The EBA proposes a voluntary EU green loan label to help spur markets

The European Banking Authority (EBA) today published its response to the European Commission’s call for advice on green loans and mortgages. The EBA proposes the introduction of a voluntary EU label for green loans based on a common EU definition and the integration of the concept of green mortgage and its key sustainability features in the Mortgage Credit Directive.

The EBA’s response provides an overview of green lending and associated practices in the banking sector, and outlines issues identified in green loans market. Green lending currently represents a limited share of the overall lending by the banking sector. Loans for the renovation of buildings to improve energy efficiency and for small and medium-sized enterprises are currently not at sufficient levels to achieve the EU’s sustainability objectives.

To facilitate a more active participation by banks in the green loans market, the European Commission is advised to make available a voluntary EU definition and label for green loans based on the use of the loan proceeds. These initiatives should leverage current market practices and industry standards that are in line with the EU’s environmental objectives.

In particular, the EBA proposes that:

• the EU definition and labelling framework for green loans, while based on the Taxonomy, incorporate a degree of flexibility to facilitate market participants’ credible efforts in contributing to environmental objectives.
• the labelling framework for green loans provide the necessary information and transparency for prospective borrowers. These include information on the long-term benefits of investing in energy-efficient solutions, documentation requirements and availability of financial support schemes. To this end, the policy framework should investigate the recognition and incorporation of such an EU label for green loans in existing and future public financial support schemes.
• when reviewing the Mortgage Credit Directive, it consider integrating the concept of green mortgages as well as the expected features of these loans. Important aspects include information about energy performance, the use of energy performance certificates as part of pre-contractual information and enhancing competence and knowledge related to green mortgages.

This response has been developed building on the input received from 83 credit institutions across 27 EEA countries, as part of the EBA industry survey which took place between February and May 2023.

Note to the editors

The EBA received tasks from the European Commission in the context of Communication ‘Strategy for Financing the Transition to a Sustainable Economy’. In this context, the European Commission requested the EBA to issue an opinion on the definition and possible supporting tools for green loans and mortgages to retail borrowers and SMEs.

According to Article 16a (4) of Regulation (EU) No 1093/2010, the EBA may, upon a request from, inter alia, the European Commission, provide technical advice and deliver an opinion to the European Commission on all issues related to its area of competence.