The Sustainable Finance Institute issues 21 recommendations for financing the decarbonisation of buildings
As part of the work plan of the French Committee on Financing the Ecological Transition, the Sustainable Finance Institute is presenting its recommendations for financing the decarbonisation of residential and tertiary buildings, both private and public.
In the “Action plan for financing the ecological transition”, published in May 2023, the Paris financial marketplace notes the low economic profitability of investment projects. At the request of the French Minister for the Economy and Finance, Bruno Le Maire, the Sustainable Finance Institute has continued its work on a sector-by-sector basis, to identify the obstacles and levers for financing the ecological transition, with an first focus on the decarbonisation of buildings. Following the mobilisation of a multi-stakeholder group (over 50 companies and institutions) and the hearing with more than 30 industry players, the IFD is formulating concrete proposals.
The building sector is one of the main emitters of greenhouse gases. The carbon footprint of buildings accounts for nearly 25% of the total carbon footprint of the French population (17% of GHG emissions in France in 2022 in the operation of buildings, mainly heating). The decarbonisation trajectory for residential and tertiary buildings by 2030 is clear: changing the energy source should account for more than 60% of the total effort, insulation 27% and energy efficiency 6%. Investment in decarbonising this sector must at least double in order to achieve the climate goals by 2030. Additional investment requirements should go up to €30 billion per year.
The study identifies three major obstacles to the decarbonisation of buildings:
1) Excessive bureaucracy and technical requirements discourage project initiators: Despite recent progress, the complexity of the administrative procedures involved in obtaining financial assistance and then carrying out the work is an obstacle in itself.
2) Low economic profitability of projects: Regardless of the project initiator (household, local authority, private tertiary sector), the financial profitability of an energy renovation project is not guaranteed, as the return on investment period can exceed the lifetime of the installations. In addition, the goal of carbon efficiency should be extended beyond energy efficiency alone.
3) Conditions for access to financing tools are not met: Existing financing tools are still not used to their full potential. The cash advances required may be too large relative to the project initiators’ capacity. Lastly, the debt conditions are sometimes too restrictive, particularly for co-owned properties and local authorities.
In its report, the Sustainable Finance Institute sets out 21 recommendations for financing the decarbonisation of buildings in France, in order to ensure its contribution to meeting the targets for reducing greenhouse gas emissions.
Firstly, to improve support for project initiators, the principle of a one-stop shop for private individuals should be strengthened and extended to the tertiary sector (Proposal 1). In addition, in the case of co-owned properties, property managers could play a key role not only in the technical implementation of projects but also in the design of the financing plan, helping them to develop their skills in these areas (Proposal 4).
To create the conditions for a sustainable market and improve economic equilibrium, public aid for households needs to be increased. This can be achieved by substantially bolstering existing schemes such as MaPrimeRénov’, notably to achieve a virtually zero out-of-pocket cost for the most modest households, and by targeting actions with the best abatement costs (Proposal 10). Alternatively, tax deductibility on the depreciation of the work carried out would enable the State’s budgetary effort to be staggered over time (Proposal 10 b). The zero-rate eco-loan also needs to be bolstered so that it can finance 100% of the investment effort to minimise the cash-flow effort (Proposal 11). For businesses, the depreciation of investments dedicated to renovation needs to be accelerated in order to expand the roll-out of projects (Proposal 13).
Finally, the aim is to provide project initiators with financial resources adapted to their respective needs and issues. Renovating co-owned properties is a particularly difficult challenge. Specific solutions are therefore needed: for co-owned properties, the conditions for contracting a collective loan need to be made more flexible, including by creating a public guarantee fund to cover loans granted in the event of non-payment of debt charges by certain co-owners (Proposal 17). As far as the private sector is concerned, the BPI’s guarantee system should be extended to the energy renovation of tertiary sector buildings (Proposal 21).
The Sustainable Finance Institute will present its recommendations at the next meeting of the Committee on Financing the Ecological Transition.