Local solutions for global challenges: Financing a greener built environment
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Local solutions for global challenges: Financing a greener built environment
The global built environment faces significant pressure to increase resilience against climate change and reduce carbon emissions: buildings account for 26% of global CO2 emissions.[1] However, less than 1% of buildings are renovated annually, often achieving limited energy efficiency improvements.[2] The challenge is clear: how do we mobilise more capital into decarbonising our built environment at pace and scale?
As we’ve covered in previous editions of GFQ, scaling retrofitting efforts to decarbonise our built environment faces significant financial barriers. The current financial landscape struggles to address the major barriers to energy efficiency and resilience improvements. These challenges include the high upfront costs of energy efficiency improvements, long payback periods of low carbon technologies, and the split incentive between owners and tenants in the private rented sector. The lack of aggregated portfolios complicates financing, while dependence on personal savings to cover the upfront costs often excludes low-income households with limited financial buffers. Furthermore, fragmented policies, limited public resources, and heavy reliance on subsidies all hinder retrofitting progress.
From product innovation to scaled markets
Scalable solutions at the local level are crucial for addressing these challenges and accelerating the decarbonisation of buildings. While new financial models are emerging to bridge the gap and create new asset classes, their impact will depend on successfully scaling them into investable markets. Key solutions include expanding the green mortgage market, growing the unsecured green home loans market, increasing access to finance through demand aggregation, reducing financial risk and improving efficiency through heat-(or energy-)as-a-service, and linking financing to the property (instead of the owner) through property-linked finance.[3]
Green mortgages
To date, the poster child of scalable, commercially viable green home finance solutions is the Green Mortgage. Recognising the importance of this solution, the GFI has led a series of targeted interventions that have scaled the UK Green Mortgage market from three products to over 60 within just 4 years. These include:
- GFI identified lenders were not launching Green Mortgages due to perceived risk of greenwashing. To overcome this barrier, GFI developed the Green Home Finance Principles, in collaboration with the Loan Markets Association, a framework of guidelines to promote integrity in the market by providing FIs with a consistent and transparent methodology for the allocation of finance towards retrofitting.
- GFI identified that lenders did not have resources to inform commercial decision on Green Mortgages. GFI launched the Green Mortgage Hub and Lender’s Handbook on green home technologies as trusted sources of information on the Green Mortgage market and retrofit technologies.
- GFI identified that mortgage brokers/intermediaries are a vital partner to distribute Green Mortgages. GFI published the Broker’s Handbook on green home technologies to educate and raise awareness about energy efficiency and Green Mortgages amongst the broker community, complemented by the Certificate in Green Mortgages, a CPD approved training programme for brokers.
- GFI identified that market growth requires depth and breadth of engagement with lenders. GFI has supported >75% lenders with a Green Mortgage product through bilateral engagement and advice, while also convening industry events – such as the annual Green Mortgage Summit – to drive awareness and market growth.
The next phase of the Green Mortgage market will focus on providing greater support for energy efficiency improvements to homes – versus supporting the purchase of high-efficiency homes – and encouraging international adoption of the solution.
For green mortgages to scale further and transform the EU’s residential landscape, regulatory incentives, financial innovation, and greater user awareness is required. For example, while the Spanish green mortgage market has grown to over ten products in the variable-rate segments, it faces challenges, including uncompetitive interest rates, lack of awareness and discrepancies in energy efficiency improvements assessments.[4] To consolidate the green mortgage market, a supportive legislative environment is needed.
Unsecured green home loans
While green mortgage solutions are increasingly available to help homeowners fund green home improvements, the unsecured green home finance market has also gained traction in recent years, driven by government incentives and regulatory frameworks. These loans support energy-efficiency investments without requiring collateral and are often priced competitively compared to traditional consumer loans, although specific features can vary by provider. Regulatory barriers, including consumer credit laws, create challenges for lenders seeking to offer these loans at scale.
The GFI has been actively addressing these challenges in the UK, publishing research to highlight market challenges as well as exploring and publishing information on solutions and tracking the availability of these products[5]. In the UK, availability of these loans doubled in 2024, reflecting growing demand for energy-efficient home improvements. Labour’s Warm Homes Plan, as outlined in the manifesto, includes a commitment to collaborate with the private sector to introduce a government-backed low-interest loan. This reflects a growing commitment to scaling green home finance solutions.
Elsewhere in Europe, markets in Germany, Spain, and Denmark see robust availability, while Ireland is emerging as a rapidly growing market. The GFI’s recently published paper, Unsecured Green Home Loans: Consumer Protection and Scale in International Markets explores how government-backed initiatives, financial incentives, and regulatory frameworks in these countries have helped expand access to affordable finance for energy-efficiency improvements.[6] By enabling securitisation of these loans, lenders can recycle capital efficiently, expanding their ability to offer more green home loans at competitive rates. Securitisation pools multiple loans together, transforming them into tradable financial assets that attract institutional investors, ultimately driving greater liquidity and scale in the market. Aligning with the Green Home Finance Principles, which focus on transparency, impact measurement, and effective governance can further support this process.[7]
Demand aggregation financing
While green mortgages and loans can help homeowners finance energy-efficient improvements, they often cater to individual projects, which can limit the potential for cost reduction and scalability. Demand Aggregation Financing (DAF), aggregates multiple individual projects into a collective investment pipeline, creating economies of scale and reducing transaction costs to benefit homeowners. This increased scale leads to greater investor appeal by providing a larger, more diversified portfolio of projects, reducing risk and enhancing the potential for higher returns, making the investment opportunity more attractive to institutional investors and enabling broader access to capital. Such aggregation models could also support the securitisation of unsecured green home loans, helping to create a more scalable and investable asset class.
At the EU level, the Urban Agenda’s Building Decarbonisation Partnership adopts an integrated approach, shifting from individual buildings to a district-neighbourhood model. As a direct partner, GFI contributes to scale and sustain integrated renovation programmes for buildings that are closely linked in terms of location, such as energy communities, energy sharing solutions, and positive energy districts, where communities manage an annual local surplus production of renewable energy. In Belgium, iChoosr’s partnership with KBC offers financing for homeowners in group buying schemes. These collaborations expand access to finance, broadening the potential pool of homeowners and boosting adoption of low-carbon technologies by reducing financial barriers. However, bringing similar models to the UK presents challenges, particularly around consumer credit regulations and lender risk perceptions. The GFI’s Unsecured Green Home Loans: Consumer Protection and Scale in International Markets report explores these barriers and the lessons that can be applied to the UK market.
As-a-service solutions
The upfront cost barrier is a major challenge in adopting efficiency improvements. As-a-service solutions help to overcome this by offering a pay-per-use basis instead of requiring upfront purchases, reducing financial risk while ensuring continuous efficiency gains. Models like Efficiency as a Service (EaaS) link payment to actual energy savings or system performance. To scale this, standardised energy efficiency metrics and certified savings are essential. In the LIFE GEAR UP project, GFI is piloting an on-bill financing solution, repaying upfront costs through billed energy savings tracked via smart metering. Once savings are standardised and certified, this approach can scale across securitisation markets, with long term and fixed cash flows for institutional investors.
Property-linked finance
Another innovative financial product that addresses upfront cost barriers is Property-Linked Finance (PLF), which ties financing to the property rather than the owner, enabling the transfer of payment obligations upon sale. It covers up to 100% of retrofit costs, with term of repayments aligned to the lifespan of these improvements. PLF originates from the Property Assessed Clean Energy (PACE) program in the US, a public-private partnership where financing is linked to property taxes. Variants of this model have been adapted as private-driven mechanisms in other countries. In the UK, a proposed new type of “Local Land Charge” could integrate PLF into property transactions. In Spain, the “PACE Canon” links periodic payments to the property rather than the owner, driving private investments in energy upgrades. PLF has the potential to provide a new asset class for retrofit investments; with long term, stable income streams, it lends itself to the future securitisation of the underlying transactions.
Scaling up: the path forward
Scaling these solutions requires a coordinated approach that aligns policy frameworks, mobilises institutional investors, and creates financial structures to reduce investment risks. Key steps include standardising financial products to enhance liquidity and investor confidence, as well as developing green tagging standards for retrofit projects, making it easier for financial institutions to identify eligible sustainable investments. Additionally, building investable portfolios by aggregating demand and structuring finance to attract institutional capital is essential. Aligning incentives for homeowners, tenants, and investors ensures that all stakeholders benefit, while enhancing market transparency can drive greater adoption of energy-efficient solutions.
To successfully transition to a greener built environment, local-based solutions such as PLF, demand aggregation models, and green mortgages and loans must be integrated into a comprehensive strategy that bridges policy ambitious with real-world implementation. These solutions are crucial for scaling building decarbonisation, as they mobilise private capital and overcome financial barriers at the local level. By offering effective pathways to reduce emissions, enhance energy efficiency, and ensure resilience, these approaches are essential for achieving net-zero buildings.
[1] IEA – Energy System, Buildings
[2] International Energy Agency – World Energy Outlook (2024)
[3] Green Finance Quarterly – 5th Edition (2024)
[4] ASUFIN – V Estudio Finanzas Verdes en España (2024)
[5] GFI – Unsecured Green Home Loans
[6] GFI – International Consumer Protections and Green Loans Report (2024)
