The European Banking Authority Advises the European Commission on Key Performance Indicators for Sustainability, including the Green Asset Ratio

The European Banking Authority (‘EBA’) advises the European Commission to adopt the Green Asset Ratio (‘GAR’) under Article 8 of the EU Taxonomy (‘EUT’). Credit Institutions would disclose the extent which the financing activities in their banking book (loans and advances, debt securities and equity instruments) are associated with economic activities aligned with the EUT and are therefore Paris Agreement and UN SDG-aligned. The GAR disclosure would fall under the Non-Financial Reporting Directive (‘NFRD’) all cover all exposures in the banking book to financial and non-financial corporates (NFC) including SMEs, households (residential real estate, renovation loans) and local governments/municipalities (house financing authorities). The ratio would inform which exposures contribute substantially to Climate Change Mitigation (‘CCM’) and Climate Change Adaptation (‘CCA’), including transitional and enabling activities. The EBA advises the European Commission to incorporate ESG disclosures into Pillar III of the Basel Committee on Banking Supervision (‘BCBS’) Capital Requirements Directive (CRD) relating to Climate Change Physical and Transition Risk exposure and activities that substantially contribute to Climate Change Mitigation (‘CCM’) and Adaptation (‘CCA’). Credit Institutions and Investment Firms would disclose transitional and enabling activities as well activities that support counterparties in the transition to a carbon neutral economy under. Pillar III disclosure would include information relating to the nature of these risks, capital adequacy, and policies for managing such risk with the aim of promoting market discipline.