Everything You Need to Know About EBA’s Proposal for a
Voluntary EU Green Loan Label

On 15 December 2023 the European Banking Authority published its response to the European Commission’s call for advice on green loans and mortgages. The response includes both an opinion and a report containing more detailed advice.

In its response 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.

To facilitate a more active participation by banks in the green loans market, the European Commission is advised to establish 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.

The EBA response is based 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.

Green lending practices

In its response, the EBA states that credit institutions’ green loans to households and SMEs remain limited. In most cases, credit institutions’ green loans for households finance the purchase of high energy performance buildings, while green loans to finance the renovation of buildings with relatively lower levels of energy efficiency performance is limited. Similarly, green loans for retail SMEs are on average marginal on credit institutions’ balance sheets.

Green Loan label

The EBA advises the European Commission to consider various options to support markets for green loans with dedicated evidence-based assessment and cost-benefit analysis, including, at a minimum:

  1. A recommendation to formulate a conceptual framework on green loans without introducing a specific green label, but based on the green loan definition, in order to provide a foundation for green loan agreement including process and transparency rules between credit institution (or lender that is not a credit institution) and prospective borrower; or
  2. A legislative initiative to introduce a voluntary label for EU green loans encompassing the definition of a green loan based on the EU Taxonomy and related process requirements, similar to the one proposed for EU green bonds, which credit institutions (and other lenders that are not credit institutions) should follow, if they decide to obtain such a label voluntarily.

According to the EBA’s response, a green label based on the above-mentioned legislative initiative could follow a tiered approach including two tiers:

  • The first tier would categorise loans, the proceeds of which are allocated to economic activities in line with the EU Taxonomy and its technical screening criteria, at the point of origination of these loans.
  • The second tier would cover loans where the proceeds are not aligned with the technical screening criteria of the EU Taxonomy at the point of origination. Instead they are allocated to economic activities with a dedicated transition purpose. They should also work towards the environmental objectives of the Taxonomy Regulation,  as formulated in Commission Recommendation (EU) 2023/1425. Such a solutionr could be time-limited and subject to review until the markets reach a certain level of maturity and the data availability and quality improve.