Financiers tell EU to get radical on financing green projects

A high-level group on sustainable finance has advised European regulators to incentivise a more favourable treatment for energy saving loans and mortgages, which could unlock billions in lending for green building renovation programs and other green projects.

Note: This article first appeared on The Fifth Estate on 19 February.

The group’s final report says that almost three-quarters of the EU’s 2030 clean energy investment gap – estimated at around €130 billion a year (AU$204b) – is accounted for by energy efficiency in buildings, most of which is concentrated in central and east European countries where the leakiest buildings are found.

It calls on policymakers to support efforts to “exploit potential links between energy efficiency savings and mortgage loan performance”.

Some banks are already looking at ways of providing better approaches to financing energy saving programs, such as building renovation loans to homeowners. For instance, the European Mortgage Federation is developing a standardised “energy efficient mortgage”, which links efficiency improvements with a lower probability of default of borrowers.

Europe already has an energy efficient mortgages action plan.

The high-level group believes that directing investment into long-term, sustainable projects will also improve the stability of the financial system as a whole. It proposes:

• a classification system, or “taxonomy”, to provide market clarity on what is “sustainable”
• clarifying the duties of investors’ when it comes to achieving a more sustainable financial system
• improving disclosure by financial institutions and companies on how sustainability is factored into their decision-making
• an EU-wide label for green investment funds
• making sustainability part of the mandates of the European Supervisory Authorities
• a European standard for green bonds, with the establishment of a new Green Bonds Technical Committee in 2018, to develop a long-term governance structure for the EU Green Bond Standard

It also recommends:

• supporting the growth of social enterprises and the financing of social-related projects
• revaluing natural and environmental capital in economic and financial decisions
• re-orienting agriculture to a way that is more sustainable for the economy, the environment and public health

Radical advice

It’s quite radical for a bunch of high-level financiers.

The EU executive is to follow up on the report’s recommendations during the first half of March with a comprehensive action plan on green finance that will include more steps to encourage investments in energy efficiency. This will include a “harmonised taxonomy” for banks to classify different types of financial products according to their environmental performance and to prevent “greenwashing”.

Christian Thimann, head of sustainability at French insurer AXA, who chaired the group, said: “There is no claim that everything green is necessarily less risky. But the group does make the claim that taking account of environmental and climate risk and long-term sustainability may have – and in some cases must have – a positive impact on your risk analysis.”

Energy efficiency investments affect the value of a building or industrial facility “by more than just the present value of the expected energy savings”, the authors note, saying banks should be able to better identify these multiple benefits. Measuring those “would help de-risk energy efficiency investments”.

EU can easily miss its 2020 energy efficiency target

The report is timely because the EU is in sore danger of missing its target of a 20 per cent reduction of energy consumption by the year 2020 compared to baseline projections, according to the latest figures.

EU28 primary energy consumption: progress towards the energy efficiency target between 1990 and 2016

Meeting the target would mean achieving a primary energy consumption of no more than ,483 million tonnes of oil-equivalent (Mtoe) and a final energy consumption of no more than 1086 Mtoe in 2020.

But, in fact, primary energy consumption, while going lower in the interim, has decreased between 1990 and 2016 by just 1.7 per cent.

Consumption of solid fossil fuels (coal and coal products) decreased by 47 per cent and oil (including petroleum products) decreased by 12 per cent. Renewable energy use increased by 200 per cent, natural gas and manufactured gases by 31 per cent and nuclear by six per cent.

Overall energy efficiency gains in European countries since 2000

Final energy consumption in 2015 was approximately the same as in 1990, but in 2016 it had risen to 2.1 per cent above that level.

The actual final energy consumption in year 2014 was lower than the 2020 energy efficiency target level of 1086 Mtoe, but it’s gone up since then. This temporary dip was most likely due to the economic recession.

Overall energy efficiency gains in European households since 2000

Figures also show that 8.7 per cent of Europe’s 28 countries’ population on average is in fuel poverty, down from a 10.8 per cent peak in 2012, but this varies wildly by nation, with Greece being amongst the worst performers, and Norway and Switzerland amongst the best.

As a result, the high-level financiers’ report recommends that the new Sustainable Infrastructure Europe body should have a particular focus on the Central and Eastern Europe area, and have Eastern European offices.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

Lendlease London project on hold after “social cleansing” claims

Demo against the Haringey Development Vehicle project

A £4 billion urban renewal project in north London that was to be developed by Lendlease is now unlikely to proceed following fierce political opposition.

NOTE: article first appeared on The Fifth Estate on 13 February

The developer has fallen victim to a sea-change in attitudes to private sector involvement in urban renewal projects, which has come to the fore amidst a growing affordable housing crisis in London.

The project, called the Haringey Development Vehicle (HDV), was a 20-year joint venture between Lendlease and Haringey Council that would have led to the creation of 6400 homes built at a value of £4 billion. Forty per cent of homes were set to be “affordable”.

But the project has become stuck at the centre of an ideological war about the delivery of public housing, which this month led to the resignation of Haringey council leader Claire Kober, who had campaigned to push through the Lendlease deal.

Claire Kober, the former leader of Haringey Council

Kober is a Labour leader whose laudable desire to improve living conditions in some of the capital’s worst estates led her to make a deal with Lendlease. The deal, though, was criticised by tenants and activists for encouraging “social cleansing” – because many occupants of homes to have been demolished for the project could not have been rehoused in the borough following completion of the new scheme.

Kober’s dilemma, which faces all councils in London and elsewhere, was how to finance such massive regeneration schemes when central government does not offer sufficient support and land prices are so high.

Councils usually turn to the private sector, but the trade-off is typically the loss of publicly owned land to the private sector and the loss of homes for social rent.

The loss of affordable housing

According to figures on London’s delivery stream of housing regeneration schemes obtained by the London Green Party in early 2016, were all projects to go ahead, it would lead to a net loss of 7326 social rental homes – those with the lowest rent levels.

They are disappearing in favour of so-called “affordable rent” homes, where tenants can be charged up to 80 per cent of private market rents. Even these are disappearing: the Greens calculated a net loss of 1389 across London.

“With a few exceptions, estate regeneration has been a complete disaster in London and has made our housing crisis worse,” Green’s London Assembly member Darren Johnson said.

Now this historical trend, led by private developers, is being challenged.

The tide is turning

Since the collapse of government-contracted services outsourcing giant Carillion and the protests in Haringey, the tide is turning against public-private partnerships.

On 18 December 2017 London mayor Sadiq Khan refused permission for an estate regeneration in the borough of Barnet that would have seen the loss of 257 social homes.

Khan said: “This is a classic example of how not to do estate regeneration. I fully support improving social housing on this estate and across the capital, but this scheme falls far short of what I expect of London boroughs.”

The developer in this case was a housing association, Genesis, who is also the developer and resident social landlord for the scheme.

“As I have made clear in my new London Plan, estate regeneration projects must replace homes which are based on social rent levels on a like-for-like basis,” Khan said.

“Londoners so urgently need more high-quality housing, not less, which makes this scheme completely unacceptable in its current form.”

The mayor’s newly-launched draft London Plan (published in December) requires applications for housing estate renewal to include the replacement of existing affordable housing on a like-for-like basis, and no net loss of existing social housing.

It envisages the following split of affordable homes being applied to new development:

• a minimum of 30 per cent low-cost rented homes, allocated according to need and for Londoners on low incomes (social rent/London affordable rent)
• a minimum of 30 per cent intermediate products that meet the definition of affordable housing, including London living rent and London shared ownership
• 40 per cent to be determined by the relevant borough based on identified need, provided they are consistent with the definition of affordable housing.

If a development supplies this it is eligible for being “fast-tracked” through the planning process.

A London-wide strategic housing market assessment (cited in the plan) has identified a need for 66,000 additional homes a year, of which 43,500 should be affordable.

Balloting residents

Khan has also announced plans to force councils to ballot residents on housing estates earmarked for demolition as a condition of obtaining funding for the work from City Hall. He said the broad support of tenants, leaseholders and freeholders living on estates is a necessary requirement.

There are estimated to be about 25 estate regeneration schemes underway at any one time in London involving funding from City Hall, and under the mayor’s plans all such schemes would, in future, require a successful ballot outcome before their funding could be approved.

Where demolition is proposed, the mayor wants to see councils and housing associations follow his “Better Homes for Local People” principles by providing:

• an increase in affordable homes – and, as a minimum, no loss of social housing
• full rights to remain or return for tenants
• a fair deal for leaseholders and freeholders

“We need more social housing in London, not less, which is why I will use all my powers to make sure that any plans for estate regeneration protect existing social housing and take every opportunity to build more,” Khan said.

“My guide sets out how I will use my investment powers in a way they have never been used before, by requiring resident support through a ballot for new plans involving demolition where City Hall funding is involved.

“I want to make sure people living on social housing estates, who have the greatest interest in their future, are at the heart of any decisions from the outset.”

Living Rent scheme

This week Khan also announced the London Living Rent scheme, an intermediate affordable housing product with low rents that vary ward by ward across London. Eligibility is restricted to households that are currently renting, with a maximum income of £60,000 and who are not currently able to purchase a home in the local area.

It will help middle-income earners who would otherwise typically be struggling in the private rental sector to save for a deposit by offering rents based on a third of local average wages and makes home ownership in the capital a realistic prospect for the many Londoners who feel priced out of the property market.

Rents in the first such project, The Sugar Works at Royal Wharf, Silvertown, are up to 50 per cent cheaper than local market rents, and range from £730 a month for a studio flat and £821 a month for a one-bed flat up to £1094 a month for a four-bedroom property. They are provided by housing association London & Quadrant.

Meanwhile, back in Haringey, residents of the sub-standard homes Kober wanted to replace, where sometimes three generations are living in the same crowded conditions, face an uncertain future until after local elections in May, where a new administration will be challenged with finding a more equitable solution to residents’ plight.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

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