Energy efficiency finance as the new frontier of sustainable finance

In a time of rising energy insecurity and geopolitical dependency, it is striking how little attention energy efficiency receives in mainstream policy and finance debates. With the notable exception of the Energy Performance of Buildings Directive (EPBD), the transposition deadline of which of 29 May 2026 is fast approaching, energy efficiency remains curiously neglected.

Energy efficiency is often described as the ‘first fuel,’ yet it might more accurately be called the forgotten fuel. This is paradoxical. Renovating Europe’s ageing building stock is widely recognised as a no-regret investment. It reduces emissions, lowers energy bills, improves energy security and enhances asset values. However, deployment remains far below what is needed to meet Europe’s climate and energy targets.

Part of the explanation lies in how the opportunity is structured. Energy efficiency is not a niche but one of the largest underdeveloped investment areas in Europe, with annual financing needs arguably in the order of hundreds of billions of euros and a persistent investment gap despite its strong economic rationale. However, it does not behave like a conventional market. Instead of large standardised projects it consists of millions of small fragmented investments each tied to specific buildings and local conditions. Returns are often based on avoided costs, meaning lower energy bills rather than direct revenue streams.

Europe does not lack technical capacity. It has a strong base of industrial and engineering actors capable of delivering efficiency improvements at scale. The bottleneck lies elsewhere, at the intersection between finance data and standardisation.

Banks, which are central in Europe’s financial system, have not yet integrated energy efficiency in their core lending activities at scale. This is not due to a lack of capital but to structural frictions, including small and dispersed loan sizes, uncertainty around energy savings realised, inconsistent data, misaligned incentives between property owners and occupants as well as potentially unintended consequences on their credit risks. The result is a persistent ‘financeability gap’ with projects making economic sense but remaining difficult to finance.

One promising way to overcome this fragmentation is with green securitisation. By pooling thousands of small energy efficiency loans such as home renovations and heat pump installations, banks may transform them into tradable financial instruments. This would allow them to recycle capital and expand lending capacity while giving institutional investors access to diversified green assets.

However, Europe’s securitisation market remains underdeveloped compared to that of the United States. The reasons are fragmented structural legal frameworks, limited standardisation of underlying assets and a lack of long-term performance data to model risk. Energy efficiency adds another layer of complexity as it requires reliable measurement and verification of energy savings, which is still inconsistent across markets.

This is where Europe’s broader financial agenda becomes relevant. The emerging Savings and Investment Union is designed to better connect Europe’s substantial private savings with productive investment opportunities. Energy efficiency is a natural fit in this framework. If properly structured it can channel long-term savings in pensions and investment funds into securitised green assets that finance real economy upgrades.

Private banks remain central in this system as originators and intermediaries. But public and blended finance will be equally essential to de-risk early markets, standardise practices and crowd in institutional capital. To reach scale however, Europe will need to put in place novel structures to fund energy efficiency.