Europe’s biggest banks try to create Energy Efficient Mortgage asset class

37 lenders join efforts to scale up energy efficient buildings and boost green ABS market

Thirty-seven European banks are backing attempts to create a new asset class for energy efficient mortgages, launching a pilot programme today with funding from the EU.
The Energy Efficient Mortgages Action Plan Initiative sees BNP Paribas, ABN Amro, Axa Bank, Caisse des Depots Group, ING Bank, Nordea Bank, Societe Generale and 30 others join forces to explore whether it would be appropriate to apply lower interest rates and other forms of preferential treatment to eligible mortgages.
“The cornerstone of the initiative is the assumption that energy efficiency has a risk mitigation effect for banks as a result of the impact on a borrower’s ability to service his/her loan on the value of the property,” explained the initiative in a statement, referring to the idea that energy efficiency lowers utility bills for tenants, freeing up income that can be used to pay the mortgage. In addition, energy efficient homes are more valuable, so they provide better collateral on the banks’ balance sheet in the case of default. EeMAP will “seek to substantiate” this theory, it added.
“Additionally, there is rapidly growing investor demand for green mortgage-backed bonds,” the group pointed out in a statement today. “Helping make the business case for lenders to provide more attractive mortgages to those opting for greener homes.”
Earlier this year, Green Building Councils across Europe – including the UK, Netherlands, Italy, Germany, France, Finland, Ireland, Poland, Spain and Croatia – led the development of energy performance criteria for new builds and retrofits to “help set a consistent market standard for banks issuing green mortgage products”. A number are now setting up “green mortgage hubs” in their countries to support investments and other stakeholders in kick-starting programmes, a statement said.
The banks taking part in the scheme will look at whether the criteria can be applied across their mortgage businesses over the coming two years, with a view to encourage emissions reductions by energy consumers in the EU.
In addition to Green Building Councils and Banks, the initiative is driven by the European Mortgage Federation-European Covered Bond Council, the Royal Institute of Chartered Surveyors, E.ON and European universities. Other participants include Finance Denmark, S&P Global Ratings, the UK Regulated Covered Bond Council, the Union Professionnelle du Credit/Febelfin, Madrid City Council and the Romanian Association of Banks.The project is financed under the EU’s Horizon 2020 research and innovation programme. The EU is currently considering loosening capital requirements for banks lending to eligible green projects, but the proposal has faced fierce criticism for not being able to prove a risk correlation for such assets.

The full list of banks participating in the pilot are:

ABN Amro (NL)
Argenta Bank (BE)
AXA Bank (BE)
Banca Monte dei Paschi di Siena BMPS (IT)
Banco BPM (IT)
Belfius Bank & Verzekeringen (BE)
Berlin Hyp (DE)
BNP Paribas Fortis (BE)
BNP Paribas (UK)
Group BPCE (FR)
BPER Banca (IT)
Caisse des Depots Group (FR)
Caixa Geral de Depositos, CGD (PT)
Caja Rural de Navarra (ES)
Compagnie de Financement Foncier (FR)
Credit Agricole (IT)
Crelan (BE)
Friulovest Banca (IT)
Garanti Bank (RO)
ING Bank (BE)
KBC Bank (BE)
Mortgage Society of Finland, Hypo (FI)
Munchener Hypothekenbank (DE)
Norddeutsche Landesbank, NORD/LB (DE)
Nordea Bank (SE)
Nordea Eiendomskreditt (NO)
Nordea Kredit (DK)
Nordea Mortgage Bank (FI)
OP Mortgage Bank (FI)
Rabobank (NL)
Raiffeisen Bank (RO)
Societe Generale (FR)
Society Generale (IT)
Triodos Bank (BE)
Triodos Bank (ES)
Union de Creditos Inmobiliarios, UCI (ES)
Volksbank Alto Adige (IT)