Climate Investing

13Creditworthiness and Buildings’ Energy Efficiency in the Mortgage Market

13.1. Introduction

Energy efficiency represents one of the key planned actions aiming to reduce greenhouse emissions and the consumption of fossil fuel in order to mitigate the impact of climate change. According to the European Commission¹, buildings represent 40% of the total energy consumption and are responsible for 36% of the total CO₂ emissions in Europe. Currently, only 25% of the stock of European buildings is considered as energy efficient. In the 2030 climate and energy framework, the European Commission has set as a minimum target for the improvement in energy efficiency by 32.5%. The process of making buildings energy efficient reveals several advantages in terms of economic stimuli (e.g. the construction of buildings is a driving force component of the GDP) and in terms of investment opportunities, since it provides an increase in the property value. Furthermore, energy efficiency seems to be an attractive market segment also for lenders in the mortgage market. Recent literature has started to investigate whether energy efficiency is related to a lower solvency risk for owners, and consequently, whether it reduces the lending risk for banks and other financial institutions. Most of these studies conclude that there is a negative association between buildings’ energy efficiency and owners’ default. For instance, Kaza et al. (2014) provide evidence that the US energy-efficient residential ...