Banks are finally realizing how climate change will affect housing

Clean energy companies are capitalizing on this emerging shift. Swedish heat pump installer Era recently announced it had struck a €200 million ($214 million) deal from bank BNP Paribas for loan commitments that will allow Era’s customers in Germany to pay for their heat pumps in installments.

“Banks and financial institutions have a huge responsibility to accelerate the energy transition,” says Erik Winter, CEO of BNP Paribas in the Nordic region. He adds that the financing arrangements can also boost asset values, which is a “positive side effect.”

Home renovations and energy improvements aren’t cheap. Loans are often needed to lower the barrier to entry for consumers. Lisa Cook works for MCS, an organization that accredits heat pumps and installers in the U.K. She says she was able to buy a heat pump herself only thanks to government grants and about 5,000 pounds ($6,300) in funding from Aera. “That’s really what made it possible for me,” she says. “Even with the savings, I wouldn’t have been able to do it otherwise.”

Luca Bertallot, secretary general of the European Mortgage Association-European Covered Bond Council, says there is a huge risk to economic productivity if people cannot afford homes that protect them from the worst effects of climate change. In heat waves, workers’ productivity falls, he said, which means a negative impact on GDP. On the contrary, he talks about a kind of energy retrofit butterfly effect. If people make their home cheaper to cool or heat, they will probably save money, which they can spend on other things – such as their children’s education, which in turn improves their children’s chances of living a comfortable life in the future (and perhaps buying a climate-safe home for themselves).

But perhaps there is still a slowness in recognizing a coming storm. Energy efficiency does little to protect properties from the sharpest effects of climate change – stronger storms, rising sea levels, wildfires and floods. As governments become increasingly unable to cover the costs of these disasters, lenders and insurers will likely be exposed to the risks. For example, the U.S. National Flood Insurance Program already covers 100 million dollars in 2017. buckling under the burden of mounting debt,

“As losses mount, it is possible that markets will become more efficient and incentives will increase [to harden properties] “You can become stronger — because nobody is helping you anymore,” says Ralph Toumey of Imperial College London, who consults for insurers.

Burt suggests that eventually, the effects of climate change on housing will force some people to move elsewhere. Given the irreversibility of some landscapes, such as coastal villages that may be lost to the sea, or communities that become doomed to endless drought, there are some assets that no amount of hardening or retrofit can ever save. The structural utility of these assets, like water in a drying oasis, will simply evaporate.

To ease the burden on those most at risk of losing their homes to climate change, Burt says affordable loans could one day be targeted to help consumers in these areas move to safer locations. Lenders who don’t take this approach, and who continue to offer mortgages on homes that are in danger of climate change, may soon regret this day. “If you’re trying to support those markets, you’re throwing good money in a bad place,” Burt says.