The partnership between the banking platform, Temenos (SIX: TEMN), and Greenomy’s, EU Taxonomy alignment SaaS solution, “expedites fully automated non-financial reporting and monitoring of the alignment of the bank’s assets in their banking book against their sustainability objectives.”
The implementation of EU Taxonomy (EUTax), the new legally binding regulation for EU corporates and financial institutions extra financial reporting, “presents a significant challenge to non-financial and financial companies alike.”
Notably, Temenos and Greenomy have partnered together to address the market need.”
Entered into force on 12 July 2020, the EUTax aims “to standardize extra financial reporting by defining which economic activities have the potential to be sustainable (i.e. eligible) and the associated methodology to evaluate their actual sustainability level (i.e. alignment).”
With large non-financial corporations (NFCs) required to check their EUTax eligibility since January 2022, “their first report on alignment is required to be published by January 2023. Credit institutions, on the other hand, have an additional year’s grace.”
Although mandated to report on EUTax alignment by January 2024, “their reporting exercise differs from NFCs., Credit Institutions are required to evaluate the proportion of their banking book that is financing sustainable activities, the so-called ‘Green Asset Ratio’ (GAR).”
To compute their GAR, banks will be “required to gather the EU Taxonomy scores of their underlying investment/loan positions, directly from their counterparties.” In addition, they are required “to gather environmental information regarding some of their retail exposures, most importantly on their mortgage loans portfolio.”
EUTax screening and computation of GAR, therefore, “presents banks with an enormous and complex data management challenge requiring the collection, dissemination and aggregation of EU Taxonomy scores from multiple disparate parties as well as adapting their internal IT process to collect the necessary data from corporate and retail customers.”
In many cases, this is “compounded by a lack of available data itself as referenced in a report published by the EBF in collaboration with the UNEP FI, highlighting the lack of current relevant EU Taxonomy data published in the market as a significant hurdle banks need to overcome to complete their reporting.”
To address the market need, Temenos and Greenomy have “combined their domain expertise and systems to provide an innovative solution to automate banking book screening of assets against the EU Taxonomy for banks to calculate their Green Asset Ratio (GAR) and Banking-Book-Taxonomy-Alignment-Ratio (BTAR) to generate their required EUTax compliant reports.”
The integration of Temenos event-driven architecture with Greenomy’s established EUTax alignment capability “performs automatic linking of the underlying positions for screening and GAR computation of the eligible assets in the banking book on a ‘point in time’ basis.”
This allowsclients “to monitor the ESG alignment of their banking book on an incremental basis during the reporting period.” Essential for “enabling banks to measure progress in line with internal strategic sustainability objectives.”
Leveraging Greenomy’s ecosystem of lenders, corporates, investors, and auditors; to help banks “fill the data gaps by supporting the mutualization of ESG data gathering.”
Where a counterparty’s data is missing, banks will “have the opportunity to invite them to the ecosystem where they will be supported through the generation of their EUTax KPIs and reporting.”
The solution “addresses these challenges avoiding the need for banks to embark on an extensive costly data collection process and the disruption associated with adapting their IT infrastructure to support it.”
Effectively freeing up banks’ resources from the heavy lifting required “to meet the challenges of compliance, accelerating their transition towards a Net Zero pathway.”
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