Commercial mortgages: An underutilized channel for scaling energy efficiency investments?

Publication Type

Conference Paper



Commercial mortgages currently do not fully account for energy factors in underwriting and valuation, particularly as it relates to the impact of energy costs and volatility on an owner’s net operating income.  As a consequence, energy efficiency is not properly valued and energy risks are not properly assessed and mitigated.  Commercial mortgages are a large lever and could be a significant channel for scaling energy efficiency investments. A pilot analysis of loans with different mortgage contract structures and locations showed that when energy cost volatility was included in mortgage valuation, a 20% reduction in energy use resulted in a 1.3% average increase in mortgage value. This suggests that the explicit inclusion of energy use and volatility in mortgage valuation can send a strong price signal that financially rewards and values energy efficiency in commercial properties.

This paper presents findings from a scoping study addressing energy factors in commercial mortgages. First, we present a review of current practices as it relates to incorporating energy factors into commercial mortgage underwriting and valuation. Next, we detail the impacts of energy factors on property values, net operating income and mortgage valuation. Building operational practices alone can result in energy use variations from -17% to 87%. Finally, we present a set of proposed interventions to properly address energy factors in commercial mortgages, based on extensive discussions with stakeholders including mortgage originators, underwriters, building owners and regulators.



Year of Publication



Research Areas

Related Files