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From next year banks in the EU will publish the world’s first “green” benchmark

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© Reuters. FILE PHOTO: Power generating windmill turbines seen in Bourlon during sunset

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By Huw Jones

LONDON (Reuters) – Banks in the European Union will have to publish a groundbreaking “Green Asset Ratio” (GAR) as a core measure for their climate-friendly business activities from next year, the EU bank watchdog suggested on Monday.

As the trend towards sustainable investing increases, regulators want investors to have more reliable information about a bank’s risks to climate change as storms and other weather events affect the value of their assets and liabilities.

The European Banking Authority (EBA) announced that the ratio, released in a formal public consultation on Monday, will measure the size of climate-friendly loans, advances and debt versus a lender’s total assets to reach a percentage.

“I think this is the first time that regulators are calling for a green asset ratio,” said Piers haben, EBA director for banks, markets, innovation and consumers.

“The numbers could be single digits for banks initially, so the context will matter. When a bank talks about where it wants to be in 2030, that will be really interesting for the green asset ratio.”

The EU’s new “taxonomy” would be used to define which assets are environmentally sound.

According to the EBA, many stakeholders have a legitimate interest in the physical and transitional risks banks are exposed to due to climate change.

Banks are likely to face pressure from investors to show what steps they are taking to increase their GAR over time, although few lenders are likely to hit 100%.

The watchdog responded to a request from the EU executive of the European Commission as to how the upcoming requirements for climate-related information from banks should be implemented.

The GAR would be published in a bank’s annual report starting in 2022, based on data up to December 31, 2021.

Banks are also required to publish three other indicators that show the extent to which fees from advisory services, major trading transactions and off-balance sheet exposures are derived from climate-friendly activities.

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