Legal & Regulatory News

EBA publishes report on green loans and mortgages

On 15 December 2023, the European Banking Authority (EBA) published a report (the Report) in response to a call for advice from the European Commission on green loans and green mortgages. Alongside the Report, the EBA also published an opinion on green loans and mortgages.

In the Report, the EBA recommends the introduction of a voluntary common definition of green loans and a green loan label, since the absence of such a definition has led to fragmentation in markets. The EBA recognise the importance of the Green Loan Principles (GLP), developed by the LMA together with the LSTA and APLMA, which have become the leading framework in green lending among credit institutions. However, it acknowledges that the GLP do not define green projects, nor what can be counted as ‘green’.

In the Report, the EBA suggest that an EU green loan label would need to be consistent with the EU sustainable finance framework, including the EU Taxonomy. However, the Report also acknowledges the disadvantages of basing the definition solely on the EU Taxonomy, given the number of loans which would be excluded. The EBA outlines the following features which could be included in a definition of a green loan:-

1. loan type and asset perimeter;
2. use of proceeds;
3. grandfathering of existing green loans in the application of technical screening criteria of the EU Taxonomy;
4. treatment of newly originated loans and the loan stock;
5. reporting.

The Report recommends that the European Commission consider two options when introducing a definition for green loans:-

1. A recommendation for credit institutions on the processes and criteria to define green loans based on the EU Taxonomy; or
2. A legislative proposal for credit institutions on the processes and criteria to define green loans based on the EU Taxonomy, mirroring the structure and features of the regulation on European Green bonds. This option is supported by the EBA, who provide further guidance on how a green label based on the legislation could be structured.

Additionally, the EBA recommends that green mortgages are included in the Mortgage Credit Directive (MCD) and, in recognition of the growing importance of sustainability features, that this is integrated into the MCD.

Click here to read the Report.

Click here to read the opinion of the EBA on green loans and mortgages.