The EBA consultation paper calls for the implementation of a Green Asset Ratio to measure banks’ sustainability performance.

Regulators and sustainability-conscious investors increasingly expect banking institutions in the European Union to focus on environmental, social, and governance (ESG) issues and provide quantitative and qualitative disclosures relating to such issues, including climate change risks and the environmental objectives of climate change mitigation and adaptation, from as early as 2022.

These prudential disclosure requirements arise under Article 449a of the Capital Requirements Regulation (CRR) and are included in the Pillar 3 reporting framework, currently designed for disclosure of regulatory capital and risk exposures. On 1 March 2021, the European Banking Authority (EBA) published a consultation paper relating to the draft implementing technical standards (ITS) on prudential disclosures required from large institutions with securities that are traded on a regulated market of a Member State.

The disclosures are intended to provide investors and stakeholders with sufficiently comprehensive and comparable information to review and compare the ESG performance and risk profile of large institutions, with a spotlight on their financial activities and vulnerabilities and their strategy for supporting the transition towards a more sustainable economy.

See Latham’s Client Alert for more details.