Global Banks Start Targeting a New Breed of Real Estate Risk.

Global banks are implementing new measures to assess the risk of loans to commercial real estate based on carbon emissions and the cost of upgrades needed to comply with green regulations. The European Union's Energy Performance of Buildings Directive (EPBD) is a key driver of these changes. Banks such as BNP Paribas, Banco Santander, Barclays, ING Groep, and NatWest Group are targeting significant reductions in emissions intensity in their commercial real estate portfolios. Retrofitting buildings to meet environmental regulations is becoming increasingly costly, posing a significant risk to banks. Banks may turn to private markets or synthetic securitizations to offload this risk. The ability of the commercial real estate sector to transition to a lower-carbon economy depends on retrofitting existing buildings, and banks are adjusting their lending criteria and bond underwriting accordingly. Failure to address these risks could result in reprimands from regulators and climate litigation. The complexity of differing national regulations across EU member states presents challenges for banks in setting explicit targets for financed emissions in residential real estate loans. Banks are calling for more support from policymakers to navigate these challenges. [Extracted from the article]