Daily Management Review

Long Way For Banks To Become "Green", Says EU Watchdog


Long Way For Banks To Become "Green", Says EU Watchdog
The banking watchdog of the European Union said that there needs to be greater urgency among banks of the region to close down the gaps currently existing in the current way of disclosure of their green credentials.
A framework of how banks of the bloc would have to publish a ground breaking "green asset ratio" or GAR, set as a measure of how or the extent to which the business activities of the lenders are climate friendly, was unveiled by the European Banking Authority in March. This framework was defined in the "taxonomy" compiled by the bloc.
Using the GAR, it is possible to get an idea about and measure the climate friendly assets of banks such as loans and debt securities compared to the total assets that are present in the books of the bank.
The first estimate of the current GAR for banks of the EU, conducted as a pilot project, came in at 7.9 per cent on an aggregated basis which indicated a long journey ahead for banks and for the ratio to get close to the 100 per cent mark, said the EBA. The measure was calculated by the EBA on the basis of a sample of 29 banks from 10 EU member states. The assets of the banks that were considered for the pilot study were equivalent to 50 per cent of the total assets of the EU banking sector. The figure was arrived at by looking at the corporate exposure of the lenders.
"The findings give a clear picture of banks’ data gaps and highlight the sense of urgency to remedy them if they are to achieve a meaningful and smooth transition to a low-carbon economy," EBA said in a statement.
"The findings also show big differences in banks’ application of the EU taxonomy."