Environmental upgrade finance 101

Environmental upgrade finance (EUF) legislation in NSW, South Australia and Victoria allows banks to offer loans to building owners for energy upgrades, with repayments made via local government rates charges.

The environmental upgrade agreements (EUA) between banks and building owners are structured to allow building owners to pass charges on to tenants, helping to overcome split incentives and sharing the costs and benefits of energy upgrades between the tenants and owners. If the tenant eventually leaves the building, the ongoing finance charges for the upgrade are taken on by the incoming tenants via rate charges until the loan is repaid.

Due to the split incentive, when leasing space, building owners are often unlikely to invest in or prioritise these activities due to the high upfront capital costs required and the impact of external financial pressures, such as the COVID-19-induced recession. EUF seeks to overcome this barrier, and lowers the risk for the financier as the loan is tied to the property, with better rates and extended terms offered for the building owner.

Read the Clean Energy Finance Corporation’s finance for environmental upgrade agreements fact sheet here.

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