Approved by the Economic and Financial Affairs Council (ECOFIN) in April 2024, the EU Performance of Buildings Directive (EPBD) marks a significant step forward in Europe's efforts to achieve energy efficiency and sustainability in the built environment.
Conceived to reduce energy consumption and greenhouse gas emissions from buildings, a sector responsible for approximately 40% of energy consumption and a third of greenhouse gas emissions in the EU, the Directive sets ambitious targets, paving the way for a decarbonized building stock and a more sustainable future.
Key Objectives of the EPBD
- Energy Performance Improvement: The Directive mandates that all new buildings constructed after 2030 must be nearly zero-energy buildings (NZEBs). This means they should have a very high energy performance, with the small amount of energy required supplied from renewable sources.
- Retrofitting of Existing Buildings: The directive emphasizes retrofitting existing buildings to enhance their energy performance. The aim is to upgrade the entire building stock to NZEB standards by 2050, significantly reducing their energy consumption.
- Smart Systems Integration: The directive encourages the integration of smart technologies and systems in buildings to manage energy use better and move towards a 'smart readiness' in the sector.
- Improving indoor environmental quality: Beyond energy efficiency, the directive emphasizes creating healthier and more comfortable indoor environments. This includes considerations for ventilation, daylighting, and thermal comfort.
Stages and Deadlines of the EPBD
The EPBD outlines a phased approach with specific deadlines for achieving its objectives. While the detailed timelines are still being finalized and may vary slightly depending on the specific Member State's implementation, there are several key milestones included in the legislation. A deep renovation of all buildings is the ultimate goal, but the legislation recognizes the scale of such a task and has adopted a staggered approach.
Some key deadlines include:
- 2026: Member States have 24 months to transpose the EPBD. Therefore, by 29 May 2026 they will have to comply with the new regulations regarding the renovation of buildings and the installation of energy systems.
- 2028: All new buildings occupied, operated or owned by public authorities must be zero-emission buildings.
- 2030: All new buildings must be zero-emission buildings. Existing public buildings must meet minimum energy performance standards.
- 2050: All buildings, including residential buildings, must achieve climate neutrality. Specific deadlines and interim targets for residential buildings vary by member state and building type.
The EU Performance of Buildings Directive is a bold and ambitious step towards a more sustainable built environment. Its implementation is expected to bring about a significant reduction in energy consumption and greenhouse gas emissions in the building sector, demonstrating Europe's commitment to achieving its climate goals.
At the same time, the directive represents a major challenge for the EU and its countries. Suffice it to say that the European Energy Commissioner, Kadri Simson, declared that by 2030, EUR 275 billion in annual investments will be required for the energy turnaround of the building stock.
Implications for banks and mortgages
“Although the final version of the Energy Performance of Building Directive is significantly different from the first versions circulated, shifting the target focus from single buildings to a national real estate stock, the underlying strategy of the Directive remains unchanged, emphasising the role that buildings play in the decarbonisation path embraced by the European Union.
Although each Member State will have to transpose the Directive's indications within a little over a year, the effects on the market have already begun to be felt in the aftermath of its first version. The demand for real estate has already implicitly incorporated the so-called transition risk: i.e. that in the medium term, less energy-efficient real estate will have to suffer a depreciation on the market. The price of such properties, estimated today, may therefore no longer be ‘sustainable’ over time, and those properties securing mortgages granted today are unlikely to retain their value over the life of the loan”, highlights Daniela Percoco, Real Estate Advisor at CRIF.
“Add to this the fact that those loans linked to taxonomy-aligned assets and activities are preferred because they are rewarding for the Green Asset Ratio that lending institutions will have to include in their Sustainability Report from next year. The result is a predictable ‘wary’ approach of banks towards those properties that are not aligned and that indirectly do not even meet the EPBD's specific indications.
The last piece to the picture is represented by the new ‘property value’ soon to be introduced in the prudential regulations (Basel IV or CRR 3), which envisages, when granting mortgages, in addition to the market value, a value inspired by prudential criteria that includes, among the various components, also the consideration of the energy efficiency of the property being financed. If the latter is low, the asset will inevitably be subject to a haircut, a sort of ‘discount’ due to its more than likely depreciation over the life of the loan. Banks will therefore have to make higher provisions with inevitable credit restrictions”, adds Percoco.
So, to cut the long story short, it can be concluded that the EPBD constitutes one of the many pieces of legislation, which make up the body of banking and other regulations, and which all go in the direction of a penalisation on the market, a sort of ‘brown discount’, and therefore also on the financeability, of less energy-performing properties”, ends Percoco.
