{"id":14990,"date":"2024-01-19T13:47:20","date_gmt":"2024-01-19T13:47:20","guid":{"rendered":"https:\/\/www.esgtoday.com\/?p=14990"},"modified":"2024-01-19T13:47:21","modified_gmt":"2024-01-19T13:47:21","slug":"eu-banking-regulator-releases-proposed-requirements-for-banks-to-manage-esg-climate-transition-risks","status":"publish","type":"post","link":"https:\/\/www.esgtoday.com\/eu-banking-regulator-releases-proposed-requirements-for-banks-to-manage-esg-climate-transition-risks\/","title":{"rendered":"EU Banking Regulator Releases Proposed Requirements for Banks to Manage ESG, Climate Transition Risks"},"content":{"rendered":"\n
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EU banking supervisor The European Banking Authority (EBA) announced the launch of a consultation on new proposed guidelines, setting out requirements for banks to identify, measure, manage and monitor ESG risks, including setting plans to address risks arising from the EU\u2019s transition to a climate-neutral economy.<\/p>\n\n\n\n

Requirements for banks under the proposed guidelines would include undertaking regular materiality assessments of ESG risks, ensuring the ability to identify risks through data processes and methodologies including exposure-based, portfolio-based and scenario-based approaches, and the integration of ESG risks in their regular risk management frameworks, with considerations of impact across risk categories including credit, market, operational, reputational, liquidity, business model, and concentration risks, across short-, medium-, and long-term time horizons.<\/p>\n\n\n\n

The guidelines would also require institutions to develop Capital Requirement Directive-based (CRD) transition plans addressing risks arising from the climate transition and financial risks stemming from ESG factors and regulatory objectives.<\/p>\n\n\n\n

According to the EBA, the new guidelines were developed in line with the regulator\u2019s roadmap on sustainable finance. Launched in late 2022<\/a>, the roadmap sets out the EBA\u2019s priorities and plans in the areas of sustainable finance and in supporting and monitoring the integration of ESG risk considerations in the banking framework, through key objectives that include risk management and supervision, treatment of exposures, and ESG risk and sustainable finance monitoring.<\/p>\n\n\n\n

Explaining the rationale behind the new guidelines, the EBA noted that despite actions taken over the past few years to manage the impacts of ESG factors, \u201cseveral shortcomings have been observed in the inclusion of ESG risks in business strategies and risk management frameworks,\u201d which the regulator said could \u201cpose challenges to the safety and soundness of institutions as the EU transitions towards a more sustainable economy and ESG risks become increasingly substantiated or materialize.\u201d<\/p>\n\n\n\n

The guidelines also note a different approach relative to other sustainability-focused regulation such as the Corporate Sustainability Reporting Directive (CSRD) and the proposed Corporate Sustainability Due Diligence Directive (CSDDD), which focus on the compatibility of business models with the EU\u2019s climate and sustainability objectives, while the EBA\u2019s proposals focus instead on ensuring ESG risks are assessed and embedded in strategies and policies, rather than requiring banks to align with specific sustainability goals or transition pathways.<\/p>\n\n\n\n

While specifying that the goal of setting up prudential plans \u201cis not to force institutions to exit or divest from carbon intensive sectors,\u201d the guidelines do aim to \u201cstimulate institutions to proactively reflect on technological, business and behavioral changes driven by the sustainable transition,\u201d including focusing on the related risks and opportunities, transition planning and engagement.<\/p>\n\n\n\n

Click here<\/a> to access the draft guidelines. The EBA consultation is scheduled to run until April 18.<\/p><\/span>","protected":false},"excerpt":{"rendered":"

EU banking supervisor The European Banking Authority (EBA) announced the launch of a consultation on new proposed guidelines, setting out requirements for banks to identify, measure, manage and monitor ESG risks, including setting plans to address risks arising from the EU\u2019s transition to a climate-neutral economy. 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