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The Green Asset Ratio (GAR): a new key performance indicator for credit institutions

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  • Volker Brühl

    (Center for Financial Studies at Goethe University Frankfurt a.M.)

Abstract

The financial sector plays an important role in financing the green transformation. Various regulatory initiatives in the EU aim to improve transparency in relation to the sustainability of financial products and the sustainability of economic activities of non-financial and financial undertakings. For credit institutions, the Green Asset Ratio (GAR) has been established by the European regulatory authorities as a key performance indicator (KPI) for measuring the proportion of Taxonomy-aligned on-balance-sheet exposure in relation to the total assets. The breakdown of the total GAR by type of counterparty, environmental objective and type of asset provides in-depth information about the sustainability profile of a credit institution. This information, which has not been available to date, may also initiate discussions between management and shareholders or other stakeholders regarding the future sustainability strategy of credit institutions. This paper provides an overview of the regulatory background and the method of calculating the GAR along different dimensions. Finally, the potential benefits and limitations of the GAR are discussed.

Suggested Citation

  • Volker Brühl, 2023. "The Green Asset Ratio (GAR): a new key performance indicator for credit institutions," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 57-83, March.
    • Handle: RePEc:spr:eurase:v:13:y:2023:i:1:d:10.1007_s40822-023-00224-0
    DOI: 10.1007/s40822-023-00224-0
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    References listed on IDEAS

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    Cited by:

    1. Latino, Carmelo & Pelizzon, Loriana & Riedel, Max, 2023. "How to green the European Auto ABS market? A literature survey," SAFE Working Paper Series 391, Leibniz Institute for Financial Research SAFE.

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    More about this item

    Keywords

    Sustainable finance; Green finance; Green Asset Ratio; Taxonomy Regulation; Sustainable Finance Disclosure Regulation;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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