EBA Issues New Climate Disclosures for European Banks

Once approved by the European Commission, banks will have to start making climate disclosures in 2023, with full phase-in by June 2024.

The European Banking Authority (EBA) has published its final standards for how European banks will have to disclose their contribution to the region’s climate targets.

In a notice, the EBA said the standards put forward comparable disclosures and KPIs – including the green asset ratio (GAR) and a banking book taxonomy alignment ratio (BTAR) – as tools to show institutions are embedding sustainability considerations in their risk management, business models and strategy, and their pathway towards the Paris Agreement goals.

The GAR shows a bank’s ‘green’ assets as a proportion of total assets, while the BTAR measures how a bank’s activities contribute to EU climate goals, showing the extent to which they are financing environmentally sustainable activities. The two ratios are expected to create pressure for banks to adopt more sustainable business strategies and help stamp out greenwashing.

Under the standards, which still need final approval from the European Commission, nearly 150 top European banks will have to start disclosing their exposure to carbon-intensive activities, assets that may experience risks resulting from climate change, and Scope 3 emissions in 2023 (for the year ending December 2022).

Institutions that are already estimating information on their carbon footprint and Scope 3 emissions will have to disclose the information in a prescribed template, and explain in the narrative accompanying the template the methodology and sources of data used.

Those institutions that are not yet estimating their Scope 3 emissions will have to disclose information on their plans to implement methodologies to estimate and disclose this information.

“All institutions must be able to disclose this information by June 2024,” the EBA said. This includes the disclosure of information on the GAR and the BTAR.

The EBA noted the disclosure rules will help to address shortcomings of institutions’ current ESG disclosures, at the EU level, by setting mandatory and consistent disclosure requirements, including granular templates, tables and associated instructions.

The rules will also “help establish best practices at an international level” and allow investors to compare each bank’s exposure to polluting and environmentally-friendly companies, and monitor how fast banks shift to more sustainable business models.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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