EU just passed its Energy Performance of Buildings Directive (EPBD)

Too-big-to-fail banks are starting to react.

The development marks a new frontier in how banks handle the risks in their loan books. 

CRE portfolios, already battered by higher interest rates and volatile post-pandemic occupancy rates, are now emerging as a fresh headache for banks whose books are overloaded with old properties badly in need of investments to meet new green requirements.

While the EU’s rollout of EPBD is likely to play out over several years, it’s already clear that buildings that fall behind risk turning into stranded assets that can no longer be sold or rented. 

The EU estimates that about 85% of buildings in the bloc were built before 2000, with 75% of these having a “poor energy performance.”

The EU estimates that buildings in the region guzzle more than 40% of the energy consumed, which makes their environmental risk hard for banks to ignore. 

The bloc has set a goal of cutting greenhouse gas emissions in the building sector by 60% through 2030, and bank finance will inevitably play a key part in that process.

Bloomberg 2 June 2024

https://www.bloomberg.com/news/articles/2024-06-02/global-banks-start-targeting-cre-emissions-risk