ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting
ESAs published individual responses to the EC call for advice on developing definitions and methodologies to be used for the disclosure requirements of Article 8 of the Taxonomy Regulation. The responses of ESAs define the Key Performance Indicators (KPIs) disclosing how, and to what extent, the activities of financial institutions that fall within the scope of the Non-Financial Reporting Directive (NFRD) qualify as environmentally sustainable under the Taxonomy Regulation. In September 2020, EC had issued a call for advice to ESAs, which included separate questions for EBA, EIOPA, and ESMA. Therefore, the three ESAs are providing separate answers to the call for advice, although the responses have been coordinated to ensure consistent proposals.
From banking perspective, in the opinion and accompanying report and annexes, EBA elaborates on the KPIs that institutions should disclose, on the scope and methodology for calculation of those KPIs, and on the qualitative information they should provide. The main KPI proposed is the green asset ratio, which identifies the institutions’ assets financing activities that are environmentally sustainable according to the EU taxonomy, such as those consistent with the European Green Deal and the Paris agreement goals. In its response, EBA:
- Provides specific KPIs and methodology for disclosures related to the objectives of climate change mitigation and adaptation, as the screening criteria to identify taxonomy-aligned activities have been developed only for those objectives and the disclosure requirements apply from January 2022
- Includes general proposals regarding the other environmental objectives, but these proposals should be revised and further clarified once the screening criteria for these objectives have been specified during 2022, taking into account that the disclosures relevant for these objectives will be applicable only from January 2023
- Underlines the importance of the green asset ratio, supported by other KPIs, as a key means to understand how institutions are financing sustainable activities and meeting the Paris agreement targets
- Defines the green asset ratio for different on-balance-sheet portfolios and objectives and, at the aggregate level, a KPI for the most relevant off-balance-sheet assets and a ratio based on fees and commissions for services other than lending and asset management; defines templates and instructions with the quantitative information used for the calculation of the KPIs
- Proposes qualitative information to be disclosed by credit institutions and investment firms that should complement the KPIs and quantitative disclosures
- Advises on policy considerations and recommendations addressed to EC on the aspects that should be considered in the future to facilitate institutions’ disclosures
For non-financial undertakings and asset managers, ESMA, as part of the final report on advice under Article 8 of the Taxonomy Regulation, addresses the information to be provided by these entities to comply with their disclosure obligations under the NFRD. ESMA proposes that non-financial undertakings and asset managers should use standardized templates for the reporting under Article 8. The ESMA proposals focus on how to further specify the three KPIs set out in Article 8(2) of the Taxonomy Regulation for non-financial undertakings and those provided by asset management companies that fall within scope of the NFRD. For non-financial undertakings, the proposals set out definitions that should be used to calculate the turnover KPI, the CapEx KPI, and the OpEx KPI. These are complemented with the minimum information that should accompany these disclosures and the methodology, including the level of granularity, for the reporting of the three metrics. For asset managers, the proposals set out the KPI that should be disclosed, the methodology to be applied to that KPI, and recommendations for the development of a coefficient methodology to assess Taxonomy-alignment of investments in investee companies that do not report under the NFRD.
From the insurance perspective, EIOPA submitted its advice regarding the relevant ratios to be mandatorily disclosed by insurance and reinsurance undertakings falling within the scope of the NFRD as well as regarding the methodologies underlying those ratios. EIOPA suggests requiring two most relevant KPIs on sustainability. The first KPI is an investment ratio that reflects an insurer or reinsurer’s funding or financing taxonomy–aligned economic activities (in relation to total investments) while the second KPI is a premium ratio that depicts the extent to which an insurer or reinsurer carries out taxonomy-aligned economic activities (in relation to non-life gross premiums written).
Related Links
- EBA Press Release
- EBA Opinion (PDF)
- EBA Report (PDF)
- ESMA Press Release
- ESMA Response (PDF)
- EIOPA Press Release
- EIOPA Letter to EC
- EIOPA Response (PDF)
Keywords: Europe, EU, Banking, Insurance, Securities, Taxonomy Regulation, NFRD, Disclosures, ESG, Sustainable Finance, Climate Change Risk, Green Asset Ratio, Investment Firms, EC, EBA, ESMA, EIOPA
Featured Experts

Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.

James Edwards
James leads the initiative to model the risk implications of climate change for corporates, SMEs, and sovereigns.
Next Article
MFSA Issues Circular on Amendments to Banking RuleRelated Articles
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
US Agency Publications Address Basel, Reporting, and CECL Developments
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
SEC Extends Comment Period on Climate Risk Disclosures
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
APRA Reduces Committed Liquidity Facility, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
EBA Updates Standards for 2023 Benchmarking of Internal Approaches
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
EIOPA Responds to Stakeholder Views on Blockchain in Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.