Daily Management Review

Top 150 EU Banks Will Have To Publish 'Pioneering' Climate Statistics


Top 150 EU Banks Will Have To Publish 'Pioneering' Climate Statistics
Large banks in the European Union will have to provide "pioneering" statistics starting in 2024 to illustrate how they support or hamper the climate goals of the block, according to the EU's banking watchdog.
The European Banking Authority (EBA) established environmental, social, and governance (ESG) templates for the top 150 banks of the region to complete each year, including Deutsche Bank, SocGen, and UniCredit.
Investors will be able to evaluate each bank's exposure to polluting and environmentally friendly businesses, as well as track how quickly lenders transition to more sustainable business models.
"We are pioneers here with templates and key performance indicators to ensure that when banks disclose something, they do it in a consistent way," said Pilar Gutierrez, head of a disclosures unit at the EBA.
The European Commission, the EU's executive branch, will have to give final approval to the new addition to the regulatory requirements of banks.
The templates, according to the EBA, will cover key banking books, including loans. After industry worries about the short-term nature of trading book assets like equities and bonds, it canceled the scheme.
Banks will be required to report their exposure to carbon-intensive operations and assets that may be subject to climate-related hazards such as floods and fires beginning in 2023.
They'll also have to disclose information about their exposure to fossil fuel clients, the greenhouse gas emissions they fund, and whether or not they're on track to meet the 2050 net zero goals.
The measures set a global precedent by requiring banks to publish two new ratios starting in 2024.
A green asset ratio (GAR) depicts a bank's 'green' assets as a percentage of overall assets, with green assets defined as those that are included in the EU's 'taxonomy' or checklist.
A banking book taxonomy alignment ratio (BTAR) is a metric that shows how a bank's activities contribute to EU climate targets by indicating how much money is being spent on environmentally sustainable activities.
Banks will be required to post GAR, BTAR, and greenhouse gas emission reduction targets for 2030.
The two ratios will create peer pressure to embrace more sustainable corporate methods and help prevent 'greenwashing,' or exaggerating environmentally favorable operations.