Thrown under the Omnibus: will GAR survive EU’s green rollback?

Green finance metric in limbo after suspension sees 90% of top EU banks forgo reporting

Key points Summary

• The future of the green asset ratio (GAR) is in doubt after the European Banking Authority’s recent no-action letter on ESG disclosures.
• Only three banks reported GAR for Q2, out of 30 analysed by Risk.net; the rest opted out.
• Industry criticism of the metric and regulatory backsliding on ESG priorities have raised questions over whether the metric will be revived.
• The GAR suspension is set to be lifted by the end of 2026, but lobbyists are calling for an extended suspension.

These summaries are generated by an LLM, but edited by humans.

Less than two years after its first disclosures were published, the green asset ratio (GAR) is going on a lengthy hiatus. After the European Banking Authority issued a no-action letter on August 6 excusing banks from publishing five sustainability-focused templates, just three banks – ABN Amro, DNB Bank and OTP Bank – opted to disclose GAR for the second quarter, out of 30 analysed by Risk.net.

On the face of it, GAR is not dead, merely sleeping, as the EBA suspension of disclosure is slated to be lifted at the end of 2026 once final implementing technical standards come into effect. The draft version of the standards includes reforms to GAR, including tweaks to the way the ratio is calculated.

But the green asset ratio’s troubled history means nothing can be certain. Since its announcement it has faced criticism, which continued after the first ratios were reported as of Q4 2023. Teething problems with disclosure of GAR itself were dwarfed by issues with secondary metrics such as the coverage ratio, which was consistently misreported.

The most concerning precedent is that of the banking book taxonomy alignment ratio (BTAR). Designed to fill some of GAR’s gaps by incorporating exposures not captured by the EU taxonomy, BTAR was watered down from mandatory to voluntary, delayed, and then widely ignored when it kicked in at the end of 2024.

The pause also comes amid general backsliding on ESG priorities. The EU’s Omnibus package of legislative reforms, introduced in February, has the express aim of reducing the regulatory burden of sustainability reporting and increasing the EU’s competitiveness. Measures include removing roughly 80% of companies from the scope of the corporate sustainability reporting directive and significantly reducing the number of data points required to be reported.

As regulators cool on green standards, the fact that most major European banks are jumping at the opportunity to ditch GAR disclosures suggests that the industry’s attitude has not softened with time. Of the three which did disclose figures for H1, a spokesperson for DNB Bank told Risk.net that the bank made a deliberate effort to be consistent and transparent in its reporting, but noted that it will continue to assess its approach going forward.

Related

One year on, EU banks get greener as GARs grow 

Contentious green asset disclosures show improvements for most major European banks in 2024

ABN Amro and OTP Bank did not respond to requests for comment, but their presence in the trio is noteworthy for two reasons – they were the only two banks analysed to misreport GAR itself in their first disclosures for Q4 2023, and they are at opposite ends of the spectrum on the metric itself: in Q4 2024 ABN Amro had the highest GAR of the banks at 11%, while OTP had the lowest at 0.1%. This shows that these banks are outliers – while DNB is unusual as the only bank analysed not based in the EU – so they are unlikely to be standard-bearers for a wider effort to disclose.

Addressing some of the problems with GAR and simplifying reporting requirements could rehabilitate the metric enough that it can return on time at the end of next year, albeit in a somewhat diminished form.

But the omens are not good. The EU’s Omnibus package encountered an unexpected delay on October 22 when the European Parliament narrowly voted down a simplified version of the text, which could disrupt the timeline for the finalisation of the reforms. Moreover, the rejected deal would have gone further in walking back requirements than the European Commission’s original proposal, and it is now unclear which way legislators will turn – whether closer to the Commission’s position, or towards deeper deregulation.

Even before this delay, seven of 35 respondents to the EBA’s request for comment called for the GAR suspension to be extended by a year, to align with a pause to reporting taxonomy information until end-2027. Advocates included industry groups for banks in Germany, Italy, Slovenia, Japan and Europe at large, as well as the Institute of International Finance.

Though much maligned, GAR’s absence for at least three reporting windows will be missed by some. Respondents such as WeeFin and the Sustainable Finance Observatory objected to the suspension due to the lack of information and accountability. Over the year GAR was reported, banks did see the metric increase, which could be because public scrutiny incentivised greener lending, in spite of GAR’s flaws.

But with the prospect of further delay, the mood music of ESG scepticism, little love for GAR among EU banks and its watering down in the Omnibus package, the prognosis for the metric looks grim. GAR may not be dead yet, but it is in a coma, from which there are serious doubts it will ever wake.

Editing by Alex Krohn