Analysis of Regulatory and Supervisory Landscape to EEM 

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This report identifies and explores the key touchpoints between the EU regulatory and supervisory landscape and energy efficient mortgages, with a focus on the EEM definition, EEM Label and the prudential treatment of EEM, and assesses these with a view to providing the necessary compliance and alignment guidance to lending institutions in a second stage. The report furthermore considers the contribution of EEM to the European Commission’s objectives in relation to the recovery from the COVID-19 crisis.

With a focus on the vast, complex and interconnected regulatory and supervisory landscape related to sustainable finance, the report concludes that no part of a banks’ activities will remain untouched by the various initiatives and actions, whether these bank activities be retail, funding or supervisory-related. The report finds however that the most significant impact on banks’ activities of this landscape will be driven by the material effects of Sustainable Finance policy and the actions intended to support the EU Green Deal on the three pillars of the supervisory framework:

  •  Pillar 1 (Minimum Capital requirements): The EBA mandate to assess the appropriateness of a dedicated prudential treatment for ESG related as- sets (brought forward from 2025 to 2023) presents an opportunity to secure a realignment of capital requirements for EEM and underlines the importance of the EEMI analysis of the correlation between building energy performance and credit risk.

  • Pillar 2 (Supervisory review): Guidance, both present and future, from the ECB and the EBA respectively could give rise to SREP measures, i.e. capital add-ons and a material risk of additional equity cost, depending on how climate risk is managed by banks and the subsequent supervisory dialogue.

  • Pillar 3 (Market discipline): The key disclosure requirement here, amongst the many, is the Green Asset Ratio, which perhaps more than any other disclosure requirement will be decisive for banks, as nothing determines a banks’ strategy more than the composition of its assets. Banks will need to understand the extent to which they will be subject to pillar 3 requirements as regards all current and future EU Green Deal measures.