EU Banking Regulator Launches Public Consultation on Guidelines to Manage ESG Risks

EU Banking Regulator Launches Public Consultation on Guidelines to Manage ESG Risks

BY  
Jordy Leo  
- January 24, 2024

The European Banking Authority (EBA) has launched a public consultation concerning draft guidelines on the management of environmental, social, and governance (ESG) risks, as reported by ESG Today on January 19. The guidelines set out requirements for banks to identify, measure, manage, and monitor ESG risks. Specifically, banks would be required to conduct regular materiality assessments of ESG risks, ensure the ability to identify risks through various data processes and methodologies, and integrate ESG risks in their risk management frameworks. In addition, the guidelines ask banks to develop Capital Requirement Directive-aligned (CRD) transition plans, aiming to mitigate risks arising from the climate transition and financial risks stemming from ESG factors and regulatory objectives.

The guidelines build on the EBA’s roadmap for sustainable finance roadmap. Published in December 2022, the roadmap outlines the EBA‘s sequenced and comprehensive approaches to integrate ESG risks considerations in the banking framework and support the EU’s transition towards a more sustainable economy. Despite previous efforts made to manage the impact of ESG factors, the EBA acknowledged several shortcomings in incorporating ESG risks into business strategies and risk management frameworks. The new guidelines seek to bridge these gaps to ensure the safety and soundness of institutions amid the EU’s transition to a more sustainable economy. Unlike other sustainability-centered regulations such as Corporate Sustainability Reporting Directive (CSRD) and  Corporate Sustainability Due Diligence Directive (CSDDD), which focus on aligning business models with the EU’s climate and sustainability targets, the EBA guidelines instead focus on ensuring ESG risks are assessed and embedded in strategies and policies.

Sources:

https://www.esgtoday.com/eu-banking-regulator-releases-proposed-requirements-for-banks-to-manage-esg-climate-transition-risks/

https://www.eba.europa.eu/publications-and-media/press-releases/eba-consults-guidelines-management-esg-risks#:~:text=The%20draft%20Guidelines%20set%20out,runs%20until%2018%20April%202024

https://www.eba.europa.eu/publications-and-media/press-releases/eba-publishes-its-roadmap-sustainable-finance

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