The EEFIG Working Group on Risk assessment (the quantitative relationship between energy efficiency improvements and lower probability of default of associated loans and the increased value of the underlying assets) has over sixty participants and observers.
It brings together banks and research networks looking at the statistical analysis of the relationships between the credit quality of unsecured loans, mortgage portfolios and the energy performance of underlying buildings to reveal vital evidence that could significantly accelerate the greening of bank balance sheets.
WG members are organisations which share the view that green lending is not just vital for environmental sustainability, but also makes good economic sense for lenders in terms of risk management and market expansion. However, the statistical evidence required to test this hypothesis is distributed and emerging. So the WG has identified leading research groups and banks offering to provide access to their loan books, to merge these with relevant environmental data points and undertake careful analysis of potential relationships.
Using a hub-and-spoke approach with national hubs and a methodology sub-group, the working group addresses the following key research questions:
- To what extent is asset energy performance correlated with credit risk (e.g. defaults and loan arrears)?
- How does this vary by observed factors such as asset owner income or employment/ business status and wider macroeconomic conditions?
- How does this vary within the different EU Member States?
- Is there evidence of a causal link between improved asset energy performance and improved credit risk?
The results of this working group will provide further input for legislators, supervisors, and the financial industry in Europe.
Timeline of WG activities
- December 2020Submitted Intermediary results report of the working group, including:
- Overview of knowledge base and identified relevant initiatives
- Progress on work in national hubs and the methodology hub
- Outline of target activities for working group in 2021
- January-FebruaryIdentified "landing points" for report key points and where the WG results can be useful
- February 2021Development on issues paper on emerging conclusions
- 7th July 2021Draft final report was submitted to the EC for review
- November 2021Final Report
- 28th April 2022Published Report
This EEFIG working group has uncovered and robustly assessed new evidence from nearly a million mortgages in Europe to conclude that there is a statistically relevant correlation between the energy performance of building collateral and mortgage credit performance. This conclusion is backed by years of academic and parallel studies which point in a similar direction and that were reviewed by the WG over the last two years.
The bulk of the evidence produced by this working group’s members has come from the UK, Finland, Germany and Italy, and in two years of 30-40 national hub meetings in seven geographical areas, no evidence has been presented that demonstrates different results – as no further evidence is forthcoming. While national circumstances differ greatly, there was a general consensus that were EPC data more widely available in different markets it would likely reveal similar findings.
The technical and research work of this working group would tend to support the Commission’s position on energy efficiency and mortgage collateral value which was contained in its new sustainable finance strategy adopted on 6th July. Specifically that measures to enhance energy efficiency of a mortgage collateral can be considered as increasing property values.
Further, as a result of the statistical work undertaken by members of the UK, German and Scandinavian hubs, this WG hopes that energy efficiency is considered as a specific component of the EBA’s 2023 assessment of whether a dedicated prudential treatment of exposures related to assets and activities associated substantially with environmental and/or social objectives could be justified. Already the evidence provided here by NBS contributes to that and members of this working group hope that by 2023 other evidence will also emerge from Germany, Netherlands, Scandinavia, Spain, France and Italy on this point.
WG External Communications
Peter has 30 years' experience in finance, climate finance and providing strategic advice to companies, structuring energy efficiency investments and managing multidisciplinary projects in Europe and the G20, exchanging good practices and capacity building.
Markus has more than a decade of experience in management consulting within the financial industry, where he has been working with banks, asset managers, and supervisory authorities.
Markus is Partner at d-fine GmbH, a leading European management consultancy.