A Bank of Italy paper proposes a harmonized, voluntary EU definition of green loans for construction and real estate financing. The two tier model would preserve full EU Taxonomy alignment as Tier 1 while creating a simplified Tier 2 pathway based on energy performance. The proposal seeks to reduce fragmented bank practices caused by data gaps and the operational burden of applying the Taxonomy’s Do No Significant Harm criteria and minimum safeguards. Under Tier 2, new construction and building purchases could qualify based on top tier energy performance certificate ratings or specified primary energy demand benchmarks. Renovations could qualify through a reduction in primary energy demand of at least 30% or an upgrade of at least one energy performance certificate class. The definition would cover secured and unsecured bank lending to households, businesses, nonprofit organizations and public administrations, but exclude bonds and other securities. Classification would occur at origination, with renovation and construction eligibility confirmed after completion where relevant. Lenders using Tier 2 would separately disclose performance based green loans and Taxonomy aligned exposures. The paper supports either an EU recommendation or legislation to establish the framework, while proposing that use of the EU green loan classification remain voluntary.
Bank of Italy paper proposes simplified two tier EU definition of green loans
A Bank of Italy paper proposes a voluntary two tier EU definition of green loans for construction and real estate financing. Tier 1 would retain full EU Taxonomy alignment, while Tier 2 would use simplified energy performance criteria such as certificate ratings, primary energy demand benchmarks and renovation improvements. Separate disclosure would preserve the distinction between the two categories.