EBA addresses ESG and climate change risks with new proposed guidelines
The European Banking Authority (EBA) has drafted new guidelines for how financial institutions should assess, measure, manage and monitor risks associated with environmental, social and governance (ESG) factors and the EU’s transition to a “climate-neutral” economy.
EBA proposes new guidelines to manage ESG risks
The Paris-headquartered regulatory agency claims that a number of active ESG factors, including climate change and social conflict, pose “considerable challenges” for the continent’s economy and financial sector, particularly within institutions’ risk profiles and business models, which it notes could face headwinds as the EU pushes to achieve net-zero carbon emissions.
To mitigate the risks at large, the EBA has proposed new requirements for institutions to have management processes in place that can effectively address the impact ESG factors have on financial exposure.
A public consultation on the proposals has been launched this month, and the EBA says it is accepting comments via its consultation website until 18 April 2024.
Its anticipation of such risks builds on a growing number of initiatives actioned throughout the last year to transition EU institutions to net-zero by 2025, in accordance with the ambitions of the EU Climate Law.
These include the authority’s decision in July to start collecting ESG data concerning institutions’ quantitative disclosures for ESG risks, and the finalisation of the European Commission’s Capital Requirement Directive (CRD6) in December, which also aims to monitor and address the financial risks posed by ESG factors.
