Energy efficient Mortgages Action Plan (EeMAP)&

Energy efficiency Data Protocol and Portal (EeDaPP)

The Initiative

February 2019 Energy Efficient Mortgages Initiative 2

The Energy Efficient Mortgages Initiative is aimed at deliveringa standardised European framework and data collection processfor energy efficient mortgages, with favourable financingconditions for energy efficient buildings and energy savingrenovations.

It consists of two parallel projects, the “Energy efficientMortgages Action Plan” (EeMAP) and the “Energy efficiencyData Protocol and Portal” (EeDaPP), and is funded via theEuropean Commission’s Horizon 2020 Programme.

www.energyefficientmortgages.eu

More than

350 million

live under

their own

roof

247 million

dwellings

510 million

people

more than

220 million

dwellings

were built

before 2001

7498 MFIs

and

188,109

branches

On average

each branch

serves

around 2,700

people

Private financing

In the EU 28 there are… …of which

This initiative

has huge

potential!

3

Banks can Play a Game Changing Role in Improving Energy Efficiency (EE)

February 2019 Energy Efficient Mortgages Initiative

Underlying risk parameters impacted by EE

February 2019 Energy Efficient Mortgages Initiative 4

Retrofitting impacts positively on property valueensuring wealth conservation & loss mitigation bypreventing “brown discount”

EE leads to a reduction in the impact of energycosts to income, reducing borrowers‘ probabilityof default

Objective & Underlying Business Case

February 2019 Energy Efficient Mortgages Initiative 5

The ultimate objective is a pan-European private bank financing mechanism,based on a standardised approach, to encourage energy efficient improvementby households of the EU’s housing stock by way of financial incentives linked tothe mortgage, and in this way support the EU in meeting its energy savingstargets. Independent from, but complementary to, public funds or taxincentives.

Underlying business case:

6

𝑇0𝑇1

EE Renovation

Energy efficiency advisor (EEA) to advise on:1. Necessary EE

renovation2. Complementar

y funding sources (subsidies)

Mortgage application

Before EE Renovation

SME carries out EE renovation, guaranteeing performance

After EE Renovation

Bridging Renovation Gap - In Practice

Mortgage granted & EE top-up provided directly to SME

Ex ante Valuation of property

Qualified SME selected by bank to carry out EE renovation

Bank grants preferential interest rate on mortgage based on EE/smart meter

EEA certifies EE renovations in line with EE requirements

Ex post valuation of property

Incentive Chain

7

Borrower: - Lower energy bills- Energy Efficiency Behaviour- Lower interest rate on mortgage for energy efficient property- Free capital for retrofitting

Issuer/Originator:- Access to funding cost advantages-Increased loss mitigation capacity- Lower capital requirements as a result of lower PD- Reputational benefits

Investor:- Diversification of investor portfolio- Allocation of energy efficient investment buckets- Green added value vs brown discount

SME/ Real Economy: - SMEs active in the retrofitting of buildings and dwellings to become more energy efficient - Juncker Plan

Society:- Reduction in energy consumption- Wealth conservation- Reduction in greenhouse gas emissions

Government:- Pan European plan to stimulate energy efficient investment in residential property- Improvement of existing housing stock- Compliance with 1997 Kyoto Protocol – COP21- Access to quantitative & qualitative database on energy efficient mortgages & covered bonds

February 2019 Energy Efficient Mortgages Initiative

Market Best Practices: White Paper

Overview of current practices in relation to finance, energy efficiency indicators,property valuation and the impact of energy efficiency on risk management

Key recommendations towards the creation of an Energy Efficient Mortgageproduct for Europe

1. A simple & standardised framework for Energy Efficient Mortgage to helpmarket entry allowing for national heterogeneity, with guidance on theunderlying finance mechanism

2. A clear definition of an Energy Efficient Mortgage to enable banks todifferentiate between energy efficient and conventional mortgages in theirrisk management processes

3. Energy efficiency in property valuations. To ensure that energy efficiency isappropriately taken account of in property valuations, banks should beguided on how and what to instruct property valuers in relation to energyperformance of buildings

4. Simple and proportionate energy efficiency performance indicators, withflexibility to take account of differences between current national approaches

www.energyefficientmortgages.eu

The White Paper is available on the energy Efficient Mortgages website:http://eemap.energyefficientmortgages.eu/wp-content/uploads/2018/04/EeMAP-White-Paper.pdf

8February 2019 Energy Efficient Mortgages Initiative

EE Impact on

probability

of default

Market Best Practices: Five Technical Reports

The research findings are detailed in five Technical Reports

www.energyefficientmortgages.eu

‘Green’ Finance

Mortgage lending

valuation

Building

Performance

Indicators

9

Consumer

Research

Insights

February 2019 Energy Efficient Mortgages Initiative

GDP and Energy Consumption

February 2019 Energy Efficient Mortgages Initiative 10

Source: Eurostat

950.000

1.000.000

1.050.000

1.100.000

1.150.000

1.200.000

1.250.000

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

in E

UR b

n

Energy consumption evolution in the EU (current composition)

GDP Energy consumption (RHS)

Home, ‘Expensive’ Home

February 2019 Energy Efficient Mortgages Initiative 11

Around 42% of disposable income of poorer households (below 60% of median income) is spent on housing costs

Source: Eurostat – 2017 EU-SILC survey

42

0

10

20

30

40

50

60

70

80

Housing cost as % of disposable income

below 60% median income above 60% median income

‘Heat or Eat’ Dilemma

February 2019 Energy Efficient Mortgages Initiative 12

21% of EU population that earn 60% or less than medianincome in their respective countries, over 18 millionpeople, live in a household which they cannot adequatelyheat

This issue has different degrees of relevant according tocountry

Source: Eurostat EU-SILC survey 2017*according to the Survey definition

Owners or Tenants

February 2019 Energy Efficient Mortgages Initiative 13

Source: Eurostat – 2016 figures

12

29,6

38,2

43,5

31,1

17,6

18,7

9,2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

below 60% median income above 60% median income

Breakdown of tenure status by income group

owner with mortgage owner without mortgage tenant market price tenant reduced price

In EU breakdown of how citizens live isreflected by their income group

Poorer part of population in Europe(around 86 million people earn less than60% of their respective Member States’median income) typically live as tenants

These individuals are also more than twotimes less likely to have a mortgage thanthe rest of the population

Houses with History

February 2019 Energy Efficient Mortgages Initiative 14

0%10%20%30%40%50%60%70%80%

Breakdown of age of housing stock according to selected capital cities

before 1945 1945-1970 1971-1990 after 1990

23%

28%29%

20%

EU housing stock age structure

before 1945

1945-1970

1971-1990

after 1990

Pilot Scheme: To begin Solving the ‘Chicken & Egg’ Dilemma

15

Assets Liabilities

EE mortgages

• collateral

EE bonds

• Covered Bonds

• Securitisation

European

Investmen

t Fund

(EIF)

European

Investmen

t Bank

(EIB)

Investor Demand

National Promoting Banks:

Green Purchase Programs

February 2019 Energy Efficient Mortgages Initiative

Energy Efficient Mortgages Pilot Scheme

Under the Energy Efficient Mortgages Pilot scheme, Pilot Scheme Banks have the opportunity to analyse the feasibility and voluntarily implement the Energy Efficient Mortgage Product Framework into existing product lines and processes.

On 14 June at the Energy Efficient Mortgages event in Windsor, Pilot Scheme Banks were invited into take part in 7 subgroups to identify the opportunities and risks in various areas (i.e. Origination/retail; risk management; marketing; funding & investor relations; partnerships; IT solutions & Data; development of technical expertise), taking as the starting point the Energy Efficient Mortgage Product Framework, and highlighting potential operational solutions.

For further information:

• Press release, 14 June 2018: "The light turns green: Energy Efficient Mortgages Pilot Scheme goes live!“

• Energy Efficient Mortgages Pilot Scheme Roadmap for Lending Institutions

• Energy Efficient Mortgages Pilot Scheme Pioneers

February 2019 Energy Efficient Mortgages Initiative 16

Pilot Scheme: Existing Data Analysis & Operational Test Phase

17

v

Phase 1: Framework Preparation & Analysis of Existing Data:• Design of Product Framework and

System Set-up• Substantiation of Business Case• Focus on Correlation between EE

and LGD & PD

Phase 2: Operational Test Phase:• Deployment of Product Framework and

High-level Guidelines • Assessment of framework

Implementation• Tag excising Mortgage Loans and begin

Originating EE Mortgage Product• Involvement of the Advisory Council • Data collection

June 2017

June 2018

June 2020

Launch Event, Windsor

February 2019 Energy Efficient Mortgages Initiative

List of Pilot Scheme Banks Involved (i):

February 2019 Energy Efficient Mortgages Initiative 18

• ABN AMRO (NL)

• Argenta Bank (BE)

• AXA Bank (BE)

• Banca Monte dei Paschi di Siena, BMPS (IT)

• Banco BPM (IT)

• Belfius Bank & Verzekeringen (BE)

• Berlin Hyp AG (DE)

• BNL Gruppo BNP Paribas (IT)

• BNP Paribas Fortis (BE)

• BNP Paribas (UK)

• Groupe BPCE (FR)

• BPER Banca (IT)

• Caisse des Dépôts Group (FR)

• Caixa Geral de Depósitos, CGD (PT)

• Caja Rural de Navarra (ES)

List of Pilot Scheme Banks Involved (ii):

February 2019 Energy Efficient Mortgages Initiative 19

• Colibri Hypotheken (NL)

• Compagnie de Financement Foncier (FR)

• Crédit Agricole (IT)

• Crelan (BE)

• Deutsche Hypothekenbank (DE)

• Ecology Building Society (UK)

• Friulovest Banca (IT)

• Garanti Bank (RO)

• ING Belgium (BE)

• KBC Bank (BE)

• Mortgage Society of Finland, Hypo (FI)

• Münchener Hypothekenbank eG (DE)

• Norddeutsche Landesbank, NORD/LB (DE)

• Nordea Bank (SE)

List of Pilot Scheme Banks Involved (iii):

February 2019 Energy Efficient Mortgages Initiative 20

• Nordea Eiendomskreditt (NO)

• Nordea Kredit (DK)

• Nordea Mortgage Bank (FI)

• OP Mortgage Bank (FI)

• Rabobank (NL)

• Raiffeisen Bank (BO)

• Société Générale (FR)

• Société Générale CIB (IT)

• Triodos Bank (BE)

• Triodos Bank (ES)

• UniCredit (IT)

• Unión de Créditos Inmobiliarios, UCI (ES)

• Volksbank Alto Adige (IT)

Members of the Advisory Council:

February 2019 Energy Efficient Mortgages Initiative 21

• European Commission

• European Investment Bank (EIB)

• European Bank for Reconstruction and Development

(EBRD)

• Scottish Government

• The World Bank

• UNEP Finance Initiative

• International Finance Corporation (IFC)

• Climate Bond Initiative

The main role of the Advisory Council is to help advise and support the

deployment of the Pilot Scheme in the market and explore the possibility

of a ‘regulatory sandbox’ for banks participating in the Pilot Scheme

List of Supporting Organisations Involved (i):

February 2019 Energy Efficient Mortgages Initiative 22

• Alliance HQE –GBC France (FR)

• AmTrust International

• Asociación Hipotecaria Española (ES)

• Associazione Bancaria Italiana, ABI (IT)

• Cohispania (ES)

• Croatia Green Building Council, CGBC (HR)

• CEN CENELEC

• Dutch Green Building Council (NL)

• European Banking Federation

• European Builders Confederation, EBC

• European Heat Pump Association

• Finance Denmark, FIDA (DK)

• Flemish Construction Confederation, VCB (BE)

• German Sustainable Building Council, DGNB (DE)• Gianni Origoni Grippo Cappelli & Partners (IT)

List of Supporting Organisations Involved (ii):

February 2019 Energy Efficient Mortgages Initiative 23

• Green Building Council España, GBCe (ES)

• Green Building Council Finland, FIGBC (FI)

• Green Building Council Italia, GBC (IT)

• HP Keymark

• Irish Green Building Council, IGBC (IE)

• Madrid City Council (ES)

• Polish Green Building Council, PLGBC (PL)

• Romania Green Building Council, RoGBC (RO)

• Romanian Association of Banks, ARB (RO)

• S&P Global Ratings

• Tinsa Group (ES)

• UK Green Building Council, UKGBC (UK)

• UK Regulated Covered Bond Council, UK RCBC (UK)

• Union Professionnelle du Crédit/Febelfin (BE)

• Verband deutscher Pfandbriefbanken, vdp (DE)

72 confirmed participants (42 banks and 30 other organisations*)

February 2019 Energy Efficient Mortgages Initiative 24

*the map shows the location of 61

participants with a clear national link. To

them also 7 international/European

supporting organisations have to be taken

into account

February 2019 Energy Efficient Mortgages Initiative 25

• This map displays latest

state of commitments made

by 42 banks across the EU

to Pilot Scheme.

• In total these banks

represented EUR 3,834

billion (55%) in total

outstanding mortgage loans

of the EU.

*data taken from Hypostat 2018

**figures taken from investor reports of

the participating institutions. 100% is

considered when the national mortgage

association is pilot scheme member

Country

total

number only banks

total outstanding

mortgage market*

mortgage loan

portfolio of

participants**

coverage

in %

BE 10 8 233,224 233,224 100.00

CY 0 0 11,123 0.00

DE 6 4 1,378,810 1,378,810 100.00

DK 2 1 248,776 248,776 100.00

ES 8 3 497,711 497,711 100.00

FI 4 3 96,129 42,380 44.09

FR 5 4 954,226 412,900 43.27

HR 1 0

IE 1 0

IT 11 9 375,398 375,398 100.00

NL 4 3 672,235 470,300 69.96

NO 1 1 270,151 25,800 9.55

PL 1 0

PT 1 1 94,093 28,400 30.18

RO 4 2 14,262 14,262 100.00

SE 1 1 402,250 42,500 10.57

UK 4 2 1,539,979 89,509 5.81

EU/international 7 0

Total EEA 7,295,903 3,859,971 52.91

Total EU 7,013,738 3,834,171 54.67

Total euro area 4,638,134 3,413,323 73.59

Pilot Scheme: Banks Coverage

Coverage of pilot banks to total mortgage outstanding in 2017 *

Energy Efficient Mortgages Initiative 26

*data taken from Hypostat 2018

**figures taken from investor reports of

the participating institutions. 100% is

considered when the national mortgage

association is pilot scheme member

February 2019

Pilot Scheme: Product Framework & Guidelines

February 2019 Energy Efficient Mortgages Initiative 27

The Energy Efficiency Mortgage Pilot Scheme Product Framework, which should be considered inorder to ensure successful implementation of an Energy Efficient Mortgage product within banks’existing internal procedures, consist of the following sets of high-level guidelines:

I. Implementation Guidelines for BanksII. Building Performance Assessment GuidelinesIII. Valuation Guidelines: Energy Efficiency Checklist

The final Product Framework has incorporated feedback received from the marketconsultation, series of national roundtables and interviews conducted since the publicationof the draft Product Framework in February 2018.

The Pilot Scheme will test the Product Framework in an operational environment andfeedback received from participants will feedback back into the guidelines with a view toreviewing and adjusting the Framework over time as appropriate to respond to the market.

From a Valuation Perspective:

February 2019 Energy Efficient Mortgages Initiative 28

𝑉𝑎𝑙𝑢𝑒1𝑉𝑎𝑙𝑢𝑒0

𝐸𝑃𝐶0 𝐸𝑃𝐶1 + list of EE improvements

𝑆𝑚𝑎𝑟𝑡𝑚𝑒𝑡𝑒𝑟

Pilot Scheme: Looking for Market SolutionsIdentification of Critical Areas

February 2019 Energy Efficient Mortgages Initiative 29

Pilot

Schem

e:

Mark

et

Thin

k-T

hank • Facilitation of simplified EEM asset value chain (i.e. previous slides)

• How to incorporate and maximise the EPC standard

• Certification/guarantee of EE improvements (i.e. previous slides)

• How best to link and capture dynamic datasets

• Commercial partnership between banks and utility providers

• Areas to be examined:

o Origination/Retail

o Risk Management

o Marketing

o Funding & Investor relations

o Partnerships (development of synergies with other stakeholders)

o IT Solutions & Data

o Development of technical expertise (SMEs, Valuers, Energy

Efficiency experts)

The preliminary findings were presented on 27 September 2018 in

Venice (presentation materials)

The Energy Efficient Mortgage Process

February 2019 Energy Efficient Mortgages Initiative 30

Covered Bond Label: SustainableCovered Bonds

February 2019 Energy Efficient Mortgages Initiative 31

The Labelled Sustainable Covered Bond Definition:

Definition of an Energy Efficient Mortgage

February 2019 Energy Efficient Mortgages Initiative 32

To consult the full definition, please click here

To read the press release, please click here

EEMs are intended to finance the purchase/construction and/or renovation of both residential (single family & multi-family) and commercial buildings where there is evidence of: (1) energy performance which meets or exceeds relevant market best practice standards in line with current EU legislative requirements and/or (2) an improvement in energy performance of at least 30%.

This evidence should be provided by way of a recent EPC rating or score, complemented by an estimation of the value of the property according to the standards required under existing EU legislation. It should specifically detail the existing energy efficiency measures in line with the EEM Valuation & Energy Efficiency Checklist.

Pilot Scheme: Establishment of National Market Hubs

February 2019 Energy Efficient Mortgages Initiative 33

Pilot Scheme Organisations are organising themselves into National Market Hubs, with a view to achieving coordination at national level and ensuring market consensus and implementation for energy efficient mortgages (EEMs).

National Market Hubs will be supported by an Energy Efficient Mortgage Label Committee, comprised of representatives of major mortgage markets and other relevant market stakeholders at EU level, which will ensure ongoing alignment of the EEM definition with high quality standards and market best practice at EU and national level by way of a European label for EEMs.

3 Workstreams:• EEM product development • Data • Partnerships/stakeholder

Upcoming Event

February 2019 Energy Efficient Mortgages Initiative 34

Energy Efficient Mortgages Events

Riga, Latvia

24 April 2019

The EeMAP and EeDaPP projects have received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreements No 746205 and 784979

Partners

For additional information on the Energy Efficient Mortgages Initiative

Visit: Contact:

Luca BertalotSecretary General of the EMF-ECBClbertalot@hypo.org