Lessons from the first year of Taxonomy KPIs reporting
The financial year 2021 marks the first year of reporting the EU Taxonomy eligible exposures. These were reported as KPIs under Article 8 of the EU Taxonomy and further specified in Article 10 of the Commission Delegated Regulation.
Taxonomy eligibility involves all the economic activity that is in line with the Taxonomy objectives of climate change mitigation and climate change adaptation. The KPIs were mandatory for the financial and non-financial institutions that fall under the NFRD, which implies they are either publicly traded, have a turnover over 40 mn EUR, or their balance sheet exceeds 20 mn EUR.
The main KPI that was reported was the GAR (Green Asset Ratio) –Taxonomy eligible exposures divided by the total assets. The aim was to create a common set of indicators that would allow a cross-institutional comparison of the sustainable exposures. This is one of the steps regulators have taken in increasing transparency and harmonisation among banks regarding sustainability.
However, this goal was only partially met by both institutions and their auditors as they had different interpretations of the requirements. Some of the main differences in the reporting were:
- The use of total assets vs. covered assets in the denominator of the KPIs. As total assets are, by definition, greater than covered assets, using covered assets would increase the GAR ratio for the same number of exposures.
- Disclosing mandatory vs. voluntary disclosures: some banks included the voluntary and some did not. The main difference between the two is that under mandatory disclosures, eligible corporate exposures originate from the corporates that reported their own Taxonomy eligibility. On the other hand, voluntary disclosures allow for NACE code mapping i.e., mapping (approximating) the exposures by each corporate’s NACE code.
- This has led to another difference: whether NACE code mapping was conducted under mandatory disclosures. Some banks did this and made the separation of mandatory vs. voluntary disclosures unclear.
Nevertheless, this round of disclosures is a step in the right direction and communicating some of the adversity in reporting to the supervisory bodies could lead to increased harmonisation.
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RBI Regulatory Advisory
Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria | Tel: +43 1 71707 - 5923