Banks in the European Union should publish a “green asset ratio” as a core measure of their climate-friendly business activities, the EU’s banking watchdog proposed on Monday (1st March).
The European Banking Authority (EBA) said the ratio would measure the amount of climate-friendly loans, advances and debt securities compared to total assets on a lender’s balance sheet.
The new EU “taxonomy” would be used to define which assets are environmentally sustainable.
“Many stakeholders have a legitimate interest in the physical and transition risks that banks are exposed to from climate change,” the EBA said in a statement.
“They also want to understand a bank’s strategy in financing the transition to a zero carbon economy,” it continued.
The watchdog was responding to a request from the EU’s executive European Commission on how to implement upcoming requirements on climate-related disclosures by banks.
The system would be phased in from January 2022.