Green Mortgages on Tap From Banks Funding Climate Investment

(Bloomberg) -- Thirty-nine European banks agreed to test a new type of green mortgage under which borrowers ensure their properties abide by a suite of energy efficiency standards.

The proposed standards are being set by the World Green Building Council and backed by companies including French bank BNP Paribas SA and German utility EON AG. They underscore how industry groups and investors are shifting toward climate-friendly lending.

“We’re opening up the green-bond market for residential,” said Terri Wills, chief executive officer of the council, said in an interview. Mortgages could be aggregated into green bonds, widening the market which currently focuses on commercial property, she said.

During the tests, banks will consider offering discounted green mortgages to customers willing to spend extra on upgrading properties or constructing new buildings that save power or natural gas costs. The discounts make sense because owners of green properties have lower credit risks because they’re spending less on energy and they face lower future spending on equipment. Also, energy-efficient properties hold their value for longer.

The report comes as European banks are moving to ensure that lending and investments are compatible with global climate-change commitments made under the Paris Agreement.

“Millions of homeowners are missing out on cost savings, higher property values and more comfortable homes because of a lack of easy-to-access, affordable finance to invest in energy-efficiency improvements,” said Michael Lewis, the CEO of EON’s U.K. unit.

©2018 Bloomberg L.P.