On 3 November 2020, European Banking Authority (“EBA”) launched a consultation on the integration of ESG risks in the governance, risk management and supervision of credit institutions and investment firms. The consultation runs until 3 February 2021.
The Discussion Paper provides a comprehensive proposal on how ESG factors and ESG risks could be included in the regulatory and supervisory framework for credit institutions and investment firms. The main focus of this Discussion Paper is on the risks to which institutions are exposed via the impact of ESG factors on their counterparties. The Paper provides details on the risks stemming from environmental factors, especially climate change, and illustrates ongoing initiatives and progress achieved on this topic over the recent years.
Two key points following from the Discussion Paper:
- the paper identifies for the first time common definitions of ESG risks, building on the EU taxonomy, and provides an overview of current evaluation methods; and
- the paper outlines recommendations for the incorporation of ESG risks into business strategies, governance and risk management as well as supervision, including by evaluating the long-term resilience of institutions’ business models, setting ESG risk-related objectives, engaging with customers and considering the development of sustainable products.