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The French financial watchdog Autorité des marchés financiers (AMF) wants banks and insurers to improve their reporting for the European taxonomy classification to promote environmental sustainability, calling current disclosures “dense and difficult to understand”.
“The AMF therefore calls on these institutions to continue their efforts to improve transparency by clearly indicating the assumptions made, as well as any difficulties encountered, in particular the reasons for not publishing certain indicators,” it said in a new study.
The EU taxonomy is a classification system for identifying economic activities that are environmentally sustainable, but some critics doubt whether the metric will actually help drive change as its scope is limited and there is a general lack of available data.
Philippe Ramos, advocacy officer from campaigning group Positive Money, said it was not surprising that there were teething problems with the new system: “The European taxonomy is quite complex and subject to interpretation,” he said. “It’s very difficult for banks to implement.”
The AMF called on institutions to improve the linking of their taxonomy reporting with their overall ESG strategy and other elements of their reporting: “Greater overall coherence would undoubtedly make the disclosures more relevant and useful for investors.”
The AMF study covered seven French financial institutions and seven comparable banks and insurers from other parts of Europe.
Reporting simplification desirable in the long term
The AMF noted that financial institutions are dependent on data from their own counterparties for their taxonomy reporting, which partly explains the lack of clear information.
“This issue can only be resolved in the medium term and will undoubtedly require significant developments in information systems and organisational processes,” the AMF said. “Simplification aimed at making this reporting more accessible is probably desirable in the long term.”
The financial industry has criticised the EU’s metric to measure the proportion of green assets on a bank’s balance sheet – the green asset ratio (Gar) – saying it fails to accurately portray efforts to make the economy sustainable.
The AMF said the reported Gar seemed to be very low for all the banks it had studied, noting that banks believe that a lack of symmetry in the way the Gar is calculated penalises diversified business models.
“The question is determining whether this low level reflects a form of underperformance of the European banking sector and a very significant ‘still to be done’ in the greening of their balance sheet, or whether the Gar does not provide a true vision of the progress made by banks in this area,” the AMF said.
Ramos from Positive Money said these issues needed to be addressed so banks have a tool that provides a better measure of green investments which financial institutions are comfortable reporting publicly.
The AMF said one bank had decided to publish an alternative ratio using its own internal methodology, which the bank believed better reflects its efforts in financing low-carbon energy. But the AMF said if all banks were to publish different indicators, it would be difficult to compare their progress.
This page was last updated December 19, 2024
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Emma Thomasson is a British journalist, consultant and trainer based in Berlin. She is an expert in economics, politics, business and technology. She previously worked for Reuters as a correspondent and bureau chief in Germany, Switzerland, the Netherlands, South Africa and the UK.
