The European Banking Authority (EBA) has set out a roadmap outlining the objectives and timeline for delivering mandates and tasks in the areas of sustainable finance and environmental, social and governance (ESG) risks. The roadmap explains the sequenced and comprehensive approach over the next three years to integrate ESG risks consideration in the banking framework and support efforts of the European Union to achieve transition to a more sustainable economy.
This roadmap on sustainable finance builds on and replaces EBA's first action plan on sustainable finance, which was published in December 2019. The EBA work on ESG risks will primarily cover the three pillars of the banking framework (market discipline, supervision, prudential requirements), in addition to other related areas and the monitoring and assessment of risks. In the roadmap, the EBA activities on ESG risks and sustainable finance have been classified under the key areas of transparency and disclosures; risk management and supervision (including transition plans); prudential treatment of exposures; stress-testing; standards and labels; greenwashing; supervisory reporting; and ESG risks and sustainable finance monitoring framework. Below are key highlights of the workplans of EBA for the coming months, as part of which EBA will:
- Issue Guidelines on the identification, measurement, management, and monitoring of ESG risks, as the European Commission (EC), in its proposal for an update to the Capital Requirements Directive or CRD, has proposed to give this mandate to EBA. The guidelines would include requirements for institutions’ transition plans and integration of ESG aspects in institutions’ internal stress testing. The timeline for publication of the Consultation Paper and Final Guidelines will depend on the outcomes of the legislative discussions on the banking package and the final mandate entrusted to EBA. Furthermore, based on the final text of the revised CRD, an update to the EBA Guidelines on internal governance and to the Guidelines on remuneration policies may be undertaken to elaborate on aspects related to ESG risks.
- Develop the uniform reporting formats and templates through the implementing technical standards for the reporting of this information, depending on the outcome of the negotiations on the revised banking package. This work also stems from the EC proposal for the CRR revisions. When developing these templates, EBA will build on the Pillar 3 standards on ESG risks disclosures, to ensure overall consistency, but will also consider the information and level of granularity that competent authorities will need for the monitoring and supervision tasks. EBA plans to commence this work in 2023.
- Continue to develop the disclosure templates on ESG risks, with further complementary work expected on the expansion of the scope of quantitative disclosures beyond climate risk mitigation and adaptation, including disclosure metrics on other ESG risks, in line with relevant developments at the European Union (EU) and international levels. Work is also expected on the potential expansion of the scope of disclosure requirements to a larger universe of banks, should such a mandate be granted to EBA by the EU legislators.
- Provide more guidance to institutions and supervisors, in particular through Guidelines for institutions on the management of ESG risks and further revision of the Guidelines on supervisory review and evaluation process (SREP) of credit institutions. EBA plans to include more granular requirements on the treatment of ESG risks in the SREP in a further review of the SREP guidelines. The timeline for the publication of the Consultation Paper and Final Guidelines will depend on the outcome of the preceding legislative process.
- Follow-up on how ESG risks have been implemented into supervisory practices, which will support the EBA work on the incorporation of ESG factors and risks into the SREP framework. To this end, EBA has included ESG risks into its 2022 and 2023 European Supervisory Examination Programs, which is a selection of key priorities for prudential supervisors.
- Publish a final report that will explore, for those elements of the framework which are most likely to be affected by environmental risk drivers, how these risk drivers can be best captured through either existing mechanisms or through enhancements or clarifications within the framework. It will also assess how the different elements of the framework interact with social risks. EBA is planning to finalize the work in 2023, although this will depend on the final outcome of the associated legislative process.
- Review Guidelines on stress testing to provide guidance for institutions on how to test their resilience to climate change and to long-term negative impact of ESG factors. This work will be carried out in accordance with the EC mandate in its CRD revisions. The work is expected to take place in 2023. Furthermore, according to proposed changes to the CRD, EBA and the other ESAs are to develop joint guidelines for supervisory ESG stress testing, starting with climate risk. The timeline for this work will depend on the outcome of the legislative process and agreement between the ESAs.
- Assess, in coordination with EC and the other ESAs, the relevance and need for an EU standard for sustainable loans and bonds. EBA is also planning to monitor the green asset-backed security market, especially the covered bonds segment that may warrant further attention, given the overall importance for EU financial markets. The scope and timeline of EBA tasks in this area will depend on specific requests EBA may receive from EC as part of the action points envisaged in the Strategy for Financing the Transition to a Sustainable Economy.
- Will deliver a progress report, along with other ESAs, in the area of greenwashing by the end of May 2023 and a final report by the end of May 2024. Based on the inputs of ESAs, EC will determine whether the regulatory framework including the supervisory legal mandates, powers, capabilities, and obligations are fit for purpose, and consider potential amendments to the EU single rulebook, if needed.
- Contribute to the development of sustainability reporting standards under the Non-Financial Reporting Directive (NFRD) and Corporate Sustainability Reporting Directive (CSRD), which amends NFRD. EBA will also issue opinions on the technical standards proposed by European Financial Reporting Advisory Group (EFRAG), following the mandate included in the CSRD.
- Contribute to the work of the Basel Committee, through participation in the relevant workstreams.
- News Release on Sustainable Finance Roadmap
- Roadmap on Sustainable Finance (PDF)
- Action Plan on Sustainable Finance, December 2019 (PDF)
Keywords: Europe, Banking, Basel, Reporting, ESG, Climate Change Risk, Greenwashing, Pillar 3, Disclosures, Lending, Stress Testing, SREP, CRR, CSRD, NFRD, EC, EBA
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