It is recognised that to achieve climate and energy security goals it is necessary to increase the flow of investment capital into energy efficiency. Energy Efficiency First is a central principle of European energy policy: energy efficiency is a source of energy, in which the public and the private sector can invest ahead of other more complex or costly energy sources.
However, its adoption within the finance sector is still limited. Every day many investment and lending decisions are taken which ignore profitable energy efficiency opportunities, locking in wasteful energy use and emissions for the lifetime of the underlying asset.
On September 28, 2021, the European Commission published a new recommendation and guidelines to make the EE1st principle more operational and support its practical implementation in various sectors of the economy and policy areas.
For the finance sector the guidelines include: Identifying, quantifying, and reporting on the energy efficiency benefits to the final owner, consideration of the energy demand implications of the asset’s design and upgrade, and the impact of structural or system-level investments such as grids, rail or bus systems.
Operationalising Energy Efficiency First in the financial sector is complicated by many factors including the many different sectors and financial products involved.
Against this background, the objectives of the Working Group on “Applying the Energy Efficiency First principle in sustainable finance” are to:
- Observe and analyse the current practices within the financial sector – observe how different types of financial institutions consider sustainability criteria in their daily activities, and how much importance they give to energy efficiency.
- Inquire about the current and the potential use of the Energy Efficiency First principle in the financial sector, in the context of sustainable finance.
- Analyse and present how Financial Institutions might incorporate the Energy Efficiency First principle into their operations.
- Consider the type and design of tools that may be used by FIs to adopt Energy Efficiency First.
- Discuss the results of the assessment made and the consequences for policy design.
- Provide feedback to the Commission on the Energy Efficiency First guidelines published on 28 September 2021.
- Provide support and formulate recommendations for the design and/or the implementation in the financial sector of the Commission Guidelines on the application of Energy Efficiency First principle.
- Formulate recommendations to promote the use of the Energy Efficiency First principle in the financial sector, for financing and investment decisions.
Timeline of WG activities
- January 20, 2022Kick-off with discussion
Kick-off with discussion of the scope and work plan and presentations from EBRD, the EIB and the real estate lending sector, Establishment of Processes and Templates sub-groups.
- April 5, 2022Presentations from Processes and Templates sub-groups and further discussion of work programme. Establishment of a real estate lending sub-group.
- June 7, 2022
Presentations from KfW, links between Energy Efficiency First and the Taxonomy, TCFD and ESG, safeguards. Launch of survey to gather feedback on the EC Guidelines. Discussion of content of potential guidance for financial institutions.
- October 2022Meeting to discuss survey results and review draft guidance.
- January 2023Final review of guidance.
- April 2023Meeting on final report conclusions and recommendations
- November 2023Published final report
The practical difficulties of operationalising energy efficiency first within financial institutions are many and varied. As a first step, senior decision makers and risk managers need to be persuaded that doing so will contribute to the financial institutions’ objectives and/or help them satisfy emerging regulations. In addition, evidencing the links between energy efficiency first and regulatory measures such as the Taxonomy and TCFD can help with compliance with these regulations.
Having persuaded decision makers to operationalise energy efficiency first it will be important to provide guidance on how to do that. This guidance will centre on what processes need to be adapted to ensure that energy efficiency is properly considered before it is too late; and what documents are needed to help investment and lending officers ensure that energy efficiency first is actually considered.
Public development banks such as EBRD, EIB and KfW have a clear focus on energy efficiency and have taken steps to operationalise energy efficiency first. There is much for the private sector to learn from their approach. Energy efficiency first must fit within wider environmental policies and cannot sit alone.
The working group is aiming to produce guidance on operationalising energy efficiency first that can be used by financial institutions. To maximise the usefulness of this guidance it will also make recommendations on any measures the EC could take to encourage uptake of the principle within financial institutions.
WG External Communications
Steven has over 30 years’ experience in energy efficiency, energy services and sustainable finance. He has advised corporates, investors, governments, and multi-laterals and started three energy service companies.
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.
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For more information about the Working Group, please contact steven [dot] fawkesenergyproltd [dot] com (steven[dot]fawkes[at]energyproltd[dot]com) or peterclimatestrategy [dot] es (peter[at]climatestrategy[dot]es)
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