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Engaging Retail Lenders in Home Renovation: Turning Sustainable Finance Commitments into Household Energy Savings and Climate Resilience

  • Engaging Retail Lenders in Home Renovation: Turning Sustainable Finance Commitments into Household Energy Savings and Climate Resilience

    Peter Sweatman, Author

    New key evidence and insights from the European banking sector can provide recommendations for the December 2023 recast EPBD.

    Published in December 2023

    Drafted over the course of 2023, this report builds on years of work furthering energy efficiency -including Mortgage Portfolio Standards (MPS) and the EU Renovation Loan (ERL)-, with a focus on the role of retail financial institutions in building renovation investment in Europe. This report covers:

    • Progress in sustainable finance and within retail mortgage operations, supplemented by a review of the related activities of the top 30 banks in Europe and responses to a detailed 2023 sustainable finance questionnaire.
    • A new way of segmenting EU homeowners to improve the market’s understanding of the need to offer different financial blends of public and private components to deliver a renovation wave, and through that a resilient and energy secure and efficient housing stock.

Key recommendations for the last negotiations in the recast EPBD include:

  • Member States need to establish minimum energy performance standards with interim targets (2030, 2035 and 2040) to improve the energy performance of their commercial and residential buildings in line with EU targets and national energy and climate plans and buildings renovation strategies
  • Governments need to increase grant funded renovations to the energy poor, and launch an EU-level guarantee facility available to retail lenders providing home renovations to the elderly and the poor such as the EU Renovation Loan (ERL).
  • EU Mortgage lenders can play a more proactive role in unlocking the trillions of home equity stored in the buildings owned by their clients through implementing a Mortgage Portfolio Standard (MPS), hence identifying the climate risks in their property backed loans, and delivering their own sustainable finance and net-zero commitments. A Commission-led Delegated Act process can convene Europe’s leading lenders and experts to build from the many existing best practices and help define technical standards and guidance.
  • Policy levers must ensure that better quality energy use and performance data is surfaced to the buildings renovation supply chain, and homeowners, using AI and proxies where real data is unavailable.

In 2023, the EU adopted an updated Energy Efficiency Directive that contains an economy-wide final energy consumption target which represents a 21% reduction by 2030 on 2021’s actual energy use. Meeting this target will be historic and requires actions that are over and above what has gone before. Success will deliver significant economic and security benefits to countries, yet it cannot be met unless building renovation rates increase significantly. This is why 2023 also needs to see an ambitious agreement in the recast of the EU Buildings Directive (EPBD) that combines new standards with the financial resources to deliver the EU Renovation Wave.

An ambitious recast Buildings Directive is a once in a decade opportunity for Europe.

Sebastien Godinot, Head of Sustainable finance at WWF European Policy Office commented: "Climate Strategy's latest report, 'Engaging Retail Lenders in Home Renovation,' underscores the need for more efforts from European banks on green lending. Highlighting a golden opportunity within the Energy Performance of Buildings Directive, it urges financial institutions to be proactive champions of home renovations. This report is a catalyst for change, emphasising the need for immediate collective action to achieve resilient, energy-efficient homes that are crucial to achieving the EU climate and energy targets."

Milestones include:

  • On April 12th 2024, the EPBD was formally adopted with direct mentions of Mortgage Portfolio Standards.
  • On April 23th, the report was formally launched in the expert event “Engaging Retail Lenders in Home Renovations” following the launch of the new European Energy Efficiency Financing Coalition the prior day. Featuring the Minister of of the Environment of the Czech Republic, officials from the European Commission and the European Banking Authority (EBA), as well as experts from European leading banks and the UN-convened Net-Zero Banking Alliance (NZBA), the event’s conclusions indicated that meeting the ambitions of the EPBD could be achieved by promoting the voluntary uptake of Mortgage Portfolio Standards by financial institutions and through their offering of European Renovation Loans supported by an EU guarantee.

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