Today buildings become part of Smart Energy Systems. 4th generation district heating network requires buildings with low energy consumption. In Europe, historic buildings account for around 30% from total buildings stock with high energy consumption which has to be reduced. Many of them have heritage value and external insulation of walls is not possible. If internal insulation is applied, careful hygrothermal assessment has to be carried out to avoid critical moisture conditions in the wall leading to failure modes. Insulation material market is dominated by petrochemicals or non-renewable natural materials. Yet development of bio-based thermal insulation materials is increasing and some of them successfully entered the market. EU Bioeconomy Strategy enhances use of bioresources to increase their added value. The main goal of this research is to assess applicability of innovative bio-based pine needles insulation material that is produced based on bioeconomy principles as internal insulation material for historic massive walls. Results show that studied material is highly porous, has high moisture transfer, storage capacity, and is good hygric regulator. Lime treated material has no mold growth at relative humidity 85%. Even if insulation material is treated with lime, heat savings have to be sacrificed to reduce critical conditions for mold growth.