Consequences of the Building Decree
The transition to a climate-neutral economy also has consequences for banks. The tighter sustainability requirements for commercial real estate are a concrete example of a possible transition risk. The Building Decree 2012 requires Dutch offices to have an energy label of at least level C from 1 January 2023, failing which the buildings can no longer be used as office buildings. This may have consequences for office-related loans where office buildings have been pledged to banks as collateral. Insufficient attention to this development could lead, for example, to losses or stranded assets in the portfolio. In order to assess this risk, we have surveyed the distribution of energy labels in financial institutions’ commercial real estate (CRE) portfolios. This analysis builds further on our analysis of CRE portfolios in Veilig achter de dijken? (Is the Dutch financial sector safe behind the dykes?) (2017) and in the Spring 2019 edition of the Financial Stability Report.
Insight into energy labels
The analysis of the available labels suggests that the risk is limited, except in the case of SIs. At sector level the label found most frequently in the portfolios of LSIs is A. D to G labels are much less prevalent among LSIs than A to C labels. In the case of SIs, the most frequently occurring label is G, with a high prevalence of D to G labels.
The sample also shows, however, that banks have different degrees of insight into the energy labels associated with their commercial real estate loans. At sector level there is a still a relatively high percentage of unknown energy labels among SIs and LSIs, which may pose a risk to institutions.
We believe the financial sector must be resilient to transition risks. It is therefore important that banks are aware of possible consequences of the Building Decree and take appropriate steps to find out which energy labels have been issued to office buildings pledged as collateral for loans.