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.
- 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
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 ArticleCMF Revamps Organizational Structure for Regulation and Supervision
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards
The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.
The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.
The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).
The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The Network for Greening the Financial System (NGFS) published its latest set of long-term climate macro-financial scenarios (Phase IV) for assessing forward-looking climate risks.