Role of mortgage lenders in promoting energy efficiency in homes in Estonia and Europe through MPS and the ERL

The European Renovation Loan: An innovative financial instrument to Repower EU April 2022 By Peter Sweatman, CEO of Climate Strategy Peter Sweatman is chief executive of Climate Strategy (CS)1 and has worked for over 30 years in finance. In the last 18 years, Peter worked in climate finance with a focus on energy efficiency and buildings renovation investments. Here is a full bio. INTRODUCTION - EUROPE IS IN A RACE TO More specifically, this strategy targets 35 million buildings ACHIVE ENERGY INDEPENDENCE renovated by 2030 requiring a total investment of nearly a Given the ongoing war in Ukraine, Europe has launched trillion euros (€900 billion). Experts assert that achieving REPowerEU plan to address its independence from Russian these objectives requires the EU to more than double the oil, coal, and gas before 2030, in which much is expected renovation headline rate of 1% per annum and increase from energy demand reduction and efficiency. the number of deep renovations by a factor of ten. Gas consumption provides the most significant share of It is undeniable that buildings energy efficiency measures energy use in residential and non-residential EU buildings2 deliver energy security, protection against price volatility, (36%)2; and is crucial for buildings heating in a significant monetary savings, comfort and health benefits and more number of member states. As we are also in a buildings’ valuable homes. Sadly, most homeowners don’t yet renovation crisis, where renovations are insufficiently prioritise them and don’t feel they can afford them. frequent and insufficiently deep, Climate Strategy proposes Governments and lenders are also struggling in their own the rapid roll-out of a new financial instrument the “EU distribution of support to the just-able-to-pay sector which Renovation Loan” (ERL) via mortgage lenders. may not be eligible for grants for energy efficiency but doesn’t have savings in the amount of a new car for this The ERL provides a homeowner a new way to cost- purpose. effectively unlock home-equity for a deep renovation with nothing to pay until sale, transfer or after 30 years. LEVERING THE POWER OF GREEN EQUITY European residential buildings are estimated to be worth SYNCHRONIZING EU RENOVATION EFFORTS €17 trillion and house 220 million homeowners. There are Launched in late 2020, the EU Renovation Wave Strategy to around €7 trillion of mortgages in Europe, and therefore improve the energy performance of buildings calls for there is €10 trillion of home equity against which owners doubling the renovation rate to cut emissions, boost recovery can borrow for the deep renovation and transformation and reduce energy poverty. which most of these buildings require by 2050. These savings must be unlocked efficiently. 1 CS is an unregulated consulting firm offering strategy and business consultancy in areas related to Clean Energy, Clean Technology, Energy Efficiency, Sustainability and Climate Change and related Policy work. Climate Strategy is not a financial advisor and it does not provide nor promote financial investment, fundraising nor financial advisory services. 2 European Commission. (2022). Energy use in Buildings: Energy consumption. [Website]. Retrieved from https://ec.europa.eu/energy/eu-buildings-factsheets-topics-tree/energy-use-buildings_en DEFINING THE EU RENOVATION LOAN EU Renovation Loans are not a replacement for grants due to the vulnerable and energy poor. Nevertheless, there are The EU Renovation Loan is long-term (30 year) financing insufficient grants to deliver the RW’s 35 million with a zero-coupon structure3: renovations, and the attractive zero-coupon structure  Homeowners borrow the amount they require to allows homeowners without savings and with tight budgets transform their home through a deep renovation. access to deep renovations. Grants and EU Renovation  They do not have to pay cash interest and it accrues Loans are compatible instruments and when used in until the property is sold or transferred (or the loan conjunction can address all the lesser able to pay matures in 30 years). segments of society. At a time when energy prices have spiked up, unlocking just CONCLUSIONS 10% of the €10 trillion of European home equity, often in the hands of the older generations4, will stimulate renovation Europe needs to accelerate energy savings in the face of jobs, increase comfort, security, and lower energy costs. the crisis triggered by the Ukraine crisis and can deploy energy efficiency finance through a new and nimble EU Renovation Loans can be offered to underserved instrument that can be introduced in the REPowerEU families and backed by an EU-guarantee. Their interest would accrue at EU borrowing costs (plus a small spread) action plan. and be distributed through mortgage lenders alongside top-  An EU Renovation Loan can resolve the up or commercial mortgages. We argue that the necessary renovation finance gap at the right scale: At EU loan funding can be created by a conversion of the present, there are no banks in the EU offering a zero- underutilised loan component of the recovery plans into EU coupon low cost deep renovation loan product. The Renovation Loans, authorised by Member States. EU Renovation Loan can guarantee homeowners cash savings immediately along with all of the other Not making cash interest payments on an ERL makes them multiple benefits of a deep renovation, including cheap to manage (for banks, as you don’t have to collect resilience in the face of energy shortage and interest nor worry about default until maturity). ERLs would skyrocketing prices. The ERL’s junior status and EU hold a second and junior lien on the home (payable upon guarantee makes it accessible to all homeowners who sale or transfer) and all the cash savings (from lower energy demonstrate their home is not in negative equity. At bills and associated operational costs) will be felt EU borrowing rates the rolled-up interest cost is likely immediately. This benefit is especially relevant for those in to be lower than the house price inflation over the next retirement. 30 years, and while not directly subsidised this will This zero-coupon financial instrument will be backed by a make ERLs attractive ways to bridge a generational junior lien on the property (so as not to impact the senior and inequality gap for Europeans. “first” collateral available to the existing mortgage) and should benefit from central bank liquidity for holders to  Retail banks can be more engaged to “green” their guarantee a secondary market for this asset. Lenders can existing mortgage portfolios: The existence of a make fees through ERL origination (to cover deep bank distributed ERL that provided customers renovation processing costs), they will improve the enhanced credit (positive cash from day 1) and that creditworthiness of their clients, green their mortgage books does not impact the expected payments nor recovery and hence align their assets more quickly with the Paris of the existing mortgage, and yet earns distribution Agreement. fees is a very strong way to engage the millions of retail bank customers and deliver millions of deep Example: renovations. If the deep renovation of an EU semi-detached home costs ……………………………………………………………………. €20,000 and the zero-coupon interest rate was set at 1%  Copyright 2022 © (above EU borrowing costs), then the borrower would have to pay back around €27,000 (ex. distribution fees) in 30 *With acknowledgement of the source, reproduction of all or part of years. It is hard to imagine, and inconsistent with the past, the publication is authorized, except for commercial purposes. that the value increases due to that renovation investment More information can be found at www.climatestrategy.com and overall market trends would not cover this amount. or requested via email [email protected] or on Twitter @Climatest 3Investopedia. (2021). What Is a Zero-Coupon Mortgage?. [Website]. Retrieved from https://www.investopedia.com/terms/z/zero-coupon-mortgage.asp Picture courtesy of Marcus Lenk 4The Economist. (2020). Home ownership is in decline. [Website]. Retrieved from https://www.economist.com/special-report/2020/01/16/home-ownership-is-in-decline Saatja: "Mauricio Yrivarren" <[email protected]> Saaja: "MKM info" Teema: Role of mortgage lenders in promoting energy efficiency in homes in Estonia and Europe through MPS and the ERL Kuupäev: 2023-01-23 07:30 Distinguished Minister Sikkut: I trust this email finds you and the team at the Estonian Ministry of Economic Affairs and Infrastructure well. My name is Mauricio Yrivarren and I work for Climate Strategy & Partners ( <https://www.climatestrategy.com/en/> CS) with EU transparency register number: 32967558277-95. Firstly, we understand that Europe is at a crossroads, as it needs to address the threat to European energy security, coupled with high levels of inflation and rising energy prices that are exacerbated by the Russian invasion of the Ukraine. We see that the European Union “ <https://swedish-presidency.consilium.europa.eu/media/lltm2xh3/the-swedish-presidency-programme.pdf> is ready to act quickly and resolutely to meet the pressing challenges presented by the current energy crisis”, by placing great emphasis on the implementation of the Fit for 55 regulatory package which can result in improving the energy performance of buildings, and hence reduce emissions and improve living conditions. In this instance, I write to you on behalf of our CEO Peter Sweatman ( <https://climatestrategy.es/en/conferenciante.php> bio) as as Coreper II will take place on <https://www.consilium.europa.eu/en/meetings/mpo/2023/2/coreper-2-(323734)/> January 25th, and February 1st, 8th, and 15th, and the Informal Meeting of Telecommunications, Transport, Energy Ministers will take place on <https://swedish-presidency.consilium.europa.eu/en/events/informal-meeting-of-telecommunications-transport-energy-ministers-27-282/> 27/28 February. We would like to explore setting up a call with you ahead of these dates to share with you how the role of mortgage lenders can be enhanced to promote energy efficiency in Estonian and European homes through the CS developed: * Mortgage Portfolio Standards ( <https://climatestrategy.es/en/informe_20.php> MPS): It is a regulatory mechanism where banks pledge to work with their clients to increase the energy performance of the buildings which back their mortgages along a science based trajectory for their portfolio. * The European Renovation Loan ( <https://climatestrategy.es/en/informe_23.php> ERL) is a proposed innovative EU-level financial instrument which combines an EU guarantee with ECB green liquidity to offer the elderly, and hard-working families zero-coupon, affordable debt offered by local lenders to insulate their homes from sky-rocketing energy prices and transition risks. *All materials available in the links: full reports, executives summaries, presentations, summaries, and webinar recordings. See attached summary documents. Both MPS and the ERL are harnessing support from within the EU and from other key stakeholders, and we believe that they can play a role to help coordinate the financing and the delivery of Minimum Energy Performance Standards and other key policies across multiple buildings’ classes and for the widest possible audience of homeowners. We note that, in December 2021, the European Commission included “Mortgage Portfolio Standards” as part of its <https://ec.europa.eu/commission/presscorner/detail/en/QANDA_21_6686> revision of the Energy Performance of Buildings Directive (EPBD). In June 2022, the European Parliament's Committee on Industry, Research and Energy (ITRE) included the “EU Renovation Loan” as part of <https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fwww.euractiv.com%2Fwp-content%2Fuploads%2Fsites%2F2%2F2022%2F06%2F1257225EN.docx&wdOrigin=BROWSELINK> its revision of the EPBD. The January 16th 2023 opinion of the European Central Bank <https://www.ecb.europa.eu/pub/pdf/other/en_con_2023_2_f_sign~ef1bcb92d6..pdf> on the revision of the EPBD stated that “Mortgage portfolio standards should therefore be reviewed regularly to take into account the improvement in energy efficiency of the real estate stock in order to maintain the financial incentive to further enhance the energy performance of mortgage pools”. Also, see a <https://youtu.be/qK3JWElYYdg> link to a 2 minute summary video of support for our work on <https://www.climatestrategy.com/en/informe_20.php> Mortgage Portfolio Standards (MPS) for energy efficiency featuring an array of key experts. We hope this information is useful to you and your team in the <https://www.consilium.europa.eu/en/meetings/tte/2022/10/25/> ongoing negotiations on the Energy Performance of Buildings Directive (EPBD). Our chief executive Peter Sweatman ( <https://climatestrategy.es/en/conferenciante.php> bio) is keen to arrange a bilateral call to discuss in detail how MPS and the ERL can support your energy efficiency objectives domestically and at the EU level for this semester. Likewise, he is prepared, if you are interested, to join any panels or events which you plan on these important topics. As reference, we have also reached out to the Ministry of Finance and the Ministry of Environment. Thank you in advance for your consideration. Best regards, <http://climatestrategy.es/> <https://mail.google.com/mail/u/0/?ui=2&ik=221ab6c607&view=att&th=13d6a57002777e05&attid=0.0.3&disp=emb&realattid=90f969cc6cd51acd_0.0.3&atsh=1> Mauricio Yrivarren D: +34 91 576 4837 M: +34 64 750 9264 E: [email protected] <mailto:[email protected]> W: climatestrategy.es <http://climatestrategy.es> P.º de Recoletos, 5, 28004 Madrid <https://twitter.com/?utm_campaign=ClimateSt&utm_content=179207657264119808&utm_medium=fb&utm_source=fb#!/ClimateSt> Follow <http://climatestrategy.es/> Climate Strategy on Twitter This message contains confidential information and is intended only for the individual named. If you are not the named addressee you should not disseminate, distribute or copy this e-mail. Please notify the sender immediately by e-mail if you have received this e-mail by mistake and delete this e-mail from your system. E-mail transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this message, which arise as a result of e-mail transmission. If verification is required please request a hard-copy version. Climate Strategy SL, P.º de Recoletos, 5, 28004 Madrid, Spain. Underwriting the Renovation Wave with Mortgage Portfolio Standards for Energy Efficiency by Peter Sweatman, Founder & CEO of Climate Strategy & Partners This is a summary of the report about launching Mortgage Portfolio Standards (MPS) in Europe to unlock private finance to renovate European buildings. The 2021 work is based on policy analysis and expert engagement in buildings, technology, and finance. EUROPE FACES A BUILDINGS’ RENOVATION CRISIS EUROPEAN BUILDINGS AND THEIR The EU faces a renovation crisis. Currently, ECONOMIC AND ENVIRONMENTAL RELEVANCE renovations of energy-inefficient buildings are too Home to 220 million2 households, European few and do not unlock enough energy savings. As residential buildings’ worth is estimated at €17 the EU upgrades its energy and climate policies to trillion, approximately over half of European stored meet its 2030 climate targets in the path to climate wealth. neutrality by 2050, increasing buildings’ energy Some two thirds of buildings in the EU were built at efficiency is a central component of climate action. a time when energy efficiency requirements were In addition, with $130 trillion commitments at limited, or non-existent. Buildings are responsible COP261 (GFANZ), there has never been greater for around 40% of the EU's energy consumption3, pressure on financial institutions to address climate and 36% of its energy-related greenhouse gas risks and align their lending practices with the Paris emissions4. Yet, only 1%5 of buildings are renovated Agreement. Mortgage lenders are certainly the each year, and just one fifth (meaning 0.2% per single most powerful stakeholder group in the annum) of these renovations are considered deep decarbonisation of Europe’s buildings, yet they renovations (reducing 60% or more of energy remain largely absent from the coverage of -the key demand). European framework policies- the Energy The effects of climate change are also undoubtedly Efficiency (EED) and the Energy Performance of threatening the value of European buildings and the Buildings Directives (EPBD). health of their occupants. Hence, we propose the urgent introduction of In light of current and expected regulation, Mortgage Portfolio Standards (MPS) for energy considerable investments are required to increase efficiency in the current fit-for-55 package of EU their efficiency and resilience, and to reduce their legislation. Portfolio standards have been tried and emissions. In turn, these investments would protect tested to regulate vehicle fleet emissions and build buildings’ long-term value, and effectively reduce renewables, and now its power can be directed at the climate and transition risks of their physical or buildings renovations. A portfolio standard will regulatory stranding. better align EU mortgage lenders, and mortgaged properties, with the Paris Climate Agreement, and REGULATORY CONTEXT TO FOSTER unlock the potential of banks and mortgage lenders ENERGY EFFICIENCY AND TO DELIVER TARGETS in accelerating the EU’s Renovation Wave with their Launched by the European Commission in late 2020, 50+ million European homeowner clients. the Renovation Wave strategy aims to improve the energy performance of 35 million buildings by more 1 GFANZ. (2021). Amount of finance committed to achieving 1.5°C now at scale needed to deliver the 3 European Commission. (2020). In focus: Energy efficiency in buildings. [Website]. Retrieved from transition. [Website]. Retrieved from https://www.gfanzero.com/press/amount-of-finance- https://ec.europa.eu/info/news/focus-energy-efficiency-buildings-2020-feb-17_en committed-to-achieving-1-5c-now-at-scale-needed-to-deliver-the-transition/ 4 Ibid. 2 European Commission. (2021). The future of cities. [Website]. Retrieved from 5 SHREC project. (2021). Renovation Wave Strategy targets European buildings. [Website]. https://urban.jrc.ec.europa.eu/thefutureofcities/affordable-housing#the-chapter https://www.interregeurope.eu/shrec/news/news-article/10397/renovation-wave-strategy-targets- european-buildings/ ●●●●●●  than doubling renovation rates over the next decade Energy Performance Certificates (EPCs) are a rating to cut emissions, boost a sustainable economic scheme summarising the energy efficiency of recovery, and drastically reduce energy poverty. buildings, and are an essential part of renovation Meeting this6 renovation target would require €275 efforts. EPCs first emerged in 2002 and are a static billion7 invested per annum. This figure is about five record, largely based upon a combination of times the 2019 total European buildings energy observed, estimated and asset-rated data, making efficiency investment of €57 billion, reported by the them an imperfect response to the general lack of IEA8. physical building energy performance data. EPCs increase the visibility of energy use, particularly Delivering this wave of buildings renovations and during sale or rental transactions when a renovation the new 2030 targets is a complex task which may occur. requires the revision of the EED, the EPBD, and the Mortgage Credit Directive (MCD). It also calls for WHAT IS A MORTGAGE PORTFOLIO STANDARD? revisions to the Energy Performance Certificate A Mortgage Portfolio Standard is regulatory framework, as well as the introduction of mandatory mechanism requiring banks to pledge to work minimum energy performance standards (MEPS) for with their clients to increase the energy all existing buildings. performance of the buildings which back their MORTGAGE BANKS AND THEIR UNIQUE RELATIONSHIP mortgages along a science-based trajectory. WITH CUSTOMERS AND ENERGY EEFICIENCY Portfolio standards are proven regulatory tools that Mortgage lenders are arguably the single major have been deployed in reducing energy and transport common stakeholder in the decarbonisation of over emissions. In Europe, fleet portfolio emissions 50 million European buildings. With €7 trillion9 of standards11 are expected to reduce car and van mortgages lent to homeowners, these lenders are a emissions by 15% by 2025 (and over 30% by 2030). key and underutilised channel to promote renovation In the US, renewable portfolio standards are and help green mortgage portfolios in line with responsible for around half of the growth in banks’ commitments to the Paris Agreement. renewable energy production (82 GW). Learning from these two successful approaches, a EU Distribution of EPC Label Ratings (%)10 mortgage portfolio standard, coupled with technical assistance and public guarantees, would provide a clear alignment of interests and resources to guiding the transition of the highly disaggregated building sectors, and deliver the EU Renovation Wave. KEY DESIGN ELEMENTS FOR MORTGAGE PORTFOLIOS  MPS would target a 2050 whole portfolio final destination with interim steps to allow for long-term renovations and upgrade planning and financing by owners and finance providers alike;  MPS targets would be aligned with a Paris Share of dwellings with label A Share of dwellings with label D Agreement trajectory, with a stable, ramp- Share of dwellings with label B Share of dwellings with label ›D up over time and no sudden or uncertain Share of dwellings with label C shifts; 6 European Commission. (2021). Questions and Answers on the Renovation Wave. Retrieved from 10 X-tendo. (2021). Energy Performance Certificates Assessing their Status and Potential . https://x- [Website]. https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_1836 tendo.eu/wp-content/uploads/2020/05/X-TENDO-REPORT_FINAL_pages.pdf 7 Ibid. 11 European Commission. (2021). CO₂ emission performance standards for cars and vans (2020 8 IEA Energy Efficiency 2020: https://www.iea.org/reports/energy-efficiency-2020/energy- onwards). Retrieved from efficiency-in-2019 https://ec.europa.eu/clima/policies/transport/vehicles/regulation_en 9 EeMAP. (2018). Creating an Energy Efficient Mortgage for Europe Towards a New Market Standard . Retrieved from https://bit.ly/3Ft1Z8m ●●●●●●   MPS covers all mortgage lenders and a. The billions of euros of fees that can be made mortgage debt holders (as regulated through working with clients to borrow-to- parties), including final holders of mortgages renovate, as well as the evidence which shows housed in special purpose vehicles, that green property is worth more, and that securitisation companies and other owners of energy efficient homes are less likely intermediate bodies; to exhibit arrears or defaults in their mortgages.  MPS can rely on verified real energy or b. Increased costs of non-renovation: Unless direct emissions data from the property or renovated, aside from higher operational costs, an EPC as a proxy; and buildings are at increasing risk of becoming stranded by new regulations, such as MEPS,  MPS rules would include non-compliance taxes and ever-growing climate risks12. penalties on those entities that fail to meet their stated goals. Compliance with MPS also has a technology dimension where banks will need tools to set and MPS COMPLIANCE TO ACTIVELY PROMOTE track precise portfolio targets aligned with the Paris ENGAGEMENT WITH HOMEOWNERS Agreement. In the case of commercial real estate, and larger buildings, the Carbon Risk Real Estate Lenders looking to “green” their mortgages through Monitor (“CRREM”) is an example of an easy-to- MPS have two compliance strategies: use pathway tool for science-aligned decarbonising, and reducing stranding risks13. CRREM is used by 1. “Renovation compliance route”, renovate managers owning upwards of €300 billion worth of each building backing a mortgage in property covering a total of 5 million square metres. alignment with EU Taxonomy. Defining a Paris-aligned MPS trajectory for a 2. “Trading-based compliance route”, they building and a mortgage portfolio could sell their mortgages lent against low EPC rated properties and acquire those lent against highly energy efficient buildings. CONCRETE MPS EXAMPLES With a loan portfolio of EUR 185 billion14 for residential and commercial property (2/3 of its The “trading” strategy would – however - deliver balance sheet), Dutch bank ABN AMRO finances increased incentives for working with clients to over 10% of the buildings in the Netherlands. By renovate their homes, and create a virtuous cycle as 2030 the bank intends for its commercial real estate fewer buyers are found. MPS can align financial and entire residential mortgage portfolios, and institutions’ interests with EU climate and energy branch network to have an “A” weighted average targets and the Paris Agreement via: energy performance label. The bank has partnered with the Partnership for Carbon Accounting 12 UNEP. (2021). Buildings and Climate Change Adaptation: A Call to Action. [Website]. Retrieved from 14 ABN AMRO. (2017). ABN AMRO helps clients improve the sustainability of their homes. Retrieved from https://globalabc.org/resources/publications/buildings-and-climate-change-adaptation-call-action https://www.abnamro.com/en/newsroom/press-releases/2017/abn-amro-helps-clients-improve- 13 These are aligned with the Paris Climate Goals of limiting global temperature rise to 2°C, with the-sustainability-of-their-homes.html ambition towards 1.5°C. Sourced from: GRESB. (2021). Carbon Risk Real Estate Monitor (CRREM). [Website]. Retrieved from https://gresb.com/carbon-risk-real-estate-monitor/ ●●●●●●  Financials (PCAF) to assess the carbon intensity and and provide the borrower access to an estimate of a the necessary measures for each building. Its interim Paris-compliant deep renovation. goal for 2025 is for the bank’s real estate portfolio to Mortgage portfolio standards can be referenced by have a “C” label. the European Banking Authority (EBA) as a The United Kingdom is evaluating the improvement facilitating element of the promotion of increasing of the energy performance of home through lenders Green Asset Ratios (GAR). A GAR is envisioned by through two regulatory proposals: Firstly, the EBA to cover all lending including to SMEs, mandatory disclosure of energy performance for all households, local governments, municipalities and registered mortgage lenders on their websites and to cover loans, advances, debt securities, equity Gov't on an annual basis, and secondly, that UK instruments and repossessed real estate collateral. lenders should voluntarily agree to meet an average The publication of GAR for financial institutions MPS of EPC level C by 2030. will demonstrate the alignment of lenders’ activities with the EU Taxonomy15. As over three quarters of The UK Government recognises the unique position EU bank Taxonomy-relevant lending is not yet that lenders have to influence their clients’ aligned with the Paris Agreement, MPS is the ideal perspective on energy performance at critical trigger tool for banks to also address the GAR transition. points such as home purchase, renovation, or re- mortgage. Moreover, UK lenders are developing a CONCLUSIONS renovation market as a way of reducing the risk of homes becoming stranded assets as minimum energy The building sector is trying to “self-organise” in the performance standards become stricter. The UK face of increasing EU climate ambition and the government also promotes a TrustMark scheme opportunity to capitalise on cost effectively saving banks can use where businesses are vetted to meet energy, improving performance, and delivering local required standards and are required to provide robust jobs through renovations. consumer and financial protection. When applied by banks to their tens of millions of mortgages, existing mortgage portfolio standards are INTRODUCING MPS IN EU REGULATION already driving transparency and rapid change for Portfolio mandates have been included in articles 5 those green leaders who are already voluntarily (for utilities) and 7 (for public buildings) in the using them. Mortgage portfolio standards work Energy Efficiency Directive (EED). We believe that efficiently and they are a missing element that can MPS can be included in a revised Article 10 of the bring lenders behind and to underwrite the delivery Energy Performance of Buildings Directive (EPBD), of the EU’s Renovation Wave. In sum: where the EC can require Member States to mandate MPS to manage transition risk in real estate lending  MPS will align mortgage lenders with the and within EU mortgage portfolios: EU Green Deal and Renovation Wave strategy. “Article 10.8 Member States shall require all mortgages lenders to implement mortgage  MPS can address 50 million homeowners portfolio standards to align the energy and immediately. emissions performance of their financed buildings portfolio with the Paris Agreement”  MPS will accelerate financed offers to the low hanging fruit for energy efficient Mortgage portfolio standards would clearly align renovations. with the EU Taxonomy, and other EU financial regulation to accelerate banks proactive engagement  MPS is a structured way for banks to in buildings renovation. Further, the MCD can manage climate transition risk in their require a duty of information and advice from mortgage portfolio. lenders on building energy performance (articles 13 and 14). This would make the borrower aware of any climate or transition risks in respect of the property, Copyright 2021 © Climate Strategy & Partners. With acknowledgement of the source, reproduction of all or part of the 15 EBA. (2021). EBA/Rep/2021/03. Retrieved from https://bit.ly/3kGnaMa publication is authorized, except for commercial purposes. More information can be found at www.climatestrategy.com or requested via email [email protected] or on Twitter @Climatest ●●●●●● Peter Sweatman, Founder and Chief Executive Peter Sweatman has spent 30 years in finance of which 18 are climate finance and energy efficiency. He is the Chief Executive of Climate Strategy & Partners (@ClimateSt and www.climatestrategy.com), a strategic consulting group in Clean Energy, Clean Technology Innovation and Energy Efficiency working with leading companies and policymakers in the global energy transition. Peter is also Chairman and founder of Energy Efficiency Capital Advisors (www.eecapadvisors.com) an expert solution provider and finance structuring partner for over Euro 60 million of finance for energy savings and on-site power in Spanish cities. Peter has published fifteen white papers and chaired, moderated or spoken at 380 conferences and workshops on the global energy transition to a climate neutral economy. Peter is the rapporteur for EU Commission and UNEP FI’s 500-strong Energy Efficiency Financial Institutions Group (#EEFIG) since 2013 and for five years was the G20’s EEFTG technical lead. He is the co-chair of Breakthrough Energy’s European Climate Innovation Hub, a founder advisor to the Climate Bond Initiative, a founder member of the Ashoka Support Network in Spain, advisor to the Climate Lab, advisor to Braemar Energy Ventures, on the steering committees of EY and CapGemini Invent’s work on green recovery and climate innovation, a board member of Menorca Preservation Fund and visiting lecturer at IIT-Comillas university. Peter chaired and reported on a 250-expert process to help design the EU ETS Innovation fund and published a review of EU finance for competitive innovation for net-zero emissions by 2050. Peter holds an MA Cantab degree in Engineering and Management Studies from Cambridge University. In 1991, he joined JPMorgan in Corporate Finance where he spent 9 years responsible for client business, mainly in debt capital markets, for Spain, Portugal, Austria and Switzerland based in London and then for Mexico and other Latin American countries from New York. In the year 2000, Peter became a social entrepreneur to found three successful and high impact NGOs: Charity Digital (www.charitydigital.org.uk), New Philanthropy Capital (www.thinknpc.org) and Catalyst Climate Change Trust. From 2005, Peter was a Managing Director in Bunge-Climate Change Capital that was – from 2004- 2010 - one of the world’s leading specialist fund managers and advisors in the low carbon economy. Contact Details: Climate Strategy & Partners Paseo de Recoloetos, 5, #604 28004 Madrid, Spain. Web: www.climatestrategy.com Twitter: @ClimateSt