Green Asset Ratio

Sustainable finance has an important place among the investments made for the future, considering today's conditions. Practices carried out by financial institutions with the aim of protecting green and preserving natural resources are included in this scope. Thanks to practices such as low bank charges, use of environmentally friendly resources and donations to environmental organizations, it is aimed to direct customers to more 'environmental' financial products.

The banking sector carries out important studies to build a sustainable future. These studies are meticulously supervised and developed. Within the scope of environmental sustainability activities, “Green Asset Ratio” has been determined as one of the main performance indicators by the European Banking Authority.

In the report published by the Banks Association of Turkey, the Green Asset Ratio is “a key performance indicator that will measure the amount of climate-friendly loans, advances and debt securities to a percentage figure compared to the total assets on the lender's balance sheet.” is defined as. In the light of the European Banking Authority's recommendation, green asset ratio measurements will be included in the annual report of banks in European Union countries.

This practice, which is expected to start as of 2022, includes key points in terms of understanding whether the activities carried out within the bank are sustainable or not.

Green Asset Ratio will cover all risks involving financial and non-financial companies (SMEs, households and local governments/municipalities) in the bank portfolio, including loans and advances, debt securities, equity instruments and reclaimed real estate guarantees. They will have to publish three more indicators that show the extent to which off-balance sheet risks are due to climate-friendly activities.” As can be understood from this statement in the report published by the Banks Association of Turkey, the green asset ratio will prevent the sustainability activities carried out in banks from being gathered around a single application.

Initially, banks' green asset ratios are expected to be low. In this regard, the report published by the European Banking Authority in May 2021 estimated an average Green Asset Ratio of 7.9% for a sample of 29 EU banks. It should also be taken into account that there are factors beyond the control of the banks in this low rate. Limitations within the EU taxonomy, not including sectors that are not yet included in the calculation, can be given as examples of these factors.

Banks should show great care in calculating the green asset ratio. If for any reason it is understood that the green asset ratio reported by the bank is incorrect, the bank will have taken the risk of 'greenwashing'. In order to prevent such situations, a very systematic way should be followed in the collection and analysis of data. Banks should proceed in a very transparent manner in this context. It is critical to ensure transparency, especially in the first years when the green asset ratio will be implemented. Addressing sensitive points such as the limitation and quality of the data used in the calculation of the ratio, the change in the green asset ratio over the years and the reasons for this change will accelerate the transition process.

The Turkish banking sector has gained momentum in green financing practices, especially in recent years. The spread of internet banking applications and regulations such as the transition to electronic invoice are only a small part of the examples that can be given. As stated in the Financial Stability Report published by the CBRT in May 2021, the banking sector has issued a total of $1.8 billion in sustainable and environmentally friendly bonds with an average of 5 years since the beginning of the covid epidemic. These results, especially during the epidemic, are very important statistics for the future of sustainability and green banking in Turkey. It is worth mentioning that the green asset ratio implementation in Turkey will not be an extreme picture compared to other countries that have been implemented, and that the ratio estimates mentioned above are also valid for our country. However, it should not be forgotten that the green asset ratio, which is a key performance indicator, should be considered as an important indicator rather than being the sole criterion of green finance and sustainability practices. It should be considered as a part of a whole in determining the “greenness” of the bank in question.

Considering the green asset ratio in the light of current information, it will have an important place in the follow-up of green financing practices and in quantitative comparisons. It is essential for banks to follow a transparent path in green asset ratio calculations so that shareholders and the public sensitive to this issue are faced with a clear and understandable picture. The EU Taxonomy changes and develops with the regulations coming every few months, and in the light of the rates to be calculated for the first time, important data will be collected for the development of the green asset ratio application. Besides the green asset ratio, banks are required to provide detailed information on green asset ratio targets for 2030 and compliance with 2050 net zero targets. These articles are for the close follow-up of climate-friendly practices and the preservation of the dynamism of the work.

In the long term, it is possible to say that the green asset ratio will have the targeted accuracy with the improvements to be made. In this way, it will be easier for the shareholders and the public to access quantitative data. Customers sensitive to sustainability will have the opportunity to make a decision by examining the green asset ratio and the bank's future plans in this regard. In short, we can say that for a sustainable future, the green asset ratio and the accompanying regulations will be a flashlight and will provide clarity for larger steps.

References: https://www.tbb.org.tr/Content/Upload/Dokuman/7736/Bilgi_Notu-Yesil_Varlik_Orani.pdf

https://www.tcmb.gov.tr/wps/wcm/connect/82b86baf-01ad-4eb1-a01d-2210c21fa37d/FİR32_TAM+METİN.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-82b86baf-01ad-4eb1-a01d-2210c21fa37d-nCNUPbu

https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Reports/2021/1001589/Mapping%20Climate%20Risk%20-
%20Main%20findings%20from%20the%20EU-wide%20pilot%20exercise%20on%20climate%20risk.pdf