Prudential treatment of green mortgages: Summary and recommendation
Prudential treatment of green mortgages: Summary and recommendation
The transition to a carbon-neutral economy entails massive investments in construction, technology, and new infrastructure and the European Commission estimates that investments of around EUR 180 bn per year are required during the coming decade which can only be realised with a strong involvement of financial institutions.
Concretely, Copenhagen Economics (CE) estimates that around 50% of all the investment needed the next decade could be credit-financed (based on numbers from Denmark). This corresponds to EUR 90 bn per year in Europe. Thus, over the coming decades, a massive amount of credit is likely to flow into investments which – one way or the other – support the green transition.
Copenhagen Economics has been tasked to analyse the question of how these "green assets" should be regulated from a prudential perspective in relation to energy efficient mortgages (EEM), i.e. mortgage credit to energy efficient building and energy renovations. Our hope is that these results and recommendations will not only guide the debate on green mortgages but can provide general guidance on the prudential regulation of green assets.
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Related work
EU Horizon 2020
A guide to climate transition risk scenario analysis of mortgage portfolios
EU Horizon 2020
Appropriate prudential framework for energy-efficient mortgages
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A part of the existing Energy Efficient Mortgages Initiative supported by Horizon 2020, the Nordic Energy Efficient Mortgage (NEEM) Hub aims to scale-up lending to energy renovations in the Nordics and will publish a blueprint on how to accomplish this which will be implementable in other regions of Europe and, indeed, the world. In striving to increase energy renovations, the NEEM Hub will help achieve the targets of the European Green Deal and contribute to addressing ambitious national climate targets.