All banks have established climate goals for their financed emissions, and some Swedish banks have set specific targets for reducing emissions in their mortgage lending portfolios, which constitute a significant share of their total assets.
However, the energy transition will not happen overnight. The current transition phase indicates that property owners, and ultimately banks, will face challenges in achieving their climate goals given today's circumstances.
- The average energy renovation pace in Sweden is just under 1% per year.
- Close to 174,000 of the single-family houses in Sweden have direct-electricity as the main heating source according to our data.
- 72% of banks' lending is to properties that lack a valid energy declaration.
In order to accelerate the pace of energy renovation, the upcoming EU legal package aims to at least double the number of energy renovations by 2030. Through mobilizing activities on several levels, it is expected that 35 million building units will undergo renovation by 2030.
To successfully navigate towards these targets, banks must initiate data-driven conversations with customers, providing incentives and advice tailored to individual customer circumstances to remain relevant.
However, the data gap hinders their ability to credibly pursue climate goals with precision. In addition to the known data gap, the 10-year validity period of energy declarations creates significant knowledge gaps, limiting the banks' insight into the actual energy data of their lending portfolio.
Let's examine an example from Hemma's data that illustrates the problem.
In year 1, an energy declaration is made prior to a house sale. It has EPC F and primary energy demand (PED) value 165 kWh/m2 - a representative example that corresponds to approximately 16% of the properties on our platform. The buyer's bank requests the energy data as a basis for calculating their financed emissions from the property.
In year 3, the new property owner changed from direct-electricity heating to geothermal heating. Upgrading the heating source is a common activity according to our statistics and is done by approx. 50% of the users on our platform 3 years after moving in.
In Year 7, the property owner renovated the upper floor and insulated the attic simultaneously.
Over the past decade, the property in the example transitioned from energy class F to C with two significant renovations, reducing PED from 165 kWh/m2 to 81 kWh/m2
During the same period, the bank continued to report the property as EPC F until the energy declaration expired. It was then replaced with national average data, 191 kWh/m2 according to PCAF. The data gap gives the bank a margin of difference of 84 kWh/m2 against actual data in year 10 and 110 kWh/m2 in year 11 when average values were used.
This example highlights the challenge of steering toward climate goals with inadequate data. Data is not created in a vacuum; therefore, banks aiming to demonstrate leadership in climate transition should acquire high-resolution energy data and support customers based on their specific circumstances, utilizing data that better reflects reality. A data-driven approach in customer dialogue can accelerate the green transition, and banks' products and services can become a contributing force in achieving the climate goals.
- PCAF (2022). The Global GHG Accounting and Reporting Standard Part A: Financed Emissions. Second Edition.