Different KPIs for Different Players
Financial institutions don't manufacture products or build buildings. Their "product" is capital allocation - loans, investments, and insurance. The taxonomy gives them tailored KPIs that measure how green their portfolios are.
Banks: The Green Asset Ratio
The Green Asset Ratio (GAR) is the headline KPI for credit institutions.
Formula:
Green Asset Ratio (GAR)
Green Asset Ratio
Percentage of taxonomy-aligned assets in the bank's covered portfolio
Aligned Exposures
Loans and advances to taxonomy-aligned activities of counterparties
Covered Assets
Total covered assets (loans to non-financial corporates, mortgages, public sector, etc.)
What counts as covered assets: Loans to non-financial corporates, household mortgages, loans to local/regional governments, and collateral obtained by taking possession. Trading book positions and interbank exposures are excluded.
The data dependency: A bank can only calculate its GAR if the companies it lends to report their own taxonomy KPIs. This is why the non-financial reporting requirements came first - they create the data supply chain.
Asset Managers
Asset managers report the proportion of taxonomy-aligned investments in their total assets under management. This applies at both the entity level (across all funds) and the product level (for each individual fund).
For Article 9 funds (SFDR sustainable investment products), the taxonomy alignment percentage is a key metric that investors scrutinise. A fund marketed as targeting sustainable investment should have a meaningful proportion of taxonomy-aligned holdings.
Insurance Companies
Insurers have two sides to assess:
- Investment side - same as asset managers (proportion of taxonomy-aligned investments)
- Underwriting side - proportion of non-life insurance premiums related to taxonomy-aligned activities (e.g., insuring green buildings, renewable energy projects)
Financial institution KPIs are structurally limited by the available data. If a bank lends to an SME that is not required to report taxonomy data, that exposure typically cannot be counted as aligned - even if the underlying activity would qualify. As CSRD scope expands to more companies, financial institution KPIs will become more meaningful.
A European bank's GAR disclosure:
Total covered assets: EUR 150 billion
- Loans to non-financial corporates reporting taxonomy data: EUR 80 billion
- Of which taxonomy-aligned: EUR 12 billion
- Residential mortgages (to EPC A/B properties): EUR 8 billion aligned
- Other covered assets with no taxonomy data: EUR 62 billion
GAR: (12 + 8) / 150 = 13.3%
The low GAR doesn't necessarily mean the bank is "not green." It reflects the early stage of data availability. As more counterparties report under CSRD, the denominator becomes more informative.
What the Real Numbers Look Like
In 2024, the average Green Asset Ratio across EU banks was just 2.8%, corresponding to EUR 816 billion in taxonomy-aligned exposures. Bank holdings of taxonomy-eligible assets have grown from EUR 214 billion in 2022 to EUR 534 billion in 2024, but the alignment percentage remains low.
Why so low? Most bank lending goes to SMEs and households whose activities are either not yet covered by the taxonomy or who are not yet required to report taxonomy data under CSRD. The GAR can only count what has been reported - and most of the economy is not yet reporting. This structural limitation will ease as CSRD scope expands through 2028, bringing more counterparties into the data supply chain.
Phase-in timeline for financial institutions:
- January 2023: Full alignment reporting begins
- January 2024: Full alignment reporting for all financial undertakings
- January 2026: Trading book and fee/commission KPIs for credit institutions
- Sovereign exposures remain excluded from both numerator and denominator - no methodology exists yet
Key Takeaways
- 1Banks use the Green Asset Ratio (GAR) - the proportion of taxonomy-aligned exposures in their covered loan book
- 2Asset managers report taxonomy alignment as a share of assets under management, at both entity and product level
- 3Insurance companies report on both investments and underwriting
- 4Financial institution KPIs depend entirely on portfolio companies reporting their own taxonomy data - it is a data supply chain