EU banks will need to disclose ESG risks

The European Banking Authority (EBA) has published the final draft implementing technical standards (ITS) on Pillar 3 disclosures on Environmental, Social and Governance (ESG) risks.

EU banks now face having to assess how climate change may exacerbate other risks within institutions’ balance sheets, and how institutions are mitigating those risks on exposures financing taxonomy-aligned activities, such as those consistent with the Paris agreement goals.

In line with the requirements laid down in the Capital Requirements Regulation (CRR), the draft ITS set out comparable quantitative disclosures on climate-change related transition and physical risks, including information on exposures towards carbon related assets and assets subject to chronic and acute climate change events. They also include quantitative disclosures on institutions’ mitigating actions supporting their counterparties in the transition to a carbon neutral economy and in the adaptation to climate change. In addition, they include KPIs on institutions’ assets financing activities that are environmentally sustainable according to the EU controversial taxonomy such as those consistent with the European Green Deal and the Paris agreement goals.

Finally, the final draft ITS provide qualitative information on how institutions are embedding ESG considerations in their governance, business model, strategy and risk management framework.

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