Much has been said about environmental, social, and governance (ESG) criteria, and even more about the need to protect our planet from the adverse consequences of climate change. Consequently, in many instances, the ‘E’ emerges as a central factor in the sustainability debate. However, it is increasingly evident that for society to progress in a balanced manner, finding the perfect combination of all three criteria is essential. This is a challenge that is far from easy to design, let alone execute.
However, housing renovation, both to improve energy efficiency and accessibility, is an exemplary initiative in this regard, due to its favorable effect on the environment and because in a society like Spain’s, which tends to age, the commitment to enjoying homes and social environments that generate greater well-being is fundamental. We know that these environmental and social objectives cannot be achieved without an adequate balance between the public and private sectors, making it essential to design a framework for action where governance links both spheres.
In general, buildings emit 36% of greenhouse gases and account for 40% of energy consumption, making it understandable that the European Commission has established renovation as one of the activities that must first benefit from recovery plans, as also highlighted in the Recovery and Resilience Plan designed by the Spanish government. Furthermore, it generates a multiplier effect on employment for small and medium-sized enterprises.
In Spain, however, convenience becomes a necessity from an environmental perspective, because just over 70% of the housing stock has a low-quality energy certificate (rated between E and G according to the IDAE). This is due to a historical lack of special interest in incentivizing the modernization of homes and buildings in the country. Only 0.3% of the existing stock has been renovated annually here, compared to an average ranging between 2% and 3% in the main EU countries.
Likewise, in terms of accessibility, more than 35% of the housing stock in Spain is inappropriate in terms of well-being and accessibility for an aging population that therefore requires needs and comfort that these homes do not offer. Therefore, improving housing accessibility, preparing them to generate well-being, reducing families’ electricity bills, and fostering a regenerated urban environment are objectives that fit perfectly within the social criterion, which forms one of the pillars of sustainability.
To carry out this effort in the coming years, it is estimated that at least 40 billion euros are needed, according to the PNIEC. Through European recovery funds, the sector will have 6.82 billion euros, as announced by the Prime Minister, making the support of the private sector fundamental. This requires a new way of understanding the business model beyond execution, with a regulatory framework better adapted to these needs and with new financing instruments. Therefore, governance between public commitment and private collaboration must be clear, stable, and reliable.
The banking sector has always viewed renovation as a marginal activity that generated significant risk due to the legal uncertainty derived from the Horizontal Property Law and the complexity of these operations. Added to this was its low profitability, hampered by narrow margins and long loan amortization periods. Financial regulation also does not help finance large-scale renovation, as it requires capital provisioning that discourages banks. However, European recovery funds and increasing social awareness of climate risks are changing the perception of the banking sector, which sees a very attractive business opportunity in this necessary transformation. Financial products adapted to renovation are already beginning to emerge in the market, tending to be granted under advantageous conditions if they improve the energy efficiency of the home. However, it is essential to facilitate an appropriate regulatory framework to promote innovative financial products that support large-scale actions under preferential conditions, which requires transcending traditional financial formulas.
Gradually, the obstacles that hindered the potential of the renovation market in Spain are beginning to dissipate. In this scenario, however, the most important ingredient is missing: owner awareness. Until now, we took it for granted that owners were mobilized through subsidies and that the greater the amount of aid, the greater the interest in renovating their homes. Likewise, we assumed that as soon as demand awakened, banks would adapt their product offerings to promote home renovation. This is not so clear. Spain has undergone a substantial change in recent years. Currently, we live in a country with different needs than one or two decades ago and, to some extent, more impoverished after suffering the impact of two very severe economic crises. A country, undoubtedly, more sensitive than ever to climate change and social issues, and one that hopes European recovery funds will help solve many of these problems. We live in a country where many old dogmas seem to have been shattered, which affects, among other things, the perception that owners and consumers have about renovation.
Therefore, it is fundamental to understand the arguments that support owners’ preferences for renovating their homes. If we are unaware of potential demand, it will be more difficult for banks to create new innovative products, just as it is unlikely that owners will be inclined to modernize their homes without a national policy framework that supports large-scale actions and thus promotes the availability of financing to cover the investment. European funds do not solve the entire equation, which has many variables, but they constitute a starting point to boost the potential of renovation and urban regeneration in Spain. Now that we know the pieces of this complex puzzle of crossed interests, let’s start building it to materialize this opportunity into tangible solutions.
Juan Carlos Delrieu, Director of Strategy and Sustainability at the Spanish Banking Association and FinResp
