11. Sustainable finance definitions in the Netherlands

Green Projects

Green projects should provide a significant and immediate environmental benefit. The seven categories are defined by law with the latest revision dating from March 30 20163. They are:

• Nature, forest and landscape – protected zones including green zones in cities, wildlife tunnels, nest protection;

• Agriculture - organic farming, environmentally friendly horticultural greenhouses;

• Energy – wind turbines, solar cells, hydropower, heat pumps, LED lamps, waste heat;

• Sustainable construction – energy and water efficiency, construction from environmentally friendly materials;

• Sustainable mobility – cycle paths and parks, green public transport, cleaner inland ships.

Green Institutions

Several financial institutions have been recognised under the scheme as green banks4, after indicating their willingness and ability to participate in the scheme. They are: ABN Amro, BNP Paribas Fortis, ING, Rabobank, Triodos, ASN, National Groenfonds, and Stichting NOTS Re Investment. Banks offer low-cost loans to eligible companies/projects, and provide below average returns to retail consumers, but those below average returns are offset by a capital tax exemption. The banks issue fixed term bonds, or shares in a green investment fund. The cost paid to the market is lower than the standard market rate, which in turns allows the bank to fund projects at a cheaper rate.

Tax incentive for individual investors

Capital invested in an eligible green investment by an individual is tax exempt up to about 55 000 euros per person, instead of being subject to a regular 1,2% capital gains tax in the Netherlands. In addition, income from such investments receives a tax reduction of 1,3%. Individuals may invest either in a green fund or in a green savings account. The bank must invest at least 70% of the money in green projects. The bank provides a lower interest rate than the market rate, but this is compensated by the tax savings.

Procedure and control

The bank carries out an economic assessment of projects and applies to the Government for a Green Certificate if the project is a promising candidate under the Green Funds Scheme. The government checks the criteria and issues a certificate valid for 10 years if the project meets the criteria.

Outcomes of the Green Funds Scheme

According to the data in the brochure from the Ministry of Housing, Spatial Planning and the Environment (see note 8), over 14 years from 1995 to 2009, a cumulative total of € 7.4 billion euros was collected by the scheme, from 250 000 individual investors. One out of seven individual investors in the Netherlands holds a green bond or a share in a green fund. The average investor has invested € 30,000. Some 6000 projects were financed, with an average amount of 4 million euros per project. The most popular projects in terms of number of green certificates received have been organic farming, Green Label Greenhouses, and renewable energy. More than 800 million euros have been invested in organic farming, more than 1700 square kilometres of wood and nature conservation areas have been created in a decade, and one third of all greenhouses in the Netherlands have been brought up to the Green Label Greenhouse standard, which gets tighter every year.

A 2013 study by a Dutch consultancy (CE DELFT, 2013[7]) provided a cost-benefit assessment of the Green Funds Scheme. It concluded that the scheme was successful in improving the business case for innovative sustainable projects, and at channelling capital to those projects, in a cost effective manner.

Residential building energy performance standards: The National Energy Act (2013) and the Energy Agenda (2016)

Energy performance standards for residential buildings have been in effect since 1995 in the Netherlands (RVO, 2016[8]). Following the implementation of the European Directive 201/31/EU on the Energy Performance of Buildings, owners of residential buildings are required to obtain an Energy Performance Certificate or Label ranking from A (best) to G (worst). In 2013, the National Energy Act was established, with three objectives:

• by 2020, achieve an upgrade (equivalent to two levels in the Energy Label rankings) for 300 000 residences

• renovate the social housing building stock to an average of energy class B

• improve 80% of the private rented houses to a minimum of energy class C.

In 2016, an “Energy Agenda” was signed, establishing objectives to 2050, including phasing out offices and rented houses with an energy label worse than C, and gradually reducing the use of natural gas in the built environment. In addition, according to the European Directive, all newly built houses after 2020 need to reach NZEB - Nearly Zero Energy Buildings.

The Energy Performance Coefficient

The main requirement for the energy performance of new buildings is the Energy Performance Coefficient (EPC). The EPC is the quotient obtained by dividing a building’s calculated primary energy needs by the allowed primary energy performance, measured in mJ/m², or milliJoules per square meter. The coefficient is therefore unitless. Primary energy needs and performance are estimated based on a series of indicators, e.g. heating, ventilation and lighting, adjusted according to the useful floor area and the renewable energy produced by the building. There are also legal requirements for the thermal quality of the building envelope for new buildings and major renovations (i.e. concerning more than 25% of the envelope), measured in R-value for walls, roof and floor (m2 .K/W), or U value for windows and doors (W/m2.K).

Gradual decrease of the EPC

The calculation of the EPC is mandatory for all new buildings and for large renovations in houses and offices. Municipalities have the legal power to halt construction projects if there is no compliance with the legal requirements for EPC. EPC requirements are set by building type (e.g. 1.8 for a hospital and 0.4 for a residential building in 2016. The latter figure is roughly equivalent to 50 to 65 kWh/m2 a year), and is gradually lowered for new buildings so as to reach NZEB in 2020.

Cheaper “green” mortgages

Purchases of new houses or renovations by owner-occupiers are eligible for green certificates if energy-saving measures are implemented and lead to an improvement of the energy index by:

• At least 0.6 to a maximum of 1.4 (category 9d.1)

• At least 1.3 to a maximum of 1.4 (category 9d.2)

• At least 1.5 to a maximum of 1.2 (category 9d.3)

• To energy index 0 (category 9d.4)

Based on home renovation plans and documents demonstrating the requisite energy performance improvement, a bank can offer a green loan or mortgage with an interest rate that is below the normal interest rate. The maximum amount of the reduced rate mortgage is set from € 25 k to € 100k based on the categories above. The interest rate reduction is in the range of 25% below the normal interest rate and depends on a complex formula.

Outcomes of the Green Mortgage Scheme

The total amount of mortgages outstanding in the Netherlands was € 600 billion as of end 20185. Based on a poll of 1588 respondents organised by DNB (DNB, 2017[9]) homeowners mainly use their savings to finance investments to green their homes. In the period 1997-2017, 45% of homeowners invested in making their home more energy efficient (via insulation or sustainable energy). Only 4% financed these investments by means of bank loans. Of the households not making investments to green their homes, only 1.4% said this was due to their not being able to get a bank loan. More frequently stated reasons include a lack of savings and aversion to run up debt. High installation costs, and difficulties in comparing costs and benefits were also cited.