EU Banks' Climate ESG Disclosures in Pillar III Shows Slow Pace To Finance Mitigation and Adaptation

This is the fourth and final commentary in a series of commentaries discussing quantitative data of environmental, social, and governance (ESG) disclosures in European banks' (the banks) Basel 3 Pillar III reports. The analysis is based on a sample of 16 large European banking groups across nine countries and, in this commentary, we discuss Mitigation and Adaptation.

Key highlights:
-- The green asset ratio (GAR) is a new quantitative metric reported by the European banks. In this set of reporting, the GAR mostly consisted of mitigating assets (decarbonising to limit future warming).
-- We find there is a limited part of the banks' banking book that is aligned with the EU Taxonomy disclosure (2.4% of total covered assets on average). This could be partly explained by the fact that the EU Taxonomy has strict requirements.
-- Most banks did not report any data for climate change adaptation under the calculation of the GAR.
-- The financing of mitigation or adaptation actions is itself constrained by a variety of external factors, which include government policy, technology developments, societal change as well as macroeconomic environments (whether energy prices are elevated for instance).

"Overall, we consider very small green asset ratios would likely suggest more progress is needed", said Vitaline Yeterian, Senior Vice President at Morningstar DBRS.