ESG Taxonomy Alignment Tool

The solution for verifying the alignment of economic activities to the European Taxonomy Standards
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The ESG Reporting Challenge

The evolving regulatory landscape on sustainability is reshaping the strategic priorities of organizations, placing Chief Financial Officers (CFOs), Chief Lending Officers (CLOs), and Chief Risk Officers (CROs) of banking institutions before the significant challenge of adopting advanced reporting models essential for ensuring capital quality and managing ESG objectives.

Increasing Complexity of ESG Reporting

The complexity and continuous evolution of ESG regulations—particularly the introduction of the EU Taxonomy standard—make this task even more demanding. Banks cannot stop at mere data compliance; they must obtain detailed, well-documented information to support disclosure requirements for supervisory authorities and stakeholders. Additionally, sustainability processes must be robust and structured to ensure transparency and compliance, with adequate and verifiable control mechanisms, even by third parties.

In this scenario, Pillar III disclosure requires banks to report their Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR)—key performance indicators (KPIs) that monitor the sustainability of credit portfolios while providing a clear measure of how well financial activities align with sustainability goals. Optimizing these indicators is not only crucial for regulatory compliance but also for delivering meaningful information to investors, regulators, and customers, fostering trust and demonstrating a long-term commitment to sustainability.

Adhering to ESG standards is not just a regulatory obligation—it is a strategic tool for enhancing sustainability and corporate reputation. Adopting solutions like GFT’s Taxonomy Alignment Tool (TAT) is essential for monitoring these KPIs, ensuring compliance, and maintaining a competitive advantage.

GAR

Green Asset Ratio measures exposures to corporate and retail organizations subject to CSRD that finance activities aligned with EU Taxonomy and the Paris Agreement objectives. This KPI helps mitigate climate change (CCM) and supports adaptation to current and future climate impacts (CCA).

BTAR

Banking Book Taxonomy Alignment Ratio assesses exposures to companies not subject to CSRD and not included in GAR. This KPI is essential for ensuring that financial activities comply with EU Taxonomy, contributing to both climate change mitigation (CCM) and adaptation (CCA).

EU Taxonomy Regulation

The EU Regulation 2020/852 introduced methodologies to classify investments as eco-sustainable, transforming climate and environmental goals into clear, actionable criteria, creating a structured framework for businesses.

By the end of 2024, 60% of global banks will implement proactive stress testing on loan portfolios to assess climate risk. Source: Gartner "Predicts 2023: Ability to Quantify ESG Initiatives Will Make or Break Banks’ Success With Them"

Transform ESG compliance from obligation into strategic advantage

GFT’s ESG Taxonomy Alignment Tool (TAT) is designed to simplify and dynamically manage economic activities relevant to EU Taxonomy compliance.

Using a structured methodology, the tool enables continuous and precise portfolio alignment with sustainability standards, ensuring timely and certified reporting.

  • Identification of eligible positions: detects EU Taxonomy-aligned positions in the portfolio, optimizing transparency and disclosure.

  • Credit policy optimization: enables customized pricing for sustainable financing initiatives.

  • Compliance guidance: supports organizations in adhering to the EU Taxonomy, providing a structured data collection process for CSRD reporting.

What Does Taxonomy Alignment Tool Do?

  • ​​​​​Analyzes and verifies economic activities’ alignment to the EU Taxonomy, providing continuous compliance assessments.
  • Monitors compliance criteria over time, allowing for sustainable and adaptable management aligned with evolving regulations.
  • Generates unified alignment reports to support the sustainability strategies of banks and clients.
  • Manages regulatory updates modularly, keeping the platform aligned with future directives.

Core Capabilities

  • Seamless integration with existing banking systems and micro front-end architecture
  • Cloud-enabled for flexibility and scalability
  • Highly configurable and modular, designed to adapt to evolving regulations
  • Integration with external (EU) data sources to ensure up-to-date compliance

From ESG Compliance to Innovation: Shaping a Sustainable Future

Sustainable Leadership

ESG regulations are becoming increasingly mandatory. With GFT’s Taxonomy Alignment Tool, organizations can proactively ensure compliance while strengthening their leadership in sustainability. This approach fosters trust among clients and partners committed to responsible finance.

Competitive Advantage

In a market where ESG criteria are gaining prominence, the Taxonomy Alignment Tool enables businesses to stand out with a data-driven approach. Beyond enhancing corporate reputation and reinforcing ESG commitments, it inspires customers to adopt sustainable practices, fostering shared and responsible growth.

Premium Pricing

With Taxonomy Alignment Tool, banks can offer preferential conditions to companies contributing to an improved Green Asset Ratio (GAR), leveraging sustainability as a strategic driver. This not only encourages ESG adoption but also positions banks as strategic partners in the sustainable transition.