Huw Jones

LONDON, (Reuters) – Large European Union banks will be required to demonstrate how they can help or hinder the bloc’s achievement of climate goals. They must publish “pioneering indicators” starting in 2024 according to the EU banking watchdog.

European Banking Authority, (EBA), has established environmental, social and governance templates (ESGs) for top 150 banks. Deutsche Bank Each year, complete (DE) SocGen, UniCredit

This will allow investors to compare each bank’s exposure to polluting and environmentally-friendly companies, and monitor how fast lenders shift to more sustainable business models.

Pilar Gutierrez of the EBA’s Disclosures Unit stated, “We have been pioneers in this area with key performance indicators and templates to help banks reveal information consistently.”

The final approval of the EU executive, the European Commission will be required.

EBA stated that the templates would cover core banking books, which includes loans. Following industry concerns about the short-term nature of its initial plans to include trading books assets like bonds and stocks, it has decided not to.

Banks will be required to report their carbon-intensive activities from 2023 and any assets exposed to climate risk.

The applicants will be required to report on how they are exposed to fossil fuel customers, what greenhouse gases emissions they finance, as well as their alignment with the 2050 Net Zero goals.

GRAPHIC- EBA ESG graphic

https://fingfx.thomsonreuters.com/gfx/mkt/klpykqwbxpg/EBA%20Graphic%20on%20ESG%20Templates.PNG

TWO RATIOS

These requirements are groundbreaking globally as they force banks to release two new ratios starting in 2024.

The green asset ratio (GAR), which shows the bank’s “green” assets in relation to total assets, is based on green assets being included in the EU’s “taxonomy”, or checklist.

The banking book taxonomy alignment rate (BTAR), which measures the contribution of a bank to EU climate goals and shows how they finance environmentally-sustainable activities, is called a banking book taxonomy alignment ratio.

The Association for Financial Markets in Europe, an industry body, welcomed the extra time https://www.reuters.com/article/us-climate-change-eu-banks-idUSKCN2AT1XU for introducing GAR, which the EBA had originally indicated could be introduced this year.

“We will continue to raise concerns about the disclosure framework, however, disclosures based only on estimates and proxies could have limited comparability or usability,” AFME stated.

Banks will publish targets to reduce greenhouse gas emissions by 2030, including BTAR and GAR.

The two ratios will create peer pressure to adopt more sustainable business strategies and help stamp out potential ‘greenwashing’, or the exaggerating of environmentally-friendly activities.