Governance, risk & compliance 01/2022 Start of banks’


Taxonomy-eligible assets disclosure


01/2024 Start of banks’


Taxonomy-aligned assets disclosure


01/2026


CSRD disclosure for large companies not subject to NFRD


01/2029


CSRD disclosure third-country companies


2022


2023


2024


2025


2026


2027


2028


2029


01/2025


CSRD disclosure for companies currently subject to NFRD


broader balance sheet]. The challenge for banks then is to collect the required data bilaterally from their clients as estimates are not allowed.” “To address such issues,” Jäger suggests, “the establishment of a European Single Access Point (ESAP) for sustainability data should be accelerated. However, care should be taken to ensure that the ESAP only aggregates existing reporting obligations, and does not create new reporting obligations.” Offering EU-wide access to information on activities and products provided by entities related to capital markets, financial services or sustainable finance, the data collected, such as those under energy performance certificates (EPC) labels, should be stored in central databases at the domestic or European level, and be made available for the financial market to access.


The experts equally suggest that banks will need to reflect on the real-world practicalities of all this data. Kirschenmann suggests that operational factors such as increased documentation – and the time spent understanding it – will need to be considered. Another significant challenge, often overlooked, is inadequate IT tools such as data storage. With the taxonomy pushing banks to gather and report on new data, banks will need storage locations and IT systems to keep it secure. Although these issues are likely to be resolved by the first disclosures – and through bloody-minded experience – requirements on ESG and sustainability- related topics will continue evolving. One issue, indeed, involves the taxonomy’s scope, which encompasses harmful activities as well as those with no environmental impact, on top of a particular institution’s current green products. “What is missing is the fact that transition is a process that will last years,” explains Jäger. “Only focusing on ‘green’ activities will not be enough to meet our climate ambitions. The economy as such will have to become greener.”


Kirschenmann agrees. “Research has shown that already greener firms receive better loan conditions, which begs the question whether, and, if necessary, how browner firms that are willing to make investments to green their activities can be supported to do so.” Fortunately for banks, the EU will have to complete the necessary directives laid out before creating yet more rules, even if the Commission’s plan to extend the


Future Banking / www.nsbanking.com


01/2027


CSRD disclosure for listed SMEs


taxonomy to capture the effort firms are making towards transitioning to sustainable activities is absolutely vital. Jäger, for his part, also highlights the design flaws of the Green Asset Ratio (GAR), a reporting obligation for banks via the European Taxonomy. The GAR, he explains, reflects the proportion of the bank’s balance sheet that meets the criteria of the European Taxonomy. The ratio, however, is “skewed” with only items from companies subjected to the regulatory reporting obligation included in the numerator – even though all items must technically be included. “SMEs, for example, and thus many sustainable projects such as wind farms or real estate financed via special-purpose vehicles, are excluded from the numerator,” Jäger continues. “Paradoxically, a bank thus worsens its ratio if it finances a wind farm.” In response, Jäger suggests that the GAR should be expanded to include the sustainable financing of SMEs.


Future burdens For Jäger, the European Taxonomy is a noble attempt to understand sustainable activities. All the same, he says that putting the economy under such restrictions has its problems. Finding a way to make the transition without “using thousands of technical criteria” should, therefore, be a priority. While the Taxonomy aims to provide the necessary framework for a sustainable future – and accelerate the creation of a green economy – Kirschenmann reiterates that the new regulations put a considerable burden on banks and firms alike. One solution might be the revival of strong bank-borrower relationships, which used to be common for SMEs, and which may become important again as banks are able to collect information on customers more easily. “The success of the Taxonomy and any regulation related to it,” summarises Kirschenmann, “hinges on how well the Taxonomy captures green activities, and how well EU policies and politics go hand-in-hand with these regulations.”


While the application of the Taxonomy is certainly a “learning curve,” says Jäger, the situation should then start to improve as banks get used to the rules. Considering how much they have to do over the years ahead, you have to certainly hope so. ●


CSRD implementation timeline


2050


The year the EU aims to become carbon neutral.


European Parliament 45


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