The second point to consider when looking at these reports is the “application uncertainty”. Indeed, as this year was the first year of the EU Taxonomy alignment and GAR reporting, banks often had widely different approaches to selecting their green assets.
This is partly due to gaps in the regulation but also stems from inconsistent enforcement from auditors. Indeed, banks’ sustainable reporting must be audited by an external party each of which appears to take a somewhat different direction.
The most significant variation concerns the treatment of the mortgage portfolio. The first reason for that is the EPC classification of buildings, which differs significantly across Europe (both in terms of scaling and methodology). Countries with a more lenient EPC classification system (like the Netherlands) accounted for nearly all their taxonomy-eligible buildings, increasing their GAR.
As discussed previously, in cases where countries hold only a very small share of EPC labels relative to the building stock, banks must exclude a large part of their portfolio from the calculation, which lowers their alignment ratio and GAR.
Alongside this challenge, sometimes, bank assets must comply with very difficult and technical Do No Significant Harm (DNSH) criteria to be considered as Taxonomy aligned. This is the case for certain electric vehicle criteria, making it virtually impossible for banks to comply with.
Finally, some banks simply opted for a conservative approach to reporting, most probably to avoid greenwashing accusations as public scrutiny is at an all-time high. This translated into a large difference between the share of eligible and aligned assets and consequently a very low GAR.
