BPFI submission to the European Commission on its draft delegated act under the EU Taxonomy Regulation
7 January 2021
On 18 December 2020, Banking and Payments Federation Ireland (BPFI) responded to the European Commission (EC) public consultation on its draft delegated act under the EU’s Taxonomy Regulation in relation to climate change mitigation and adaptation.
The response highlighted our members support for the development of an EU-wide taxonomy and the need to transition to a low-carbon, more resource efficient, and sustainable economy by aligning financial flows to sustainable economic activities.
In particular, our comments focused on the Acquisition & Ownership of buildings as laid out in the Technical Screening Criteria (TSC) on climate change mitigation and argued in favor of the European Commission retaining the original drafting proposed by the EU’s Technical Expert Group, which looked at using the top 15% of the local existing stock of building when determining whether it could be considered taxonomy aligned, compared to using Energy Performance Certificates (EPC) of A rating.
As EPC ratings across the EU are not harmonized, using the A rating could present challenges for investors in terms of transparency of datasets and methodologies, while at present roughly only 5% of mortgages across EU banks are for EPC A rated houses according to the European Mortgage Federation.
As a consequence, a significant number of a lender’s assets would no longer be eligible for inclusion in green products like green securitisation and covered bonds, thus removing a key incentive for lenders to develop products to finance environmentally sustainable activities and reducing the eligibility of existing green bond frameworks.
Such an outcome would be extremely unfortunate, given the sector’s focus on greening residential mortgage and commercial lending portfolios and the importance of energy efficient buildings for the EU’s and Ireland’s decarbonising agenda. We also fear that retaining the EPC A rating could become a barrier to achieving a just transition and “lock-out” various socio-economic groups from obtaining “green” products considering the financing requirements that would be necessary to meet EPC A rating.
The draft delegated act was published by the European Commission on 20 November 2020 who had sought comments from stakeholders until 18 December 2020.
The purpose of these technical acts is to provide “screening criteria” in respect to two of the six environmental objectives – mitigation & adaptation – as laid out in the Taxonomy Regulation, which will ultimately support market participants understanding the degree to which an economic activity is sustainable.
The Regulation itself entered into force on 12 July 2020 and establishes a classification system to help determine sustainable economic activities. It was one of the main legislative proposals put forward by the European Commission in its 2018 sustainable finance Action Plan.