Green Mortgages, EU Taxonomy and Environment Risk Weighted Assets: A Key Link for the Transition

Lorenzo Esposito, Giuseppe Mastromatteo, Andrea Molocchi, Paola Cristina Brambilla, Maria Leonor Carvalho, Pierpaolo Girardi, Benedetta Marmiroli and Giulio Mela ()
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Giuseppe Mastromatteo: Economic Policy Department, Università Cattolica del Sacro Cuore, 20123 Milan, Italy
Andrea Molocchi: Ricerca sul Sistema Energetico SpA, 20134 Milan, Italy
Paola Cristina Brambilla: Ricerca sul Sistema Energetico SpA, 20134 Milan, Italy
Maria Leonor Carvalho: Ricerca sul Sistema Energetico SpA, 20134 Milan, Italy
Pierpaolo Girardi: Ricerca sul Sistema Energetico SpA, 20134 Milan, Italy
Benedetta Marmiroli: Ricerca sul Sistema Energetico SpA, 20134 Milan, Italy

Sustainability, 2022, vol. 14, issue 3, 1-31

Abstract: The need for a quick and radical green transition gives a key role to the financial system as the main source to fund the change. This debate also involves the development of banking regulation tools able to serve the transition. Building on previous works, we propose a method to weight banks’ assets that combines conventional financial risks and environmental risks to calculate prudential capital requirements, and we apply it to the EU Taxonomy’s technical screening criteria to build an environmental risk indicator based on the buildings’ energy consumptions. We show how to calculate the tool endogenously for the taxonomy sections related to buildings (new construction, purchase of building, renovation), thus proving its immediate enforceability, using data from the Lombardy’s housing stocks. Finally, we conduct a stress test for the Italian banking system showing that our proposal would be an effective incentive for the banks to fund the green transition of the construction sector. Disclaimer: The views expressed are those of the authors and do not involve the responsibility of the Bank of Italy or RSE.

Keywords: climate change; prudential regulation; sustainable finance; EU Taxonomy; green mortgage (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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