The multi-billion-dollar value shift banks are about to face

It can feel like sustainability has slipped off the public agenda.

"ESG is dead" has become the market cliché of 2025, but in housing, the data tells a different story.

Recent analysis by Cotality shows that, sentiment aside, investing in a home's sustainability makes financial sense. Our "Watt's it Worth" report showed that simply adding one star (on a scale of 1-10) to a home's energy efficiency rating adds around $10,000 in value, while installing solar panels boosts value by more than double that ($23,100). 

Zooming out, across Australia's 5.5 million detached homes estimated to be below 6 stars (7 stars being the national current construction code minimum for new homes), this means that a mere one-star uplift across the nation's sub-standard homes could unlock more than $50bn in value. Bringing all those homes up to NCC levels could increase that number many times over.

So how realistic is that scenario? Well, the federal government is now moving towards introducing mandatory energy disclosure, requiring all homes to publicise their energy rating at the point of sale or rental. It's a logical next step: market forces are already pricing energy performance into property values, and regulation is just catching up. This could turn an emerging trend into a force of nature.

Australia's 2035 emissions target, aiming for up to 70 percent cuts from 2005 levels, locks housing into the national decarbonisation agenda. Residential buildings account for around 10 per cent of Australia's total footprint, meaning the sector cannot stay outside scrutiny for long.

Many major businesses are already required to quantify and report climate risks and opportunities, including the emissions linked to the homes they build, own, or lend against. Mandatory disclosure for homes will bring that into ever sharper focus, particularly for the lenders who finance them.

So what does this mean for banks?

Enter the fourth pillar

This shift goes to the heart of asset quality and balance sheet strength for banks. Property valuation has long rested on the three pillars of location, land size, and dwelling type. But the data shows energy performance is becoming the fourth pillar.

As energy ratings become more visible and comparable, efficient homes will sell faster and command higher prices, while inefficient homes will face growing "brown discounts".

The impact will be felt beyond individual home transactions. Lenders with large exposures to inefficient stock could soon face systemic collateral risk as the market revalues assets. Australia has precedent: the ACT has required disclosure for two decades, and the evidence is clear. Energy ratings influence price.

It's expected that a national rollout of energy ratings could begin within 18 months. That means banks will need to factor energy performance into valuation models and loan books before revaluation happens to them.

Globally, this process is already well established. In Europe, home energy ratings have been required for well over a decade. Building on this, many jurisdictions also have minimum standards in place for homes that are rented. It's not unreasonable to assume that Australia will follow that path – with an early version of this already tabled in Victoria. The impact on lenders, owners and landlords won't be instant, but over time it will be significant.

Across millions of homes, these shifts could reshape mortgage books, insurance pricing, and portfolio risk assessments.

But it's not just a compliance story. It's an opportunity. 

From compliance risk to commercial opportunity

Upgrading Australia's underperforming homes could unlock hundreds of billions in market value and create an entirely new financial services segment.

For households, the case is straightforward: energy upgrades deliver lower bills, higher comfort, and higher resale prices. For the economy, the flow-on effects include construction jobs, energy savings, and reduced import dependence.

And banks are already responding. 

"Green mortgages" and energy renovation finance offers have grown noticeably in recent years, with preferential rates for high-performing homes and improvement measures. Financing upgrades that raise property value, cut emissions, and lower default risk is sound business, not virtue signalling. These products have, up to now, been niche. But as disclosure spreads, demand for products that reward efficiency will only grow.

2035 is less than a decade away, and the policy process is already in full swing. The business community cannot afford to wait, whether it's to mitigate risk or capture opportunity. And Banks sit at the epicentre of this transition. The real estate and valuation sectors will follow, but financial institutions must lead.

As Al Gore reminded delegates during his recent Sydney visit, climate change isn't a distant concern: it's happening "yesterday, last week, this month".

If we get this right, Australia can unlock enormous value while delivering lower bills, stronger balance sheets, greater energy independence, and measurable progress toward net zero.

The time to act is now.