Green Loans - The Role of Leasing

The European Banking Authority (EBA) has received several mandates from the European Commission in the context of their 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.

The EBA in its response to the European Commission’s call for advice on green loans proposes the introduction of a voluntary EU label for green loans based on a common EU definition. According to the EBA, green lending currently represents a limited share of the overall lending by the banking sector. Their analysis shows that 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 EBA advises 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.

To improve the situation, 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.

They also promote that the labelling framework for green loans/leases should 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, in their view 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.

The role of leasing for the financing of green assets

In line with Leaseurope’s ongoing requests, the EBA report specifically mentions financial and operating leasing as a type of financing that should be included in the green definition. This is a very positive development for our industry and the promotion of leasing as a key financial instrument for the financing of the green transition.

The EBA opinion to expand the scope of the definition of green assets provides great support to Leaseurope’s advocacy efforts to include operating leasing in the green asset ratio (GAR) as well as in our work on other relevant sustainability reporting standards.