Labelled Green loans: the next generation sustainable finance products

Green Loans - What's Really Behind Them?

More and more banks are offering so-called "green loans" and promoting them as a contribution to environmental and climate protection. But what exactly is behind this label, and how can consumers be sure that their money is actually being invested in an ecologically meaningful way?

In Austria, I recently had the opportunity to assess the loans of Hypo Niederösterreich according to the Austrian Ecolabel 49. They are the first bank to have obtained this ecolabel for three loans designed for consumers and businesses.

The awarding of the Austrian Ecolabel for "Green Loans" (UZ49) provides important guidance here. To obtain this seal, credit institutions must meet strict criteria:

First and foremost, companies or projects involved in environmentally harmful areas such as fossil fuels, nuclear power, armaments, or genetic engineering cannot be financed through green loans. Instead, it must be proven that the funds are flowing into ecologically valuable activities - whether renewable energies, circular economy, sustainable transportation, or the protection of ecosystems and biodiversity.

In addition, banks must transparently outline in a "Green Loan Framework" how project selection is carried out during the loan approval process and which sustainability criteria are applied. For financing over 5 million euros, either an internal audit process or an external assessment is also required.

To maintain the ecolabel, credit institutions are obliged to report annually in detail on the use of funds, the ecological and social impacts of the projects, and their contribution to the UN Sustainable Development Goals (SDGs). The connection to the EU Taxonomy, which defines uniform criteria for sustainable economic activities, must also be established.

Furthermore, the banks themselves must meet stringent requirements in order to credibly present themselves as providers of green loans. This includes, among other things, the publication of a sustainability report that outlines how sustainability aspects are taken into account throughout the bank's entire business - from lending to investment activities to measures in the areas of employees, customers, and operational ecology.

In a comprehensive questionnaire on institutional credibility, banks must provide detailed information on whether and which ecological and social criteria are applied in lending, proprietary investments, and the overall business. The extent to which controversial business areas and practices are categorically excluded must also be clearly stated. The presence of appropriate sustainability expertise, such as through employee training or consultation with external experts, is also part of the assessment.

Consumers thus have the certainty with green loans bearing the ecolabel that their money is actually being used to finance credible and effective eco-projects. The bank itself must meet high transparency and sustainability requirements in order to be allowed to carry the seal. The Austrian Ecolabel UZ49 sets an important, independently audited quality standard here that goes beyond mere greenwashing marketing.

Conclusion: Those who wish to specifically support the climate and sustainability transition with their savings will find green loans with an ecolabel to be a good option. The requirements for projects, reporting, and the overall bank ensure that the funds are used meaningfully and transparently in the interest of the environment. However, investors should always be aware that even ecologically oriented investments carry certain risks and that individual consultation is advisable.