EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR). The proposed standards put forward comparable disclosures that address how climate change may exacerbate other risks within the balance sheets of institutions, how institutions are mitigating those risks, and the green asset ratio on exposures financing the taxonomy-aligned activities. The consultation package includes tables for qualitative disclosures on ESG risks and templates for quantitative disclosures on climate-change-related physical and transition risks. It also includes templates for quantitative information and key performance indicators (KPIs) on climate change mitigating measures, including the green asset ratio on taxonomy-aligned activities and other mitigating actions. As specified in CRR, these disclosure requirements are expected to be applicable from June 2022 on an annual basis during the first year and biannually thereinafter. The comment period for this consultation ends on June 01, 2021.
On the quantitative side, the implementing standards propose comparable disclosures on climate-change-related transition and physical risks. In case of climate change physical risks, institutions should start working on the identification of exposures toward sectors and geographies exposed to climate change events linked to physical acute and chronic risks; a disclosure template for this information has been included for consultation. The proposed implementing standards 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 a green asset ratio, which identifies the institutions’ assets financing activities that are environmentally sustainable according to the EU taxonomy, such as those consistent with the European Green Deal and the Paris agreement goals.
On the qualitative side, the consultation paper includes three tables that specify the disclosure requirements for ESG risks. These disclosures are designed in line with the discussion paper that EBA has published in preparation for the report that the authority has to draft following Article 98(8) of the Capital Requirements Directive (CRD IV). The tables and instructions rely on the definitions, terminology, and structure presented in that paper. Thus, the consultation paper sets out proposals for the disclosure of qualitative information on the ESG risks that may manifest on institutions’ balance sheets from the impact of these ESG factors and risks on their counterparties through main transmission channels (including physical and transition channels). Qualitative disclosures are expected to complement the quantitative information when interpreting the information on carbon-related activities or the green asset ratio.
When developing these proposals, EBA has built on recommendations from the FSB Task Force on Climate-related Financial Disclosures (FSB-TCFD), EC's non-binding guidelines on climate-change reporting, and on the EU taxonomy. EBA has developed this consultation paper in parallel and consistently with the Advice to EC on disclosures under Article 8 of the Taxonomy Regulation, including a common proposal for a green asset ratio. EBA has deliberately designed the green asset ratio disclosure requirements to match the data and timelines that large corporates under the Non Financial Reporting Directive (NFRD) are required to produce following Article 8 of the Taxonomy Regulation. In its factsheet on ESG disclosures, EBA acknowledged the potential difficulty in obtaining accurate data, due to which banks can use proxies, estimates, and ranges where reliable data is not yet available. EBA expects reliable data for the green asset ratio from December 2022 from counterparties subject to the NFRD disclosure obligations; however, expectation is much longer, until June 2024, for other data including those from small and medium enterprises, corporates below 500 staff members, and retail counterparties.
Related Links
- Press Release
- Consultation Paper (PDF)
- Draft Templates (XLSX)
- Draft Instructions (PDF)
- KPIs for Credit Institutions (XLSX)
- KPIs for Investment Firms (XLSX)
- Factsheet on ESG Disclosures (PDF)
Comment Due Date: June 01, 2021
Keywords: Europe, EU, Banking, Pillar 3, Disclosures, ESG, CRR, Basel, Climate Change Risk, Green Asset Ratio, Implementing Technical Standards, Investment Firms, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous Article
CMF Revamps Organizational Structure for Regulation and SupervisionRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
