Taxonomy KPIs - GAR and BTAR
This article provides an overview of the differences between the Green Asset Ratio (GAR) and the Banking Book Taxonomy Alignment Ratio (BTAR). The Annexes XXXIX and XL of the EBA's final draft implementing technical standards prudential disclosures on ESG risks under Article 449a CRR contain templates and instructions for calculating GAR and BTAR assets and the respective ratios.
The GAR aims to create a comparable KPI enabling more transparency in reporting different institutions' "green" exposures. These exposures are assessed and reported according to eligibility and alignment with the EU Taxonomy.
While GAR covers only NFRD exposures (from large institutions in the EU), BTAR expands the range to include the EU non-NFRD and non-EU non NFRD exposures. This difference is the reason for the inclusion of the BTAR, i.e., so that companies/sectors/countries that do not fall under existing EU sustainability reporting standards have incentives to expand their "green" activities.
The numerator of GAR includes loans and advances, debt securities, and equity instruments, not HfT. The BTAR includes all those plus exposures to EU non-financial corporations and non-EU non-financial corporations (not subject to NFRD).
Nevertheless, these last two types are included in the BTAR and GAR denominators, leaving the same denominator for both ratios. The denominator represents total assets excluding sovereigns, central bank exposures, and trading book exposures.
Institutions will be required to publish these ratios starting in 2024 for exposures up to year-end 2023 for GAR and up to June 2024 for BTAR.
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