McGuireWoods London partner Marc Naidoo was quoted in an April 6, 2021, Global Risk Regulator article titled “Proposed Green Asset Ratio Could Inflict Reputational Damage on Banks.”
The article discussed the EU’s proposed green asset ratio (GAR). Designed to make Europe the first climate-neutral continent by 2050, the GAR would measure how banks finance sustainable activities by calculating the amount of climate-friendly loans, advances and debt securities, compared to total assets on a lender’s balance sheet.
As part of this initiative, the EU adopted a new taxonomy that defines which economic activities are environmentally sustainable and which are not. While some green assets fit easily into the taxonomy, the article noted, other brown assets are not aligned.
Naidoo predicted that, in practice, the GAR will be able to net out green assets and brown assets. “This needs to be approached carefully, though,” he said, “as the world cannot transition too quickly from so-called brown assets as some countries don’t have this luxury of choice — and banks shouldn’t be penalised for trying to help.”