Author

Massimo Fuccaro, Adjunct Professor at the University of Udine, Italy (Service Management, Quantitative Analysis and Finance, and Data Science).

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Introduction

In the construction sector, many technically sound projects fail to secure financing due to a lack of shared criteria around what makes a project bankable. While technical professionals prioritise energy efficiency, design quality, and the use of renewable sources, investors focus on aspects such as risk management, the credibility of assumptions, and the predictability of cash flows. This cultural divergence hinders the effective use of available European financial instruments.

In recent years, the European Union has intensified efforts to promote energy efficiency in the building sector, and alongside increasingly stringent regulations, numerous financial instruments have been deployed to support the transformation of existing building stock. However, the availability of financial resources does not automatically translate into realised investments. A considerable portion of technically and environmentally beneficial projects struggles to obtain the necessary funding. This difficulty stems from a persistent cultural asymmetry between those who design the projects and those who finance them.

Recent studies highlight that the absence of common evaluation metrics and the difficulty in translating technical benefits into financial models create uncertainty in risk assessments. Additionally, the limited financial literacy among designers prevents constructive dialogue with banks and funds. Although advanced risk analysis methodologies exist, their adoption within the building sector remains marginal. The concept of bankability, which refers to a project's ability to be financed based on risk, credibility, and expected return, is one of the key points of friction between these two worlds.

This article offers a critical framing of bankability within the context of the Architecture, Engineering and Construction (AEC) sector, exploring both cultural and operational barriers, and proposing tools to bridge the gap between design and finance. Fostering a shared culture of bankability is essential to unlocking investment and accelerating the green transition in the built environment.

Why bankability is often misunderstood

In both technical and academic discourse, the term bankability is generally understood as the degree to which a project can secure financing from third-party sources, especially banks, institutional investors, or blended finance mechanisms. However, in the practical realm of energy efficiency projects, this concept is frequently misunderstood, oversimplified, or conflated with adjacent notions such as economic profitability, technical innovation, or environmental impact. While all these factors may contribute to a project's overall value, none are sufficient, individually or collectively, to guarantee access to capital.

Bankability is best conceptualised as a composite risk value profile, rooted not only in a project’s expected performance but in its structural capacity to manage uncertainty and satisfy the risk appetite of external financiers. This profile typically involves five interrelated dimensions:

These elements are rarely included in conventional learning programmes in architecture or engineering pathways and are often absent from the project development process in the early stages. As a result, many well-designed projects are perceived by financiers as risky or insufficiently structured to meet investment standards.

The European Commission’s EEFIG Underwriting Toolkit was an important step in articulating these dimensions into a coherent evaluation framework. Nevertheless, its practical application remains limited, in part due to the absence of cross-sectoral capacity building and a lack of incentives to adopt financial due diligence tools in the construction sector.

A common misconception is the belief that technical merit alone ensures bankability. In practice, risk perception tends to dominate over intrinsic value in investment decisions. Until mechanisms exist to translate technical value into financial credibility, many impactful projects will remain unfinanceable, not because they lack substance, but because they fail to meet the procedural and informational expectations of those who allocate capital.

A cultural divide between technicians and investors

The misalignment between building professionals and financial actors is not merely methodological – it is profoundly cultural. Technicians and investors operate with different logics, speak different languages, and often assess project value using incompatible criteria. This divergence remains one of the main barriers to scaling up high-impact energy efficiency and renovation projects.

For designers, engineers, and sustainability consultants, value lies in architectural quality, energy performance, durability of materials, and the adoption of cutting-edge technologies. These are all crucial for achieving environmental and climate objectives, yet they are rarely translated into the types of metrics that financial institutions use to evaluate risk and return.

Investors, by contrast, work according to well-defined bankability criteria. Projects are considered bankable when risks are explicitly identified, contractually distributed, and mitigated through insurance mechanisms, performance guarantees, and robust legal structures. 
Four key risk categories typically guide investor assessments [1]:

• Construction risk: potential delays, cost overruns, or failures by contractors or suppliers.
• Operational risk: uncertainties in facility management and maintenance, or lack of proven operation and maintenance (O&M) partners.
• Demand risk: lack of clear market demand or usage guarantees.
• Supply and input risk: price volatility of inputs (e.g. energy, materials) or unreliable supply chains

These questions dominate due diligence processes: ‘Who assumes which risks? How are they allocated? What happens if expectations are not met?’ A project is deemed more bankable when it demonstrates clear contractual structures and risk-sharing mechanisms from the outset. The Analytic Hierarchy Process (AHP) has also been applied to market risk management for public utilities [2].

Even high-performance, energy-efficient buildings may be viewed as financially risky if their expected benefits are not backed by credible market data or if their business models are untested [3]. Fuzzy multi-criteria decision-making methods (e.g. fuzzy AHP/TOPSIS) remain widely used to structure risk and investment choices in energy and construction contexts [4]. The lack of shared metrics and financial language often prevents these benefits from being recognised. Moreover, many technical project teams lack financial literacy, making it difficult to engage in constructive dialogue with investors or financial institutions. Tools such as the EEFIG Toolkit or fuzzy multi-criteria models remain underused in the construction sector [4], due to limited training or perceived high complexity. This cultural divide has tangible consequences: public and private funds are frequently underutilised because technically valid projects fail to present themselves in a format that financial decision-makers can trust.

Case study 1. SUPER-HEERO: a replicable model of bankability

SUPER-HEERO was a Horizon 2020 project coordinated by R2M Solution, active between 2020 and 2023. Its objective was to create a replicable financial mechanism to support energy efficiency upgrades in small and medium-sized supermarkets, with a strong focus on community involvement. It was chosen because the project aimed to foster investments in improving a specific category of buildings by combining three integrated financial approaches:

• Energy Performance Contracts (EPCs) to minimise upfront capital requirements.
• Product-service contracts (e.g. leasing or pay-per-use) to attract technology providers.
• Crowdlending models to involve local customers and citizens, often linked to loyalty schemes.
  This blended strategy reduced perceived investment risk, increased transparency, and helped build trust among retailers, communities, and financiers.

The SUPER-HEERO case study offers several transferable insights relevant to the broader construction sector and financial investments. First, it demonstrates that translating technical improvements at the building level into financially quantifiable outcomes is essential for overcoming investor hesitation. When energy savings, efficiency gains, and operational improvements are expressed through robust financial metrics (such as payback periods, internal rates of return, or risk-adjusted cash flow forecasts), they become intelligible and actionable for financial stakeholders. Second, the adoption of standardised and replicable contractual models, such as EPCs and product–service agreements, enables the scaling of renovation efforts by reducing due diligence complexity. These models provide familiar structures for financiers and reduce transaction costs associated with bespoke arrangements. Third, the project illustrates the importance of community engagement as a mechanism to reinforce accountability for physical upgrades and ensure sustained performance over time. By incorporating crowdfunding and loyalty-based mechanisms, the financial architecture of the project fostered local stakeholder alignment and supported the long-term operational success of the renovated buildings, reducing perceived risk from the perspective of institutional investors. Finally, the case underscores the value of modular financial engineering in the context of commercial buildings. By combining diverse instruments (such as EPCs, leasing models, and citizen-sourced capital), the project could attract and align multiple categories of investors, close funding gaps, and build a diversified capital stack. This approach proved particularly effective for small and medium-scale interventions, offering a replicable blueprint for improving the energy performance of existing buildings.

In summary, the SUPER-HEERO model exemplifies how an integrated and layered financial structure, both grounded in tangible building upgrades and tailored to the specific risk profiles and interests of all stakeholders, can enhance the bankability of energy efficiency projects applied to the building sector and catalyse investment at the local level. The model is currently in its next phase of development within the LIFE Project Scaling SUPER-HEERO (2024-2027), which expands its scope beyond commercial buildings to diverse building types.

Case Study 2. The Kyoto Fund for energy efficiency in public buildings (Italy)

The Kyoto Fund is a revolving fund established by the Italian Ministry for the Environment to support investments in energy efficiency and greenhouse gas reduction. One of its key priority areas, from 2014, has been the public school building sector, aiming to finance retrofits through long-term loans at a subsidised interest rate of 0.25%, with repayment periods of up to 20 years.

The project selection process relied on technical and environmental assessments conducted by the Italian National Agency for New Technologies, Energy and Sustainable Economic Development (ENEA) and the Ministry, while Cassa Depositi e Prestiti (CDP) managed the financial evaluation and disbursement procedures. The eligible interventions under this programme included improvements to building envelopes, such as thermal insulation, the replacement of windows, the replacement of inefficient heating and cooling, lighting systems, and the installation of renewable energy technologies, including photovoltaic and solar thermal systems.

The Fund, despite its strategic importance and favourable terms, saw limited initial uptake. Many of the allocated resources went unused due to institutional, technical, and cultural barriers affecting the bankability of the submitted projects. Proposals often lacked technical validation and detailed design documentation. Furthermore, local authorities showed limited financial literacy and struggled to create coherent business plans or engage in structured dialogue with the financing institution. A key issue was monetising energy savings, which hindered credible cash flow forecasts and weakened project investment appeal. Additionally, many municipalities were culturally reluctant to incur debt, regardless of economic benefits.

Initial limitations of the Kyoto Fund were addressed through procedural simplifications, which significantly reduced the administrative burden on applicants and targeted technical assistance for local authorities, enhancing their ability to prepare compliant project documentation and engage meaningfully with financial institutions. Moreover, the Fund’s integration with grant mechanisms introduced by Italy's National Recovery and Resilience Plan significantly boosted its attractiveness and accessibility. These changes fostered a proactive approach to public borrowing, supporting long-term sustainability goals, transforming the Fund into an effective tool for catalysing investment in energy-efficient public buildings. Informational asymmetries and transaction costs were reduced, while the credibility of municipal proposals was reinforced.

This observation aligns with a broader body of research showing that risks affecting the bankability of energy efficiency projects in the construction sector emerge at different stages of the project lifecycle. Figure 1 provides a classification of such risks, mapped against project phases [5]. 

_{Figure 1. Classification of risk factors across the energy efficiency project lifecycle of a building. (Source: [5]).}

Aligning risks with project phases helps stakeholders identify when targeted mitigation strategies are most needed to improve project bankability.

Conclusions

Bankability in construction is more than economic and financial metrics – it is a multidimensional quality shaped by design integrity, strategic coherence, robust contracts, and effective risk management from the earliest stages of projects. Persistent gaps between technical actors and financial institutions, driven by differing priorities and asymmetrical information, turn bankability into a subjective, often biased process. Bridging this divide requires shared interpretative frameworks and stronger institutional interfaces, aligning design with finance. Promoting a European culture of bankability becomes essential for unlocking sustainable investment. This means fostering interdisciplinary spaces where sustainability translates into project credibility and contractual reliability. By translating technical ambition into financial feasibility, the systemic gap between technical innovation and financial credibility can be bridged. This allows both local and international capital to flow more effectively towards high-impact environmental and social projects, enabling Europe to lead in delivering resilient, future-proof buildings that meet environmental and social goals.

References

[1] Owolabi, H. A., Amuda-Yusuf, G., & Smith, S. D. (2019). 'Risk mitigation in PFI/PPP project finance: A framework model for financiers’ bankability criteria. Built Environment Project and Asset Management'. OA: https://uwe-repository.worktribe.com/OutputFile/4750244
[2] Fuccaro, M., Simeoni, P., & De Felice, F. (2013). 'Market Risk Management for Public Utilities Through AHP. Proceedings of the International Symposium on the Analytic Hierarchy Process (ISAHP)'. OA: https://www.isahp.org/uploads/73.pdf
[3] Szumilo, N., & Fuerst, F. (2017). 'Income risk in energy efficient office buildings'. Energy Economics, 64, 24–32. OA: https://www.repository.cam.ac.uk/items/baaff236-87b0-4315-821e-442dd4e290da
[4] Hur, T., & Kim, H. (2017). 'Risk evaluation of the project finance for overseas independent power producers: A fuzzy multi-criteria decision-making analysis'. Sustainability, 9(6), 951. OA: https://koreascience.kr/article/JAKO201718555880057.view
[5] Koutsandreas, D., Tsoutsos, T., Tournaki, S., & Rigopoulos, K. (2022). 'Risks and mitigation strategies in energy efficiency financing: A systematic literature review'. Energy Reports, 8, 1789–1802. OA: https://www.sciencedirect.com/science/article/pii/S2352484722000063