European banks are cautioning investors not to focus too much on the upcoming Green Asset Ratio, an ESG metric, as early estimates suggest the industry is falling significantly short of the required levels.
The metric, introduced by the European Banking Authority in 2021 with a 2024 deadline, assesses the percentage of assets aligning with the EU’s sustainable business activities list.
Initial estimates from 2021 indicated an average figure of about 7.9%, highlighting the sector’s lag in meeting sustainability goals.
Banks are disclosing how well they adhere to the Taxonomy, a framework for sustainable economic activities. They got an extra year to collect data compared to non-financial companies.
However, challenges like data issues and varied interpretations of reporting details may lead to differences among banks.
The reported figures also rely on business models, and some customers, such as small and medium-sized businesses, are excluded from the calculations.
Aurelia Britsch, head of climate research at Sustainable Fitch said, “GAR doesn’t take into account all banks’ lending to finance transition as some of the transition assets would not be considered as aligned with the EU Taxonomy.”
The European Commission will review the GAR in June, as required by the initial legislation, to reconsider whether to include SMEs in the discussion.
