Europe’s push towards energy efficient buildings could create risks for covered bonds backed by collateral that does not comply with incoming requirements, Moody’s has warned, although it said that green covered bonds and EeMAP could help banks deal with the issue.

In a report published on Wednesday, the rating agency noted an “ambitious” EU target of reducing by 45% from 1990 levels emissions from buildings by 2030. Moody’s said it expects authorities to gradually transition from encouraging lower energy use to more mandatory regimes.

“As the drive towards energy efficient buildings gains momentum, the risk of property value impairment will increase for buildings that don’t comply with energy efficiency standards,” said Jane Soldera, senior vice president at Moody’s. “Building owners will also face costs to upgrade properties to improve energy efficiency.”

Commercial real estate is under the most pressure, the rating agency said, because EU rules governing the sector are likely to be rolled out with greater urgency and intensity.

However, Moody’s said that covered bond issuers could address the issue in various ways, including scrutinising the energy efficiency of underlying buildings when loans are added to cover pools or renewed.

“Furthermore, green covered bond issuance demonstrates commitment to environmental objectives and increases transparency about the cover pool collateral,” it added.

“Banks can also take advantage of initiatives such as the Energy Efficient Mortgages Action Plan (EeMAP), which provides a framework for banks to fund the purchase and renovation of energy efficient buildings.”