This is the third and final article in Asset Impact’s series on the European Banking Authority (EBA) Pillar 3 ESG regulations. In the first instalment we provided an overview of the regulations’ origins and requirements, and in the second we went into more detail on the specific disclosure requirements across transition and physical risk (Templates 1-5 of 10).
Now, we’ll explore the latter half of the EBA’s ten disclosure templates, focusing on the Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR), as well as activities that fall outside the EU’s Sustainable Finance Taxonomy. Templates 6-10 of the EBA Pillar 3 ESG-related disclosures mostly build on and manipulate the information assembled in the first five templates, and do not require much more raw data to be collected.
The GAR and BTAR bring together two central principles of European financial regulation: risk-weighted assets (here implicitly weighted by climate and environmental risks), and the EU Taxonomy for Sustainable Activities, which categorizes economic activities as 'green' or 'non-green' using NACE classification system codes. While asset labelling to assess a bank’s financial resilience has been a common regulatory tool since the 2008 financial crisis, the EU Taxonomy’s classification remains contentious. Its designation of certain energy sources, like nuclear power and specific fossil fuels, as 'green' has sparked considerable debate.
Templates 6-8: The Green Asset Ratio
What is the GAR?
The GAR simply measures the proportion of a bank’s eligible assets that align with the EU Taxonomy. Building on the familiar capital adequacy ratios from the Basel framework, the GAR provides supervisors with a clear view of a bank’s exposure to both environmentally sustainable and unsustainable activities.
What information is the EBA looking for and why?
Templates 6-8 help the EBA gain a detailed picture of how the EU taxonomy-aligned share of banks’ balance sheet breaks down across the various types of assets it holds. This includes lending to other banks and financial institutions, as well lending to corporates, households and governments. Like the other templates, information is sought in terms of carrying amounts in Euros, with the taxonomy-eligible and taxonomy-aligned subsets clearly identified.
To compare the banks’ taxonomy-aligned activities with total assets counted within the GAR calculation, exclusions such as lending to corporations outside the scope of the EU’s non-financial reporting directive (NFRD) are required – typically encompassing some small and medium enterprises (SMEs) and non-EU corporations. Banks also report assets beyond the scope of the GAR, which include lending to sovereign governments, deposits in central banks, and the bank’s trading book.
Bringing it all together, the GAR is calculated by dividing taxonomy-aligned assets by total in-scope assets. This offers the EBA insight into how closely a bank’s activities align with what EU’s sustainability standards and helps assess risks associated with lower GARs, especially when combined with transition and physical risk data from templates 1-5.
What information do banks need to provide?
Template 6 presents a summary of the more detailed information collected in Templates 7-8, so we’ll start with these.
In Template 7 (‘Mitigating actions: Assets for the calculation of GAR’) banks must report:
- the information described above, including a breakdown of qualifying assets (used in the numerator of the GAR calculation) and non-qualifying assets (included in the denominator); and
- out-of-scope assets: sovereigns, central bank exposures and trading books.
Qualifying assets include ‘loans and advances, debt securities and equity instruments’. Banks already keep detailed records on these exposures, including use-of-proceeds securities like green or sustainability-linked bonds. Each exposure must be mapped to the EU taxonomy on sustainable activities via NACE classifications. A portion of total assets is taxonomy-eligible (i.e. in relevant sectors), and a subset of these are taxonomy-aligned (meeting the EU’s ‘environmentally sustainable’ criteria). The latter alignment requires contributing to at least one of six environmental objectives without harming the others and upholding human rights and labour standards.
Within taxonomy-aligned activities, banks must further distinguish between specialised lending (like green bonds, sustainability-linked bonds, and project finance), and transitional and enabling activities as defined by the EU taxonomy. Transitional activities are permitted where no technologically feasible alternatives are available, emissions intensities are best-in-class, and investment in the activities does not raise the risk of carbon lock-in. Enabling activities support other activities in achieving the taxonomy’s goals. All information must be reported separately for activities labelled for climate change mitigation and adaptation.
Template 8 (‘Mitigating actions: GAR (%)’) largely builds on the data provided in template 7, reporting key performance indicators (KPIs) across 16 categories of bank exposure. As with template 7, are separated into taxonomy-eligible and taxonomy-aligned assets and further divided into specialized lending, transitional, and enabling activities, with separate reporting for mitigation and adaptation. Template 8 also distinguishes between 'stocks' (assets already on the balance sheet) and 'flows' (newly acquired or disposed assets since the last report). This distinction helps measure a bank’s progress between reporting periods, allowing the EBA to track how much of the GAR ratio improvement comes from performance enhancement of existing assets versus changes due to new financing or asset trades.
Template 6 (‘Summary of GAR Key Performance Indicators’) summarises GAR KPIs at a highly aggregated level, broken down only across mitigation and adaptation, and across stocks and flows. It requires banks to report the share of its total assets covered by the KPI (i.e. the share that are GAR-eligible) to give an impression of how representative its GAR is of its total balance sheet.
Template 9: The Banking Book Taxonomy Alignment Ratio (BTAR)
In Template 9 ‘Mitigating actions: BTAR’, banks report their BTAR. Although ninth template is optional, it follows a very similar in structure to the GAR.
What is the BTAR?
The BTAR simply extends the GAR to take a more holistic view of a bank’s assets, extending beyond the regulatory boundaries of the EU taxonomy and taking a broader view of exposures through complex financial instruments and interbank lending.
What information is the EBA looking for and why?
The BTAR template requests additional information beyond that needed for the GAR calculation. It includes the taxonomy alignment of activities not covered by NFRD regulations, such as unregulated SMEs and non-EU non-financial corporations. Additionally, it expands the denominator to include financial derivatives (e.g., swaps, futures, options, and forwards), as well as on-demand interbank loans, cash, commodities, and intangible assets like goodwill.
What information do banks need to provide?
The information required for the BTAR calculation follows the same structure as the GAR tables, with banks only providing additional details on assets excluded from the GAR, such as derivatives and cash. Since lending to non-NFRD counterparties is already covered in GAR Template 7, this information doesn’t need to be repeated. The BTAR template also includes a KPI table (similar to GAR Template 8) and a summary table (similar to GAR Template 6).
Template 10: Actions not covered by the EU Taxonomy
In the final template (‘Other Climate Change Mitigating Actions Not Covered in the EU Taxonomy’), banks can report activities or assets they believe contribute to climate change mitigation, even if these aren’t recognized under EU standards. This template may capture EU Taxonomy blind spots or activities that align with other standards used in different jurisdictions, whether these are stricter, looser, broader, or narrower.
Unlike other templates, it doesn’t link to NACE sectors. Instead, it categorizes by:
- Counterparty types (financial and non-financial firms, households, etc.)
- Collateral types (commercial and residential risk estate)
- Risk mitigation types (transition and physical risks)
Banks can also add further details in a qualitative information field if needed.
What’s next: Pillar 3 is here to stay – here’s how Asset Impact can help
The EBA Pillar 3 disclosure requirements represent a major advancement for banks already facing data challenges in measuring, managing, and mitigating climate risks. This is especially relevant for banks falling outside ‘systemically important’, for whom these disclosures became mandatory in 2024. Banks must report the climate impact and relevance of their exposures, often relying on proxies, averages, and estimates to address data gaps, particularly for emerging markets and local subsidiaries of listed parent companies.
Asset Impact’s datasets, which are built from the asset-up, offer a high-quality, granular, and consistent solution for Pillar 3 disclosures. By linking counterparty exposures to NACE codes then to financed emissions, we enable reporting across 11 sectors, covering 76% of global greenhouse gas emissions. Our sectoral coverage continues to grow, with plans to include chemicals soon and real estate and agriculture in the longer term. Our Scenario Analysis product will also help banks assess exposure alignment with the International Energy Agency’s (IEA) Net Zero Emissions by 2050 (NZE) scenario, as required in Template 3. When applied at the asset-level, our data also provides a basis for location-specific physical risk analysis, giving banks the tools needed for robust, future-focused climate risk management.
For more information, and to discuss how Asset Impact can support your institutions’ Pillar 3 ESG disclosure efforts, please get in touch.