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Germany's real estate market may be grappling with an emerging and controversial trend: banks indirectly pressuring property owners to undertake energy-efficient refurbishments. According to a recent analysis by Aengevelt Immobilien, this is occurring under the guise of fulfilling European Union ESG reporting requirements and risk management obligations under BaFin guidelines.
Banks are increasingly requesting energy performance certificates (EPCs) from borrowers, including those with existing loans—a practice Aengevelt alleges is sometimes legally questionable. This shift, ostensibly to align loan portfolios with stricter energy efficiency standards, could mean higher interest rates or denied financing for owners of less efficient buildings. In effect, property owners may face significant pressure to renovate their assets to secure or prolong financing.
Aengevelt reports that many borrowers are now receiving letters from their banks requesting EPCs for residential or commercial properties securing existing loans. While some institutions began implementing this policy over a year ago, others have recently joined the bandwagon. Banks justify the demand by citing BaFin's Minimum Requirements for Risk Management and the EU's ESG taxonomy, particularly the Green Asset Ratio. This ratio measures the proportion of a bank’s real estate portfolio that meets sustainable energy standards, which influences how banks report their green financing commitments to regulators and investors. EPCs have emerged as the preferred metric for evaluating compliance.
Aengevelt Immobilien
Dr. Wulff Aengevelt, managing partner, Aengevelt Immobilien
However, Dr. Wulff Aengevelt, managing partner of the 115-year old family-run Aengevelt Immobilien, contends this practice is premature and potentially misleading. “We have observed that banks are allowing themselves to be used, apparently even unlawfully in some cases, to ultimately introduce an energy-efficient refurbishment requirement through the back door,” he said.
Aengevelt highlights that BaFin has not explicitly mandated banks to request EPCs for existing loans. Instead, the supervisory body allows flexibility in how institutions meet reporting obligations, which remain undefined in many areas.
Questionable legal and ethical approach
Consumer advocacy groups have also weighed in, noting that banks cannot legally mandate EPC submission for existing agreements. Yet, banks often create the impression of obligation, accompanied by veiled threats of higher rates, denied refinancing, or penalty charges for low energy efficiency. For instance, one bank's website cautions: “Sustainability criteria will increasingly influence the lending process and long-term interest rates.”
Should this approach gain traction, Aengevelt warns it could create a de facto refurbishment requirement. Owners of unrenovated properties may face untenable financing conditions, effectively forcing them to invest in costly upgrades or risk devaluation of their assets.
Beyond the legality of these practices, Aengevelt questions the suitability of EPCs as a basis for lending decisions. Many certificates—particularly those available online—rely on rough estimates that can disadvantage property owners. Criteria such as a building's age or renovation history may ignore significant insulation or efficiency upgrades, producing results that are far from accurate. (EPCs are documents that provide energy efficiency ratings for properties, typically on a scale from A+ (most efficient) to G (least efficient)).
“Energy performance certificates were designed as orientation tools for buyers and tenants, not as a precise metric for loan terms,” said Dr. Aengevelt. “Using them as the basis for determining interest rates or financing eligibility is a misguided approach.”
The danger of becoming a "stranded asset"
Dr. Aengevelt also cautioned against policies that could turn inefficient properties into “stranded assets”—a term increasingly used to describe real estate deemed unsellable or significantly devalued due to poor sustainability credentials. “This is a completely wrong approach,” he argued. “Socially responsible property ownership must remain a pillar of retirement provision.”
For investors and property owners, evaluating their portfolios’ energy efficiency and preparing for potential regulatory pressures will be key to mitigating financing risks. Investors could consider alternative financing options, such as partnerships with sustainability-focused lenders or green bonds, to navigate these challenges. Exploring market segments that remain less affected by stringent ESG criteria, such as industrial or logistics real estate, could also provide resilience against tighter lending conditions.
Looking ahead, these regulatory pressures are likely to shape not only lending practices but also property valuations, with energy-efficient buildings becoming increasingly desirable assets. Investors should anticipate the full implementation of EU ESG reporting requirements by 2026, with regulatory updates likely to accelerate as banks aim to align with BaFin’s evolving guidelines. Aligning with sustainability trends and adapting to these changes will be crucial for domestic and international investors to maintain competitiveness in Germany’s real estate market.