying collateral) information, while the additional new data fields

unique to EEMs are only a handful of energy efficiency related indicators.

1 EeDAPP, 2019

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Figure 3: EEM Reporting Data Tree. Source: EeDAPP White Paper

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Figure 4: Key to the EEM Reporting Data Tree. Source: EeDAPP White Paper

3.4 EEM Label The Energy Efficient Mortgage Label will develop from the above common market transparency template. The primary objective of the Label will be to reassure markets and regulators that mortgages comply with the EEM definition and guidelines as well as demonstrate a responsible commitment to transparency and common reporting on quantitative and qualitative performance indicators. A Label Committee will ensure oversight and ongoing alignment of the EEM definition with high quality standards and market best practice at EU and national level. It will also be responsible for improving regulatory and market recognition of EEM as a new asset class. The origination of energy efficiency mortgages may include additional challenges for defining, assessing, monitoring and maintaining the improved environmental performance, and transparently communicating performance to regulators and other market actors over the lifetime of the mortgage. In this sense, the Label will help lending institutions to follow the defined EEM criteria to effectively de-risk their portfolios by identifying energy and climate risks and determining which loans and underlying assets fulfil the relevant energy performance criteria. By improving the access to relevant and transparent mortgage information for investors, regulators and other market participants via a consistent reporting template, the Label can become a powerful communication tool to further help the securitisation and issuance of green bonds.

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4. Sector specific recommendations to develop the EEM market This section is intended as a high level-guide to understand how the EEM market might progress to the next stage of maturity and what the role of market participants could be. It comprises of a set of sector specific recommendation and calls to action for individual organisations operating in this market. At present, partly due to the fragmented and heterogenous nature of the EEM value chain and partly due to the immaturity of the EEM market, the relative costs of EEM origination, due diligence, underwriting, documentations and other “transaction costs” are high, making the entry into this business unattractive for many lending institutions. The following recommendations have been developed in close consultation with market actors, in particular, the pilot banks. These are intended as potential solutions to grow the market and overcome current barriers identified and discussed in the previous sections.

4.1 Lending institutions Banks brought together under the umbrella of national hubs have highlighted three impact areas which require action:

1. EEM product development - to deal with the practical implementation of the EEM framework and definition throughout the whole mortgage lifecycle, from origination (marketing, customer journey) to asset eligibility and risk assessment as well as dedicated EEM bond issuance.

2. Data - the focus is on closing the information gap and to support financial decision making with consistent, robust, comparable and easily accessible data. This includes promoting data transparency, consistency and information exchange; providing guidance and facilitating accessibility, disclosure, understanding and comparability of building performance and financial data. Availability of EPC data and mapping of current EPCs to determine which certificates meet EEMI standards are an immediate priority. The adoption of a unique key identifier for all assets to tag and collect relevant information is being considered as a practical solution to connect different data silos and improve data availability

3. Partnerships/stakeholder collaboration - to explore and ensure value chain integration to streamline administrative costs, data management, liabilities, performance guarantees, etc. This workstream also include capacity building and upskilling tailored to EEM stakeholders (e.g. to bankers, valuers, energy advisors) as well as adoption of the valuation guidelines.

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Figure 5: Potential market development stages

4.2 Governments/public authorities

4.2.1 Institutional support and “regulatory sandbox” The efficient blending of EEMs and public support schemes at both national and local could be particularly effective, especially in markets where investment in energy efficiency and the residential real estate sector is currently at negligible levels. Public financial institution programmes can work in a complimentary fashion to EEMs and the market, rather than creating confusion or distortion of already working market practices. Public funds, tax breaks or grants can be used in recognition of wider social and economic benefits (employment, economic growth, affordable housing, energy security) and can take various forms, such as:

• Public support or grants for ambitious levels of verifiable energy improvements and savings which could be easily coupled to EEM eligibility criteria in terms of a single, streamlined application and approval process.

• Support of independent energy (or technical) assessments which deliver trust and confidence into the origination of EEMs for both borrowers and lending institutions/investors

4.2.2 Energy efficiency data capture and effective enforcement of energy efficiency legislation

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Though existing energy efficiency policy tools such as EPCs and nearly zero energy buildings (NZEBs)2 present a potentially effective pathway to tagging of energy efficient buildings in Europe, as recognised in the EEM definition, there exist some challenges. The reliability of EPCs as a reasonable indicator of relative energy performance seems to vary widely, depending on the nature of design and application in individual Member States. Similarly, the ambition level, comparability, uptake of NZEB definitions and link to building standards are inconsistent across EU countries. Finally, public access of EPC values and underlying data in order to identify and assess top performing buildings is still a challenge in the majority of markets. To overcome these barriers, policy makers are invited to consider actions to:

• Ensure the effective implementation of existing EU legislation and effective local enforcement procedures, including NZEB standards and EPC regimes

• Address the need for high quality building performance data and standards through the support of best practice policies and initiatives. Act to resolve collective issues such as the privacy, ownership and accessibility of energy performance data. In addition, help improving information flows linking buildings’ physical and performance characteristics with financial/transaction data in a combined database will help to track financial performance of energy efficient buildings and / or energy efficiency features.

• Develop quality assurance and certifications schemes such as for the accreditation of contractors and energy auditors.

4.2.3 Financial Institutions “Regulatory Issues” The overall success of EEMI is also contingent on strong and coordinated support from EU policymakers responsible for energy efficiency and banking/finance issues. The EEMI runs in parallel with the work of the EU Commission's Technical Expert Group on Sustainable Finance (TEG) which assists in developing a taxonomy of environmentally sustainable activities to mobilise finance for sustainable growth. The taxonomy, similar to the EEM definition, provides the common basis for defining and classifying green financial assets (such as green loans or bonds). From a broader perspective, the EEMI has the potential not only to make a crucial contribution to the realisation of the Capital Markets Union (CMU), which puts a strong focus on sustainable and green financing, but also enhance banks’ ability to manage their mortgage portfolios through greater transparency and data analysis. This can help them to better identify and address non-performing loans and prepare for the long-term risk which climate change poses for financial markets, in this way reinforcing financial stability. In this sense, policymakers and regulators are invited to:

• Consider and recognise the positive regulatory impacts of EEMs from a macro-prudential perspective, including from an overall financial stability perspective

• Support a more risk sensitive approach to the risk weighing and assessment of balance sheets of banks which would reflect the lower risk profiles of energy efficient assets and portfolios. Such a measure would accurately reveal the real risks and capital requirements for such loans and would not unbalance risks in the financial system.

2 The EU’s Energy Performance of Buildings Directive requires all new buildings to achieve nationally-determined nearly zero energy building (NZEB) standards from 2021.

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• Leverage and explore synergies between EEMI and the EU taxonomy, especially in what concerns the practical implementation of both initiatives.

4.3 Built Environment Community The feedback gathered from pilot banks and customer research indicate that achieving significant market growth will require coordinated support from actors beyond the traditional mortgage value-chain. The forthcoming EeMAP guidance note from WorldGBC and E.ON, Creating and energy efficient mortgage for Europe: The supporting role of the green building sector, also highlights that support should be targeted to achieve the following three goals:

1. Stimulating demand 2. Streamlining implementation 3. Supporting the borrower

Stimulating demand may be the most important of these, since EEMI research shows lenders have been reluctant to invest in developing new product lines where they perceive there to be low interest from customers. Yet demand will only grow if there is adequate support for borrowers, until the point at which the market reaches critical mass, and if the products available and the processes underpinning them – the customer journey – are straightforward. So, the three goals are interrelated and interdependent. Achieving them will require a range of different actions including:

● COLLABORATE: new, cross-sector collaborations - such as participating in national market

hubs where building experts can advise banks on implementing these new products;

● INNOVATE: innovation in products and services;

● RATE: building performance rating tools that certify properties as fulfilling efficient mortgage

criteria, through an independent third party;

● COMMUNICATE: communication to raise awareness of the benefits to borrowers of energy

efficient homes and buildings and the availability of these new mortgages;

● EDUCATE: education programmes to train actors in the energy efficient mortgage value-chain

on relevant aspects of energy efficiency and building performance;

● ADVOCATE: advocacy to ensure policy makers and relevant public bodies create favourable market conditions for early market growth and demand

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5. Summary of market development recommendations

The following chart in figure 4 summarises the recommended actions for different stakeholders

according to different possible stages in the development of EEM products and the EEM market as a

whole.

Stage Lending Institutions Public authorities Property and building energy

efficiency sector

Asset

screening

Match loan portfolio to EE

data (i.e. EPCs / other

voluntary certification

schemes)

Make EPC database

accessible to banks /

Improve data in EPCs

Work with lenders to ensure

high quality EPCs /

certifications can be mapped

to loans

EEMs for

new build

Offer energy efficiency

mortgages for new builds

that meet EEM criteria

Enforcement and guidelines on minimum energy performance standards

Partner with lenders to

develop new builds which

will meet EEM criteria

EEMs for

renovation

Advise clients on options,

benefits and different

sources of finance

Develop:

• Quality assurance schemes

• Building renovation roadmaps

Incentives to drive

demand

Partner with lenders to

streamline delivery of energy

efficient renovations funded

by EEMs for the borrower

Bond

issuance

Issue green bonds against

existing tagged loans

Green Bond standards

Disclosure rules

Performance/compliance

monitoring

EEMs for all Fully account for EE in

affordability checks

Energy

efficiency/sustainability in

prudential requirements

Offer training on energy

performance of buildings to

banks / brokers and other

actors in the value chain

Figure 6: Overview of sector specific actions according to the maturity of markets

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6. Further reading

EEFIG, 2017, Underwriting Toolkit - Value and risk appraisal for energy efficiency financing

EeMAP, 2018, Energy Efficient Mortgages Pilot Scheme Implementation & Product Framework,

available at: https://eemap.energyefficientmortgages.eu/wp-content/uploads/2018/06/EEM-Pilot-

Scheme-Implementation-Product-Framework-1.pdf

EeMAP/E.ON, 2018, Creating an Energy Efficient Mortgage for Europe (Consumer Research Insights),

available at https://eemap.energyefficientmortgages.eu/wp-

content/uploads/2018/04/EeMAP_D2.7_E.ON_Final.pdf

EEMI, 2019, Valuation Checklist Background Explanation and Guidance (Incorporating revised D4.2

EEMI Valuation Checklist from March 2019)

EeMAP/WorldGBC & E.ON Guidance Note: Creating an energy efficient mortgage for Europe: The

supporting role of the green building sector, forthcoming

UNEPFI, 2016, Guide to Banking and Sustainability, edition 2, available at

https://www.unepfi.org/wordpress/wp-content/uploads/2017/06/CONSOLIDATED-BANKING-

GUIDE-MAY-17-WEB.pdf

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This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 746205

EeMAP – Energy efficient Mortgages Action Plan is an initiative led by the European Mortgage

Federation - European Covered Bond Council (EMF-ECBC), Ca’ Foscari University of Venice, RICS, the

Europe Regional Network of the World Green Council, E.ON and SAFE Goethe University Frankfurt.

For more information, visit: www.energyefficientmortgages.eu