08 September 2020

EC’s Inception Impact Assessment on art. 8: EBF feedback

The European Banking Federation has given its feedback on the EC’s Inception Impact Assessment on the Commission Delegated Regulation on taxonomy-related disclosures by undertakings reporting non-financial information.

Key messages and proposals

• It is key that Article  8 disclosures by banks are meaningful and add real value showing that banks are able to assess their climate exposures and that these disclosures give insight in the key role that banks play in the Green Deal financing the transition to a low carbon economy and sustainable society.
• Banks will have to rely on the willingness and the ability of clients to deliver relevant information. There is a need for a single and well-defined framework so that the metrics can be comparable. Financial institutions should only be required to report sustainability-related information on their portfolios/activities, if sufficient and reliable information is available, supported by mandatory taxonomy aligned disclosures from non-financial entities.  The Article 8 of the Taxonomy Regulation should therefore align the reporting obligations with the NFRD and the Disclosure Regulation, considering that businesses must first meet these requirements before financial institutions are able to report. It might be possible to introduce a phase-in approach so that KPIs are to be reported by the financial institutions with a time-lapse.
• Banks should not be responsible for collecting information that can be collected by authorities. Data collection should be harmonized, based on a common reporting standard and common nomenclature to enable automatization, via a central data repository to ensure efficiency.
• Availability of data is essential, therefore initially a  limited number of concrete key datasets should be agreed. We have identified the information need of banks and proposing initial taxonomy related KPIs. We are proposing corporates self-assesment of compliance with thresholds and metrics of the EU Taxonomy and development of a simplified reporting for SMEs.
• To align in the best way the disclosure by corporates, asset managers, insurers and banks, we are also proposing to develop a set of kPIs that should be common with other regulations covering ESG disclosures (i) GHG emissions, ii) disclosure of material information enabling the assessment of physical risk, transition risk or other specific categories of ESG risk, ii) the management of environmental- and social-related risks and opportunities). However, the relevance of the Scope 3 emissions in the banking sector should be further discussed, reviewed and probably replaced by a more relevant metric.
• The ‘green asset ratio’ proposed by Article 8 should in our view be a proportion of the volume of Eligible Financial Assets (EFA) that are EU taxonomy-aligned /on Total Eligible Financial Assets, with EFA defined as all asset classes for which the EU taxonomy is relevant and can be applied. This would result in the following banking products included in the scope of the EFA, taking further into account the data availability (initial focus on EU counterparties within the scope of the NFRD)  and distinguishing between existing and new exposures:

• • Corporate loans and/or project finance facilities with specified use of proceeds aligned with EU taxonomy
  • General purpose loans to companies undertaking taxonomy compliant activities
  • Performance bonds to support a taxonomy aligned activities
  • Financial guarantees to support the payment obligations arising from financing a taxonomy-aligned activity
    • Transition requires more flexible and different sustainable goals to be set.  What really matters is not so much the current compliance with the taxonomy but the strategy of the company to adapt to 2ºC or even  below 2ºC”  scenarios.  A classification of clients/ companies based on their transition journey, rather than a binary green/non green, would provide a dynamic key information and provide a better view on whether/how public and private strategies align and on the contribution of the bank to the transition efforts. To increase participation in this market, it is fundamental to develop a standard in terms of transparency and the main characteristics to be respected by the issuers (and in terms of KPIs for the measurements of the achieved result.

 

SUSTAINABLE FINANCE – EBF

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