Green Asset Ratio (GAR)

The Green Asset Ratio (GAR) is a regulatory indicator that measures the percentage of a financial institution's covered assets that are aligned with the EU Taxonomy. In practical terms, it reflects what portion of a bank's loans and investments finances economic activities considered environmentally sustainable according to the technical screening criteria set by the European Union.

The GAR is a mandatory disclosure for large banks under the EU Taxonomy Regulation and the related disclosures Delegated Act, and it is reported within the Pillar 3 prudential framework supervised by the European Banking Authority (EBA).

How is it calculated?

In simplified terms:

GAR = (EU Taxonomy-aligned assets / total covered assets) x 100

Total covered assets exclude exposures such as central governments, central banks and the trading book. Taxonomy alignment requires an activity to substantially contribute to at least one environmental objective, do no significant harm to the others and meet minimum safeguards. Only exposures to counterparties subject to sustainability reporting obligations (for example under the CSRD) count towards the aligned numerator.

Imagine a bank with:

• 1,000 million euros in covered assets
• 250 million euros financing activities that meet the Taxonomy criteria (renewable energy, building energy renovation, electric mobility, and similar)

The calculation would be:

GAR = (250 / 1,000) x 100 = 25%

This means 25% of the bank's covered assets are considered Taxonomy-aligned under European rules.

Why is it relevant?

• It is a mandatory indicator for large financial institutions in the EU.
• It helps assess how aligned the financial system is with European climate objectives.
• It indirectly influences companies' access to sustainable finance and the conditions attached to it.
• It has become a key transparency and ESG positioning metric in the banking sector.

One important caveat is that the GAR can understate a bank's real green exposure: large parts of the balance sheet (such as lending to small firms or non-EU counterparties not covered by the Taxonomy) fall outside the eligible denominator, so a low ratio does not automatically mean a bank is poorly aligned. From 2026, credit institutions also report additional templates covering off-balance-sheet exposures, fees and commissions, and the trading book.

How it connects to corporate sustainability

The GAR links companies' environmental reporting with financial institutions' ability to classify their assets as green under standardized criteria. The better a company can document the Taxonomy alignment of its activities, the easier it is for its lenders to count that financing as green, which can improve access to instruments such as green bonds and broader green finance. It is closely related to other sustainable finance rules such as the SFDR and the disclosures required by the ESRS.

At Manglai we help companies measure their carbon footprint and produce traceable, rigorous environmental data for their sustainability reporting, the same data banks and investors rely on to assess Taxonomy alignment. Discover how Manglai can help you.