EU Taxonomy's 10% Rule: Strategic Implications for Banks and Asset Managers

The new 10% rule of EU Taxonomy 2.0 brings clear changes for banks and asset managers. From now on, only taxonomy-relevant activities that account for more than 10% of KPIs need to be reported in detail. This significantly reduces reporting effort – especially for smaller positions. At the same time, the rule opens up scope to focus more strongly on material sustainable investments.

Key points:

• For banks: Less documentation for smaller green loans, but reporting obligations like the Green Asset Ratio (GAR) remain.
• For asset managers: Funds with less than 10% sustainable share benefit from simplified reporting; however, fund strategies need to be reconsidered.
• Challenge: Institutions must adapt their processes to avoid accidentally exceeding the 10% threshold.

The regulation facilitates compliance but simultaneously forces clearer decisions: Should the focus be placed on sustainable activities, or will simplified reporting be utilized? Your strategy will be decisive.

1. Banks

Scope of Affected Activities

The so-called 10% rule brings noticeable simplification for banks: they now only need to capture material taxonomy-relevant activities in detail. This means that smaller financing segments such as Green Bonds, sustainable mortgages, or ESG-compliant corporate loans are less in focus. Large banks benefit from simplified documentation processes, while regional banks have the opportunity to meaningfully bundle numerous smaller sustainable financial products.

The impacts depend heavily on the business model. Universal banks with broadly diversified portfolios can more easily exclude less relevant business areas. In contrast, institutions that have specialized heavily in sustainable products must continue to maintain detailed evidence to demonstrate their alignment.

Reporting Obligations

Sustainability metrics such as the Green Asset Ratio (GAR) remain mandatory. Disclosure obligations under Article 8 of the EU Taxonomy Regulation also continue to apply. However, the necessary data depth for business areas falling under the new threshold is significantly reduced. This lowers administrative burden and facilitates reporting.

Compliance Costs

The new regulations give banks the opportunity to optimize their internal processes for data collection and processing. By focusing on material business areas, compliance processes can be designed more efficiently. This leads to noticeable relief as the elaborate data collection for smaller positions is eliminated. This also reduces the need for specialized IT solutions or external consulting services.

These savings in compliance costs create room to invest more heavily in sustainable finance strategies – an advantage that can strengthen competitiveness in the long term.

Strategic Implications

The 10% rule offers German banks the opportunity to strategically realign their sustainability strategies. Instead of striving for complete taxonomy compliance across all business areas, they can concentrate their resources on developing and promoting material sustainable financial products. This not only creates efficiency but also supports clearer positioning in sustainable finance.

For many banks, this could also be an incentive to bundle their sustainable product portfolio. This creates a sharper profile that both meets regulatory requirements and builds trust with investors and customers. Interestingly, the adaptation requirements for asset managers differ significantly from those of banks, which is due to their different market roles.

2. Asset Managers

Scope of Affected Activities

Asset managers, similar to banks, face the challenge of optimizing their processes – but with a clear focus on funds. The emphasis here is on managing investment funds and ETFs. Particularly significant is the 10% rule, which influences fund categorization: only funds with a sustainable share of over 10% must report in full taxonomy compliance.

This threshold divides the fund universe into different categories. Funds with a clear ESG focus as well as impact investments remain fully subject to reporting obligations. In contrast, mixed portfolios with a lower share of sustainable investments benefit from simplified reporting procedures. This is particularly advantageous for multi-asset funds, as they can significantly reduce their reporting obligations.

The consequences depend heavily on the respective fund strategy: Thematic sustainability funds must continue to demonstrate in detail how they align with the taxonomy. Diversified mixed funds, however, can document smaller green positions with less effort.

Reporting Obligations

The SFDR continues to require transparent presentation of sustainability objectives for Article 8 and 9 funds. However, Principal Adverse Impact (PAI) reporting is simplified for funds below the materiality threshold.

This eliminates extensive data collection for smaller sustainable positions for asset managers. Particularly affected are areas such as capturing Scope 3 emissions and assessing taxonomy eligibility of individual portfolio positions. Funds with a low share of sustainable investments can instead rely on simplified sustainability declarations without having to document in-depth ESG methodologies.

Compliance Costs

Through the new regulation, asset managers can significantly save costs. Detailed examination of smaller taxonomy shares is no longer required, reducing both internal personnel costs and expenses for external consulting.

The use of data providers such as MSCI ESG or Sustainalytics can also be reduced for funds with lower sustainability focus, further lowering ongoing operating costs. At the same time, the effort for portfolio monitoring and ESG screening is reduced.

The freed-up resources can be redirected to other areas, such as developing sustainable products or deepening ESG research.

Strategic Implications

The savings open up new strategic opportunities for asset managers. The 10% rule offers greater flexibility in fund alignment. They can specifically decide whether to position funds above or below the materiality threshold – a decision that equally influences market opportunities and operational efficiency.

Many asset managers use this regulation to structure their portfolios more clearly. Funds with low sustainable shares are either increased to exceed the 10% threshold or deliberately kept below it to benefit from simplified processes. This clear separation leads to more transparent product lines.

Additionally, opportunities arise for new fund structures: multi-tranche products where only certain share classes are aligned with sustainability, or umbrella structures that combine different sustainability levels in individual sub-funds. This allows asset managers to more efficiently meet their investors' diverse requirements without having to ensure complete taxonomy compliance for every fund.

Advantages and Disadvantages

The 10% rule brings noticeable relief in reporting but simultaneously presents strategic challenges. While smaller sustainable positions can lead to savings, dilemmas also arise in long-term portfolio alignment.

Impact on Business Operations

For banks, data collection for corporate loans below the materiality threshold becomes significantly easier. Smaller green financing is exempt from regulatory reporting obligations, reducing administrative burden.

Asset managers face similar considerations. The clear distinction between funds above or below the 10% threshold facilitates product design. However, this simultaneously leads to stronger separation in the fund universe. The conscious decision to structure portfolios either above or below the threshold influences the institutions' overall strategy and is reflected in the efficiency of compliance processes.

Compliance and Operational Efficiency

Fewer reporting obligations can help financial institutions deploy their ESG resources more strategically. However, monitoring to avoid accidentally exceeding the 10% threshold remains a challenge. New internal control systems may be necessary for this. The following table shows a comparative assessment of advantages and disadvantages for banks and asset managers.

Comparative Assessment of Impacts

Strategic Challenges

The operational advantages and challenges of the 10% rule directly impact the strategic alignment of financial institutions. This regulation forces banks and asset managers to reassess their sustainability strategy. The previously common practice of conducting extensive ESG communication even with low sustainable shares becomes significantly more difficult. Institutions must decide: either they invest more heavily in sustainable activities or they accept weaker ESG positioning.

For asset managers, this often means reconsidering existing fund structures. Mixed funds with moderate sustainable shares face the choice of either increasing their green share or consciously positioning themselves below the 10% threshold.

The result is a bifurcation in the financial sector: on one side, institutions with a clear ESG focus, on the other, those benefiting from simplified reporting obligations. This polarization could make long-term comparability between institutions more difficult and further segment the industry. However, it simultaneously opens up the opportunity to make clear differences in sustainability strategy visible.

Key Takeaways

The 10% rule of the EU Taxonomy marks a decisive moment for German financial institutions. It forces banks and asset managers to position themselves clearly: Should the focus be placed on sustainable activities, or will simplified reporting be chosen?

For banks, the regulation offers the opportunity to reduce compliance costs for smaller green loans. At the same time, it allows clearer market positioning but limits flexibility in ESG marketing.

Asset managers face a fundamental dilemma: mixed funds with a moderate share of sustainable investments must either significantly increase their green share or consciously remain below the 10% threshold. This leads to stronger polarization in the fund universe. Operationally, precise measures are indispensable to meet the requirements.

Implementation requires efficient control systems and thoughtful portfolio structuring. Financial institutions must revise their internal control processes, introduce new monitoring systems, and keep thresholds clearly in view. This rule offers the opportunity to deploy ESG resources more strategically and position themselves as pioneers in sustainability.

In the long term, two clear market segments emerge: on one hand, institutions with a strong ESG focus, on the other, those benefiting from simplified reporting obligations. This bifurcation makes comparability more difficult but makes different sustainability strategies clearer. This allows market positions to be differentiated more clearly.

To benefit from these developments, German financial institutions should establish their taxonomy strategy early, build appropriate monitoring systems, and strategically adapt their product range. Fiegenbaum Solutions stands ready as an experienced partner to support ESG consulting and compliance implementation and successfully master these regulatory challenges.

FAQs

How does the 10% rule of the EU Taxonomy change the strategies of banks and asset managers from 2025?

From 2025, the 10% rule of the EU Taxonomy comes into effect, and it will fundamentally shape the strategies of banks and asset managers. This rule requires financial institutions to align at least 10% of their activities with sustainable criteria. The goal is to both meet regulatory requirements and remain competitive in the long term.

This isn't just about compliance – the rule also creates more transparency and brings sustainable financial products more into focus. The impacts will be far-reaching: in the long term, not only portfolio structures change, but also business models and investment strategies. For banks and asset managers, this means sustainability becomes an indispensable part of their strategic planning.

How do smaller financial institutions benefit from the 10% rule compared to large banks?

The so-called 10% rule brings noticeable advantages for smaller financial institutions. Since they are subject to less stringent regulatory requirements, their administrative burden is significantly reduced. This not only saves costs but also enables them to deploy their resources more strategically and efficiently.

Larger banks, however, face significantly stricter requirements due to their more extensive business activities and associated higher risks. This graduated regulation creates proportionality and offers smaller institutions a competitive advantage as they can respond more flexibly to market requirements.

How can asset managers use the 10% rule to adapt their fund strategies to the EU Taxonomy?

The 10% rule offers you as asset managers practical guidance to align your fund strategies more efficiently while maintaining taxonomy compliance. By focusing on sustainable investments that exceed this threshold, you can better meet EU Taxonomy requirements and increase portfolio transparency.

At the same time, the rule allows you to classify investments with a low share of sustainable activities as less relevant. This not only facilitates portfolio management but also reduces administrative burden – especially regarding new regulations taking effect from 2025. This enables you to not only reduce regulatory risks but also strategically increase the attractiveness of your funds for investors who value sustainability.