Foundation walls may be insulated on their interior surfaces. Framing materials should be separated from a concrete wall by dampproofing materials. Polyethylene should not be used for this purpose with new concrete walls because it does not allow the drying of moisture escaping from the concrete. Building paper protects the framing and insulation from moisture damage by conducting the moisture to the bottom of the wall. Alternatively, expanded or extruded polystyrene insulation may be installed against the concrete foundation wall prior to the framing, batt insulation and vapour barrier (Figure 16).
If adhered to the concrete and sealed around the board perimeters, it can effectively isolate the cold interior concrete surface from interior air and reduce the potential for condensation. Rigid insulation should be bonded to the wall with cement grout or synthetic adhesive applied in bands forming a grid pattern. This pattern of bonding is recommended to limit warm moist air movement behind the insulation since this can cause condensation and moisture accumulation between the wall and the insulation.
Source : Canada Mortgage and Housing Corporation (CMHC)