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Sustainability Insights Research: Building Energy Regulations And The Potential Impact On European RMBS

We conducted a scenario analysis of properties in the U.K. (focusing on England and Wales), Ireland, France, and the Netherlands, where energy performance certificates (EPCs) indicate low energy efficiency (for example classes F and G). We found that climate transition risks linked to changes in energy-efficiency performance regulations currently have a limited impact on European RMBS. This is due to uncertainties on the timing and extent of sale or rental restrictions, financing available for renovations, supply and demand in housing markets, and structural protections in RMBS transactions. Studies show there is a valuation discount for properties with low EPC classes. We found there is a low potential impact of this on our modelled loss severity assumptions, even though energy-intensive properties could face higher losses. Our weighted-average loss severity increases 2.5% at the 'AAA' rating level and 2.8% at the 'B' rating level, albeit our assumptions are very conservative.


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