Fitch Ratings has started work on incorporating data on the energy efficiency of residential properties in its ratings criteria for mortgage securities and covered bond transactions. Fitch’s view is that the energy efficiency of a property is becoming a key price differentiator. It has released a discussion paper on climate policy risk for residential property, which asks for feedback from stakeholders. Fitch said the key metric for household energy efficiency is an energy performance certificate, which has already been introduced in a number of countries (particularly across Europe). EPCs typically provide a scale measuring a property’s overall energy consumption. Some EPCs look at the types of appliances used in a home. Fitch expects the use of EPCs for the residential sector to become more widespread, although there is limited data available in some markets and a lack of standardisation of EPC ratings. It said data transparency and standardisation will develop as part of more forceful climate-related policies aimed at the residential property sector. Already in the European Union there have been efforts to harmonise EPCs. It is also anticipating the development of mandatory mitigation strategies, covering emission levels and general physical climate-resilience attributes of buildings, such as heating, lighting and insulation. In jurisdictions where data relating to the sale price of residential properties based on their relative energy performance are available, Fitch observes a relative premium for properties with more energy efficient characteristics. Buyer demand for better energy performance characteristics is expected to increase as the need for climate mitigation becomes more pressing. Fitch is planning to adjust its assumptions for residential property in RMBS transactions and covered bonds to reflect the energy efficient characteristics of dwellings as measured by EPCs. It is reviewing the impact of EPC data on the calibration of stressed assumptions. “An adjustment to stressed sale adjustments would more accurately reflect the effect of EPC considerations on property price assumptions, as used in recovery expectations,” it said. Fitch said it will expect issuers or originators to provide loan-level or portfolio-level EPC information to the extent permitted. It said the state of play in Australia is that EPCs are available for residential properties but are not compulsory in all cases, and are targeted primarily at new constructions and renovations.