The banks are fuming over the way in which their decarbonization efforts have begun to be accounted for this year. For the first time and after almost five years of preparations, in 2024 they have been forced to include in their annual reports a new index on the percentage of financing allocated to green projects. And the result has been very disappointing: it barely reaches 2% at best.
The controversial index is called GAR (green asset ratio) and establishes the extent to which banking assets are aligned with the EU taxonomy. It should be a fundamental indicator when it comes to knowing the efforts of each bank in the fight against climate change, which can have important reputational effects.
However, the newly released data in Spain and the rest of the euro zone are bad and have put banks at odds with regulators. Of the three main Spanish entities, Santander has only been able to accredit 2.4% of green credits in terms of income and 2.6% in terms of investment. In the case of CaixaBank, the percentages are 1.1% and 2.3%, respectively. And in BBVA’s, much lower, 0.52% and 0.8%.
At a time when greenwashing is beginning to have even legal implications, the banks were not amused by the development of the photo and have asked for the complaint form. In its annual report, BBVA speaks of a “structural” failure of the GAR. Companies outside the European NFRD accounting directive are not allowed to be included in the numerator of the ratio, but they must be added to the denominator, he explains. Not only can it not include the green loans it sells to SMEs or non-EU companies, but its relationship with these two groups penalizes it. And BBVA has a lot of exposure to Mexico or Türkiye.
Santander complains in its report that it finances activities related to the ecological transition that do not fall into the GAR due to the “strict” taxonomy. 18% of its credit investment goes to decarbonization, he argues, but it can only show a seventh of it. It also charges, like BBVA, against the asymmetry between numerator and denominator. Added to this is the number of companies without the capacity to certify the requirements of the taxonomy due to their size.
Sources from another bank give as an example a loan to a dealer to buy electric cars. According to what they say, it is left out of the green because it is understood that the receiving company does not meet the requirements. “We find that the only thing we can prove is the very green,” they lament.
The new regulation has been in preparation for a long time in Brussels, since 2020, which is why it aroused enormous expectation. However, as the moment approached, the banks saw it coming. At the end of last year they already began asking investors not to take the new index into account. The entities consider that the European Commission will end up modifying it because it is “unfair”, “unreal” and “dysfunctional”.
However, it is not so clear that the EU will change its mind. In a meeting with journalists, the general director of supervision of the Bank of Spain, Mercedes Olano, indicated last week that the taxonomy has already been implemented and that she is not aware that she wants to modify it.
The Spanish Banking Association (AEB) indicates that the problem affects all European entities and that the European Banking Federation is transferring the complaint to Brussels. The new metric “only shows a small part of the efforts in the ecological transition” and the GAR suffers from “structural flaws,” he says.
These problems of judgment call into question the new financial architecture around the green economy. The credit rating agency Moody’s estimates that each year companies issue green bonds worth nearly one trillion euros. Banks often buy them to also contribute to the environmental effort.