EU Taxonomy

Information unaudited Information ungeprüft EU Taxonomy

With the EU Taxonomy, the European Union has created criteria for environmentally sustainable economic activities. The LLB Group is disclosing key performance figures for its taxonomy-alignment for the first time in the 2023 reporting year. These key figures provide information as to the extent to which our central assets are in line with the European Union’s environmental objectives.

Environmentally sustainable economic activities

The European Union has set itself the target of Europe being the world’s first climate-neutral continent by 2050. This project is to be achieved with the European Green Deal. The EU Taxonomy is a key building block on the path to a sustainable economy. It specifies criteria, which allow an economic activity to be classified as environmentally sustainable and defines comprehensive reporting obligations for companies. The aim is to increase the transparency surrounding sustainability and minimise the risk of green-washing.

The LLB Group regards the EU Taxonomy as a tool that will help it achieve its commitment to all-embracing climate neutrality by 2040. In the future, it will provide support for the development of environmentally sustainable products and will help us integrate appropriate principles in all aspects of our business activities.

The EUʼs environmental objectives

According to Article 3 of the EU Taxonomy, an economic activity qualifies as environmentally sustainable if it contributes substantially to at least one of the six environmental objectives below. At the same time, the activity must not adversely harm any of the other environmental objectives and must comply with the minimum levels for social protection. The six environmental objectives provide a framework for assessing the environmental sustainability of an economic activity under the EU Taxonomy:

1. Climate change mitigation;
2. Climate change adaptation;
3. Sustainable use and protection of water and marine resources;
4. Transition to a circular economy;
5. Pollution prevention and control;
6. Protection and restoration of biodiversity and ecosystems.

The conditions under which an economic activity qualifies essentially as an environmental objective and as causing no significant harm to any of the other environmental objectives are determined using the technical screening criteria laid down in Delegated Regulations (EU) 2021 / 2139, 2022 / 1214, 2023 / 2485 and 2023 / 2486.

Overall, it must be said that the following results cannot represent the reality of the LLB Group entirely. This is due to the fact that financial companies are publishing information on their taxonomy-alignment for the first time this year. Furthermore, there are no national thresholds for nearly zero-energy buildings for a significant part of our mortgage loans. Moreover, manual random sampling and automated quality controls have revealed that companies have either not published information or have only published it incompletely. This leads to inconsistencies in the reporting templates, in particular, to discrepancies between the total values reported and the individual environmental objectives.

2023 reporting obligations

The LLB Group’s reporting obligation for 2023 encompasses several Green Asset Ratios (GAR). A GAR corresponds to the percentage of assets associated with economic activities that are in line with the environmental objectives climate change mitigation and climate change adaptation and therefore count as environmentally sustainable under the EU Taxonomy. The total GAR reflects the cumulative value of the individual GARs:

• GAR of the claims, bonds and equity instruments due from or due to financial companies;
• GAR of the claims, bonds and equity instruments due from or due to non-financial companies;
• GAR of mortgage loans and building refurbishment loans;
• GAR for car loans;
• GAR for loans to local public authorities to finance residential construction and other specialist financing;
• GAR for repossessed commercial and private real estate collateral held for sale.

In addition to this, the proportion of exposures related to taxonomy-eligible economic activities per environmental objective must be disclosed. This corresponds to the proportion of assets that is associated with economic activities described in Delegated Regulations (EU) 2021 / 2139, 2022 / 1214, 2023 / 2485 and 2023 / 2486. Neither compliance with the technical screening criteria nor compliance with the minimum levels for social protection is essential for this.

Information as to the extent to which the LLB Group’s off-balance-sheet exposures are associated with economic activities that count as environmentally sustainable under the EU Taxonomy must also be provided. Other reporting obligations relate to the extent of the LLB Group’s assets that are associated with economic activities in the natural gas and nuclear energy sectors. The reporting obligation for the 2023 reporting year covers not only quantitative information but also qualitative information in accordance with the Delegated Regulation (EU) 2021 / 2178, which are published below for the respective key figures.

Green asset ratios (GAR)

Assets less trading book positions and exposures to central governments, central banks and supranational issuers must be used as the reference value in the denominator for calculating the GAR. This follows from Article 7 Paragraph 1 and Annex V of the Delegated Regulation (EU) 2021 / 2178. According to Article 7 and Annex V of the Delegated Regulation (EU) 2021 / 2178, the following exposures must be excluded from the numerator:

• Central governments, central banks and supranational issuers;
• Derivatives;
• Financial assets held for trading;
• On-demand interbank loans;
• Exposures to entities that are not obliged to publish non-financial information under Article 19a or 29a of Directive 2013 / 34 / EU;
• Cash and cash-related assets;
• Other assets (enterprise value, commodities, etc.).

With respect to the numerator in the respective Green Asset Ratio, the gross carrying amounts as at 31 December 2023 were considered per exposure. These positions within the regulatory scope of consolidation were analysed along the technical screening criteria of the EU Taxonomy. In the case of bonds and equity instruments, use was made of information from an external data provider to help with the analysis.

Subsequently, the figures for all individual positions were weighed with the proportion of revenues and investment expenditure (CapEx) associated with environmentally sustainable economic activities and totalled. A look-through approach was applied to the material LLB funds. A conservative valuation approach was chosen for the remaining funds as part of the initial disclosure. The volumes were subsumed into other assets without being assessed. GARs can therefore be expected to increase in subsequent years on the basis, in particular, because of more valid information on the external funds.

Overview of Taxonomy KPIs

Ultimately, the revenue-based total GAR as at 31 December 2023 comes to 0.04 per cent across the Group. In comparison, the LLB Group achieved an investment-related total GAR of 0.10 per cent.

Further details on environmentally sustainable assets (based on the Taxonomy) of the LLB Group can be found in the Appendix to this Annual Report.

GAR by counterparty

The GAR of the claims, bonds and equity instruments due from or due to financial companies amounts to 0.73 per cent based on revenue and 1.32 per cent based on investment. According to the EU Taxonomy, financial companies that are obliged to publish non-financial information in accordance with Article 19a or Article 29a of Directive 2013 / 34 / EU must disclose information on their revenue and investment-related GAR for the first time for the 2023 reporting year. This is why exposures to financial companies that are obliged to publish non-financial information in accordance with Article 19a or Article 29a of Directive 2013 / 34 / EU are incomplete for the calculation of the total GAR and the performance indicator for off-balance-sheet exposures for the 2023 reporting year. The compliance rate is expected to increase for the following year.

The claims, bonds and equity interests due from or due to non-financial companies produce a revenue-based GAR of 5.07 per cent. The investment-based GAR comes to 12.44 per cent. It is important to add that as at 31 December 2023, there is no claim vis-à-vis a non-financial company which obliges the bank to publish non-financial information in accordance with Article 19a or Article 29a of Directive 2013 / 34 / EU.

As at 31 December 2023, we at the LLB Group do have an item of real estate collateral that was acquired as a consequence of the borrower defaulting or the property being auctioned. For the purposes of Taxonomy disclosure, only real estate collateral earmarked for sale needs to be taken into account. This does not apply to plots of land.

Other environmental objectives

In line with the legal requirements, we have only included assets that make a contribution to the environmental objectives climate change mitigation and climate change adaptation in the calculation of the individual GARs. Information on the taxonomy-eligibility of the assets is required for the remaining environmental objectives (sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems) in the 2023 reporting year. We are unable to disclose these performance indicators as at 31 December 2023 because this information is not yet available from our counterparties.

Challenges with collection

These key figures are largely due to challenges with claims, which do not allow complete disclosure at the current time. For example, there is still no national threshold for near zero-energy buildings in Liechtenstein, which is decisive for checking eligibility. A comparable situation results from insufficient regulations for energy efficiency, which is also vital to calculating the GARs. Complete allocation of exposures to economic activities within the meaning of the EU Taxonomy with complete certainty was not possible either and the interpretation of the requirements is not clear so far¹. Against this backdrop, a nil return resulted for the revenue and investment-based GAR of mortgage loans, building refurbishment loans, loans to local public authorities for residential construction financing and other specialist financing as well as car loans for the 2023 reporting year.

Performance indicator for off-balance-sheet exposure

The performance indicator for off-balance-sheet exposure comprises a green ratio for financial guarantees to companies and a green ratio for assets under management. It relates to the proportion of assets under management² and financial guarantees associated with economic activities deemed to be environmentally sustainable under the EU Taxonomy to the total assets under management and financial guarantees. According to Article 7 Paragraph 1 and Annex V of the Delegated Regulation (EU) 2021 / 2178, all financial guarantees and assets under management less exposures to central governments, central banks and supranational issuers must be used as the reference value in the denominator. According to Article 7 and Annex V of the Delegated Regulation (EU) 2021 / 2178, the following exposures must be excluded from the numerator of the performance indicator for off-balance-sheet exposure:

• Central governments, central banks and supranational issuers;
• Derivatives;
• Exposures to entities that are not obliged to publish non-financial information under Article 19a or 29a of Directive 2013 / 34 / EU.

The proportion of off-balance-sheet exposures associated with economic activities deemed to be environmentally sustainable under the EU Taxonomy comes to 4.01 per cent based on revenue and 8.66 per cent based on investment as at 31 December 2023. These figures are solely due to the green ratio for assets under management. A similar approach to balance sheet exposures was taken for the calculation and use was made of an external data provider for bonds and equity instruments. External funds were valued conservatively and the gross carrying amount was allocated to the position without taxonomy-alignment.

1In particular, with regard to the provisions on conducting the climate risk / vulnerability analysis and compliance with minimum levels of protection.

2Asset management mandates (LLB Comfort and wiLLBe) including own funds within the LLB Group. Investment advisory mandates and external funds were not the focus in the 2023 reporting year. The gross carrying amounts of external funds were taken into account accordingly.

As at 31 December 2023, the volume of financial guarantees Group-wide came to CHF 867.9 million. At the reporting date, there were no positions vis-à-vis entities that are obliged to publish non-financial information in accordance with Article 19a or Article 29a of Directive 2013 / 34 / EU, which resulted in a nil return for the Taxonomy disclosure.

Information on economic activities in the area of nuclear energy and fossil gas

The economic activities associated with natural gas and nuclear energy defined according to the EU Taxonomy, which were considered in relation to revenue and investment, are presented along the two environmental objectives. The ratios are calculated analogously to the key figures listed for the Green Asset Ratio, which takes account of claims, bonds and equity instruments. Off-balance-sheet exposures were also included pro rata and shown on a consolidated basis. It is clear from this that the LLB Group has exposures in the area of nuclear energy and fossil gas. However, it must be stated here that the financial companies’ disclosure for the 2023 reporting year, which was not yet complete, distorted the ratio to the extent that the objective figure is probably higher.

Nuclear and fossil gas related activities

Further details on environmentally sustainable assets (based on the Taxonomy) of the LLB Group in the areas of nuclear energy and fossil gas can be found in the Appendix to this Annual Report.

Supplementary voluntary disclosures

In order to create the greatest possible transparency with respect to our portfolios’ sustainability performance, we also disclose the estimated energy efficiency classes of our Swiss mortgage loans and the proportion of environmentally sustainable or taxonomy-aligned real estate held by LLB Immo KAG in addition to the mandatory reporting.

The estimated energy efficiency classes of our Swiss mortgage loans provide information about the buildings’ energy performance. The estimates are based on the calculation methodology of the cantonal energy certificate for buildings (GEAK), which envisages a ranking in classes from A (very energy efficient or “new build standard”) to G (inefficient corresponds to an “old building in need of refurbishment”). The following table summarises the results in an overview.

Estimated energy efficiency classes in Switzerland

As a subsidiary of LLB Österreich, LLB Immo KAG ranks as one of the leading providers of real estate funds. In the process, it attaches great importance to including sustainability criteria when managing its real estate portfolio. Individual funds have already received the Austrian Ecolabel or an outstanding report from the Austrian Society for Environment and Technology (ÖGUT). At present, LLB Immo KAG manages four real estate funds with a total volume of EUR 1ʼ156 million. They manage real estate worth approximately EUR 1ʼ500 million. Of which, EUR 513 million (30.4 %) was classified as taxonomy-eligible and EUR 262 million (15.5 %) as taxonomy-aligned. As at 31 December 2023, the real estate volume of the LLB Semper Real Estate fund came to EUR 1ʼ000 million, of which 37.9 per cent was classified as taxonomy-eligible and 3.0 per cent as taxonomy-aligned. Approximately CHF 13 million was invested in this mutual real estate fund as part of the LLB Group’s financial investments.

Assessment and outlook

In conclusion, it remains to be said that this analysis is based on current legislation and extensive discussions in the industry regarding its interpretation. In view of the challenges shown with the initial disclosure and the interpretation of certain uncertainties, the LLB Group pursued a best-effort approach throughout and also relied on a generally conservative interpretation of the issues. The fact that the institutionalisation of the EU Taxonomy is an ongoing task because of the dynamic development of the law must also be mentioned. Continuous professionalisation based on regulatory requirements is therefore fully in line with the LLB Groupʼs understanding of sustainability and its aspirations. Here, for example, the availability of large amounts of data and top quality information are seen as critical factors for success.

The LLB Group is also convinced that the corporate data made available externally will be gradually increased, which will make the key figures presented more meaningful. Ultimately the information shown will be gradually refined in future publications meaning that the Green Asset Ratios will approximate far more to reality.