Understanding the regulatory terms and concepts within sustainable finance is essential for stakeholders at all levels, from policymakers and financial institutions to businesses and investors. It can, however, be challenging to stay on top of jargon and complexities that underpin Europe’s climate and sustainability goals.
The Green Asset Ratio (GAR) is a pivotal term in the realm of sustainable finance, a metric introduced by the European Union as part of its Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation.
The GAR is the main key performance indicator for credit institutions, introduced by Commission Delegated Regulation (EU) 2021/2178 (Disclosures Delegated Act), which shows the proportion of exposures related to Taxonomy-aligned activities compared to the total assets of those credit institutions.
The GAR is calculated by assessing the environmental sustainability of assets such as loans and investments in accordance with the methodology described in Annex V of the Disclosures Delegated Act.
The reference regulation for the calculation of the GAR is the Taxonomy Regulation and, more specifically, the technical screening criteria (TSC) defined through the delegated acts for the respective environmental objectives, such as the Climate Delegated Act (Commission Delegated Regulation (EU) 2021/2139) for climate change mitigation and climate change adaptation.
Thanks to the ENGAGE Templates and Portal, credit institutions will be able to assess the alignment of their residential mortgages and home renovation loans with the EU Taxonomy TSC, thus facilitating the calculation of the GAR for the relevant credit institutions.
The Energy Performance of Buildings Directive (EPBD) IV aims to make the EU building stock more energy-efficient and sustainable. Taxonomy-aligned mortgages and loans are integral to achieving these goals.
The GAR is becoming increasingly important for residential mortgages as banks, investors, and regulators prioritise sustainability. By adhering to the TSC, banks can ensure that their assets are genuinely sustainable, thereby improving their GAR. Furthermore, Taxonomy-aligned mortgages are essential for meeting the ambitious goals of the EPBD IV, promoting energy efficiency, and supporting the EU’s transition to a sustainable economy.
Visit the Insights & Resources page for more explanatory articles and research related to the stimulation of investment into green mortgages and energy efficient home renovations loans.
To achieve the proposed 55% emission reduction climate target by 2030, around EUR 275 billion of additional investments are needed per year.
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