EU Taxonomy and Green Asset Ratio Update
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Introduction to
Green Asset Ratio
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-12-2023
-12-2023
2
Getting acquainted
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Sustainability Policy Expert
Financial Accounting ABN AMRO
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The European Commission Action Plan on Sustainable Finance
and the EU Green deal have triggered several legislative
initiatives on ESG reporting in the EU:
•
Review of the non-financial reporting directive (NFRD) into
the Corporate Sustainability Reporting Directive (CSRD)
•
Publication of the EU Taxonomy Regulation.
•
Publication of the ITS on Pillar III disclosure on ESG risks
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NFRD requires large issuers to disclose on their material non-financial information
, including
Taxonomy disclosure
CSRD will replace NFRD, which will require more extensive non-financial disclosures and
external
assurance
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Debt and equity securities in large/listed corporates that
report on the Taxonomy (NFRD)
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To what extent does the bank finance Taxonomy activities?
How ‘green’ is our lending book? (Ratio: Taxonomy compliant vs
non-Taxonomy compliant)
•
Banking book (loans, debt, equity)
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Earnings from other than lending and asset management
•
Earnings on clients that report on Taxonomy (NFRD)
Taxonomy alignment and eligibility for:
•
Assets under Management (NFRD)
•
Financial Guarantees (NFRD)
Taxonomy alignment and eligibility for:
•
Banking book (loans, debt, equity)
•
NFRD companies, SME’s, Households (house loans and
motor vehicles) and specific local government financing
•
Stock and Flow information
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Quantifiable evidence that demonstrates the extent
to which the financed activities are sustainable
Transparent screenshot of portfolio
EU Taxonomy-aligned financial assets as a
percentage of lenders’ banking book
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COVERED ASSETS
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TAXONOMY-ALIGNED ASSETS
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Counterparties in scope of EU Taxonomy
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All other undertakings
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1. Unknown use of proceeds
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Clients are also obliged to report on the
taxonomy
2. Known use of proceeds
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Mitigation
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pollution
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1
Can wind powered electricity
generation be sustainable?
Mitigation: Does wind electricity
reduce GHG emissions?
Biodiversity: Does the windfarm
not damage a biodiverse area?
Does constructor respect
human/labour rights?
Criteria
Example
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Annual report
of BAM to determine eligibility and alignment
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Total GAR assets
Numerator
Financial corporations
subject to NFRD
▪
Credit institutions
▪
Other financial undertakings
▫
Investment firms
▫
Management companies
▫
Insurance undertakings
Non-Financial corporations
subject to NFRD
Households
Local governments financing
Excluded from the
numerator
Financial and non-
financial undertakings
▪
Undertakings not
subject to NFRD
▪
SMEs
▪
Non-EU
Derivatives
On demand interbank
loans
Other
▪
Cash & cash-
related assets
▪
Other assets
•
Loans and advances
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Debt securities
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Equity instruments
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Collateral obtained
by taking possession
•
Other government
financing
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Residential
immovable property
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Building renovation
loans
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Motor vehicle loans
Denominator – All covered assets
On-balance sheet items
Excluded from the GAR
scope
Counterparties
▪
Sovereigns –
Central
governments
▪
Central banks
▪
Supranational
issuers
Accounting Categories
▪
Trading book –
assets held for
trading
Others
Off-balance sheet items
2023
Financial guarantees
Assets under
Management
▪
Debt securities
▪
Equity
instruments
Fees and Commissions
2025
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Template 3: GAR KPI stock
Template 4: GAR KPIs flow
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Only based on unknown use of proceeds
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Delve into the latest updates on EU Taxonomy and Green Asset Ratio, legislation, reporting obligations for large companies, and key performance indicators for reporting under EU Taxonomy. Explore how the European Commission's Action Plan on Sustainable Finance and the EU Green Deal are shaping ESG reporting in the EU. Stay informed about NFRD, CSRD, taxonomy alignment, and ways to steer capital towards sustainable activities.
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Presentation Transcript
EU Taxonomy Introduction to Green Asset Ratio Shalini Sewradj 11-12-2023
Getting acquainted Shalini Sewradj Sustainability Policy Expert Financial Accounting ABN AMRO 2
3. Zooming in on Regulations
Legislation The European Commission Action Plan on Sustainable Finance and the EU Green deal have triggered several legislative initiatives on ESG reporting in the EU: Review of the non-financial reporting directive (NFRD) into the Corporate Sustainability Reporting Directive (CSRD) Publication of the EU Taxonomy Regulation. Publication of the ITS on Pillar III disclosure on ESG risks Taxonomy NFRD (CSRD) Pillar III ESG risk
NFRD & CSRD NFRD requires large issuers to disclose on their material non-financial information, including Taxonomy disclosure CSRD will replace NFRD, which will require more extensive non-financial disclosures and external assurance 2024 Corporate Sustainability Reporting Directive (CSRD) Non-Financial Reporting Directive (NFRD) 11.700 49.000
Zooming in: EU Taxonomy Classification for sustainable activities Measure: taxonomy alignment Reporting obligation for large companies Steer capital towards sustainable activities
The KPIs to report under EU Taxonomy The KPIs to report under EU Taxonomy 2023 2023 Off-Balance Sheet Exposures Green Asset Ratio (GAR) To what extent does the bank finance Taxonomy activities? How green is our lending book? (Ratio: Taxonomy compliant vs non-Taxonomy compliant) Banking book (loans, debt, equity) Taxonomy alignment and eligibility for: Taxonomy alignment and eligibility for: Assets under Management (NFRD) Banking book (loans, debt, equity) NFRD companies, SME s, Households (house loans and motor vehicles) and specific local government financing Financial Guarantees (NFRD) Stock and Flow information 2025 Trading Portfolio Fees and Commission Income 2025 Earnings from other than lending and asset management Debt and equity securities in large/listed corporates that report on the Taxonomy (NFRD) Earnings on clients that report on Taxonomy (NFRD) 9
Green Asset Ratio Green Asset Ratio Financial companies (NFRD) Quantifiable evidence that demonstrates the extent to which the financed activities are sustainable COVERED ASSETS Transparent screenshot of portfolio TAXONOMY-ALIGNED ASSETS EU Taxonomy-aligned financial assets as a percentage of lenders banking book GREEN ASSET RATIO Annual Report ABN AMRO 2023 10
Counterparties in scope of EU Taxonomy NFRD undertakings Households Local government financing Financial Credit institutions Asset managers Investment firms Insurance and reinsurance undertakings 11 Non-financial undertakings All other undertakings 11
EU Taxonomy alignment assessment Financing the activities of clients: need to collect alignment data from our clients in two ways 1. Unknown use of proceeds 2. Known use of proceeds Collect data on product level through bilateral conversations with the client. Collect alignment data on client level of our clients through their annual report Specific information on the financed activity required to determine Taxonomy alignment Clients are also obliged to report on the taxonomy 12
Assessment method per counterparty Unknown use of proceeds Financial NFRD undertakings Annual reports Non-financial NFRD undertakings Known use of proceeds Households Financial NFRD undertakings Technical Screening Criteria Non-financial NFRD undertakings Local governments 13
Lets look at a practical example for known use of proceeds Criteria Example Environmental objectives Can wind powered electricity generation be sustainable? Activity is eligible for Taxonomy (NACE) 1 Mitigation Adaptation Substantial contribution to environmental objective Mitigation: Does wind electricity reduce GHG emissions? 2 Circular economy Prevent pollution Do No Significant harm to other environmental objective Biodiversity: Does the windfarm not damage a biodiverse area? 3 Does constructor respect human/labour rights? Water resources Bio- Minimum Safeguards 4 diversity Taxonomy aligned 14
Example: Unknown use of proceeds Annual Report BAM Data from the Annual report of BAM to determine eligibility and alignment 15 15 15
The assets of the Green Asset Ratio Others On-balance sheet items Total GAR assets Denominator All covered assets Off-balance sheet items 2023 Excluded from the GAR scope Excluded from the numerator Numerator Financial guarantees Assets under Management Debt securities Equity instruments Financial corporations subject to NFRD Counterparties Sovereigns Central governments Central banks Supranational issuers Financial and non- financial undertakings Undertakings not subject to NFRD SMEs Non-EU Credit institutions Other financial undertakings Investment firms Management companies Insurance undertakings Loans and advances Debt securities Equity instruments Fees and Commissions 2025 Derivatives Non-Financial corporations subject to NFRD Accounting Categories Trading book assets held for trading On demand interbank loans Residential immovable property Building renovation loans Motor vehicle loans Households Other Cash & cash- related assets Other assets Collateral obtained by taking possession Other government financing Local governments financing 16
Reportingrequirements Taxonomy information Information on Taxonomy alignment is based on two methodologies to collect client information Unknown use of proceeds (public data) Known use of proceeds (bilateral information) Internal information: Off-balance Internal information: Balance sheet Assets under management For the Green Asset Ratio, the information is linked to the balance sheet For Financial Guarantees the information is linked to off balance items Only based on unknown use of proceeds Template 1: Assets for the calculation of GAR - Financial Guarantees given by the bank to NFRD counterparties Template 2: GAR sector information Template 5: FinGar, AuM KPIs Template 3: GAR KPI stock Template 4: GAR KPIs flow
