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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…

ESMA and the EBA advise on KPIs for transparency on institutions’ environmentally sustainable activities, and the EBA consults on prudential disclosures of ESG risks under the CRR.

By Nicola Higgs, Suzana Sava-Montanari, and Axel Schiemann

On 26 February 2021, both the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) issued guidance on Article 8 of the EU Taxonomy Regulation. Firms in scope of the EU Taxonomy Regulation now have all the relevant guidance to start planning their disclosures on how and to what extent their activities are associated with economic activities that qualify as environmentally sustainable under the EU Taxonomy Regulation.

The guidance elaborates on the Key Performance Indicators (KPIs) that institutions should disclose, the scope and methodology for the calculation of those KPIs, and the qualitative information that institutions should provide.

The main KPI proposed is the Green Asset Ratio (GAR), which identifies institutions’ asset financing activities that are environmentally sustainable according to the EU Taxonomy Regulation, including activities consistent with the goals of the European Green Deal and the Paris Agreement. Information on the GAR is supplemented by other KPIs that provide information on the taxonomy-alignment of institutions’ services other than lending and investing. The EBA has integrated proportionality measures that should facilitate institutions’ disclosures, including transitional periods where disclosures in terms of estimates and proxies are allowed.

The measures grant relief for EU banks to enhance bank lending to companies and households.

By Axel Schiemann and Dominik Schöneberger

On 18 June 2020, the European Parliament approved the so-called CRR “quick fix” to Regulation (EU) 575/2013 (Capital Requirement Regulation (CRR)) and Regulation 2019/876 (Capital Requirement Regulation 2 (CRR2)) to mitigate the economic consequences of COVID-19. The temporary measures are, inter alia, intended to enhance credit flows to companies and households, thereby supporting the EU’s economy.