EBA issues draft implementing technical standards on ESG risks

The European Banking Authority (EBA) has published its final draft implementing technical standards on Pillar 3 disclosures for ESG risks.

According to the EBA, the final draft ITS puts forward ‘comparable disclosures’ to show how climate change may exacerbate other risks within institutions’ balance sheets as well as how institutions are dealing with those risks and their ratios on exposures financing taxonomy-aligned activities – such as those consistent with the Paris agreement goals.

The EBA said, “Disclosure of information on ESG risks is a vital tool to promote market discipline, allowing stakeholders to assess banks’ ESG related risks and sustainable finance strategy.”

The EBA ESG Pillar 3 disclosures, the organisation claims, will help to deal with organisations’ shortcomings on ESG disclosures at EU level through the setting of mandatory and consistent disclosure requirements, as well as helping to establish best practices at an international level.

The draft ITS also sets out comparable quantitative disclosures on climate-change related transition and physical risks, such as information on exposures toward carbon-related assets and assets subject to chronic and acute climate change events. In addition, they also include quantitative disclosures on institutions’ mitigation actions in transitioning to a carbon-neutral economy and in adapting to climate change. The ITS’, furthermore, include KPIs on institutions’ assets financing activities that environmentally sustainable, according to the EU taxonomy and in line with the Paris agreement goals and the European Green Deal.

The final draft of the ITS also provides information on how institutions and embedding ESG considerations in their business model, governance, strategy and risk management framework.

The EBA concluded, “The ITS will amend the final draft ITS on institutions’ public disclosures with the strategic objective of defining a single, comprehensive Pillar 3 framework under the CRR that should integrate all the relevant Pillar 3 disclosure requirements. This will facilitate institutions’ implementation and enhance clarity for users of such information, as expressed in the EBA Pillar 3 roadmap.”

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