Green bonds have been on a roll lately. In 2018, issuance of these fixed income securities – which were created to finance climate and environmental projects – reached a value of EUR 40 billion in Europe. But it’s not all roses: there is no uniform green bond standard within the EU, even though such a standard is crucial to increase the proportion of green lending and funding. Thanks to work under the Energy Efficient Mortgages Initiative (EEMI), which comprises the EeMaPP and EeDaPP (Energy efficiency Data Protocol and Portal) projects, such a standard could soon become a reality. “We are working on an Energy Efficient Mortgage (EEM) Label to stimulate market development. It will provide access to relevant, transparent and standardised mortgage information for market participants via a consistent reporting template. Ultimately, the Label will enable the securitisation and issuance of green bonds and raise support for and confidence in EEMs,” says project coordinator Luca Bertalot. Bertalot is the Secretary General of the European Mortgage Federation – European Covered Bond Council (EMF-ECBC), which has a long track record in bond labelling. In 2012 the organisation created the Covered Bond Label – a quality Label responding to market-wide requests for improved standards and increased transparency in the covered bond market. EeDaPP draws on the success of this label for the specific context of energy efficiency.
Bridging the renovation gap
“This is the first time a group of major banks and mortgage lenders, data providers, companies and organisations from the building and energy industries have proactively come together to discuss private financing of energy efficiency,” Bertalot notes. The idea is to bridge the renovation gap with a private financing initiative acting complementarily to public funds, tax incentives and utility rebates. EEMI thereby supports the EU in meeting its energy savings targets while at the same time bringing the Capital Markets Union on board with the energy efficiency agenda. “A key innovation in EeDaPP is the design and delivery of a market-led protocol. This protocol enables the large-scale recording of data related to EEM assets (loan-by-loan) via a standardised reporting template. The data is eventually accessed through a centralised portal which continuously tracks the performance of EEM assets. This will facilitate the tagging of such assets for the purposes of energy-efficient bond issuance,” Bertalot explains. The idea of the future portal is that it will have two main components: the staging area, in which the data is stored and made available for analysis, and the business intelligence tool in which the data is aggregated and prepared for the various analysis objectives of user groups. Thanks to the technical and financial datasets gathered under the project, stakeholders will be able to link the energy-efficient features of a building with its value and loan performance. This creates a better understanding of the impact of energy efficiency on borrowers’ probability of default (PD) and on loss given default (LGD). This will identify and demonstrate that EEM assets can be identified for preferential capital treatment based on large-scale standardised data and correlation analysis. Another major project achievement is the establishment of a definition of EEM. Under this definition, EEMs are intended to finance the purchase/construction and/or renovation of both residential and commercial buildings. They focus on those buildings where energy performance meets or exceeds relevant market best practice standards in line with current EU legislative requirements and/or efforts to improve energy performance by at least 30 %. The EEMI currently has 107 pilot scheme participants, 59 pilot banks and 48 other supporting organisations. A follow-up project for EeMaPP and EeDaPP will be kicked off in September 2020. It will build upon preceding efforts to develop EEMs in Europe and beyond.
EeDaPP, mortgage, energy efficiency, data portal, EEMI, EeMaPP, green bond, financing