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    EC Adopts Rules on Disclosure of ESG Risks by Large Banks

    The European Commission (EC) published a proposal on Insolvency Directive and adopted the technical standards to be used by major listed banks when disclosing environmental, social, and governance (ESG) risks, in accordance with the Capital Requirements Regulation (CRR: 575/2013).

    The recently adopted Implementing Regulation amends the Implementing Regulation 2021/637 that specifies uniform disclosure formats and associated instructions for the disclosures required under Titles II and III of the Capital Requirements Regulation (CRR). The CRR was amended by Regulation (EU) 2019/8763, which introduced a new Article 449a. This Article requires large institutions that have issued securities that are admitted to trading on a regulated market of any member state to disclose, as of June 28, 2022, information on ESG risks, including physical and transition risks. This amendment to the CRR is reflected in the Implementing Regulation 2021/637, which should set out, in addition to the existing uniform disclosure formats and associated instructions, additional uniform disclosure formats and associated instructions for the disclosures of ESG risks. The Implementing Regulation enters into force on the twentieth day following that of its publication in the Official Journal of the European Union. Annex 1 of the amending regulation addresses disclosure templates while the Annex 2 addresses disclosure instructions on ESG risks. With this proposal, EC is integrating ESG risks into the prudential framework of European Union. As a first step, these rules will ensure that major listed banks are transparent about how they manage sustainability risks. It is expected to be an example of good practice globally.

    With respect to the development on Insolvency Directive, EC put forward measures to further develop the Capital Markets Union to make EU clearing services more attractive and resilient, to harmonize certain corporate insolvency rules across EU, and to alleviate—through a new Listing Act—the administrative burden for companies of all sizes, in particular small and medium enterprises, so that they can better access public funding by listing on stock exchanges. The clearing package consists of a Communication and a Regulation amending the European Market Infrastructure Regulation (EMIR), the Capital Requirements Regulation (CRR), and the Money Market Funds (MMF) Regulation; a Directive amending the Capital Requirements Directive (CRD), Investment Firm Directive (IFD), and the Directive on Undertakings for Collective Investment in Transferable Securities (UCITS).

     

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    Keywords: Europe, EU, Banking, ESG, Disclosures, Climate Change Risk, Transition Risk, CRR, Basel, Regulatory Capital, Insolvency Directive, EC

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