Supervision of ESG risks for credit institutions and investment firms

The European Banking Authority (EBA) published yesterday a report which provides recommendations for institutions to incorporate ESG risks-related considerations in strategies and objectives, governance structures, and to manage these risks as drivers of financial risks in their risk appetite and internal capital allocation process. The EBA also recommends developing methodologies and approaches to test the long-term resilience of institutions against ESG factors and risks including the use of scenario analysis.

EBA sees a need applying at least a 10 years horizon to capture ESG related risks, proposing a phase-in approach. This Report should be considered in conjunction with the EBA and ESAs disclosure publications under the Capital Requirements Regulation (CRR), the Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR). The EBA will publish Pillar 3 disclosure requirements on ESG risks, transition risks and physical risks, as defined in this Report, later this year.

The report will be taken into consideration in the context of the Renewed Sustainable Finance Strategy, the review of CRR/CRD, and an update of the SREP Guidelines to include ESG risks in the supervision of credit institutions.

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