Climate-related risk management and ESG data are becoming critical for banks

ABBL Published 23.02.2021

Banking institutions need to ensure their business models are resilient enough to withstand all risks, including Climate, Environmental (E), Social (S) and Governance (G) risks, which can affect performance and profitability. As Lael Brainard—the Federal Reserve Governor—stated at the 2021 IFF US Climate Finance Summit, “Financial institutions that do not put in place frameworks to measure, monitor, and manage climate-related risks could face outsized losses on climate-sensitive assets caused by environmental shifts, by a disorderly transition to a low-carbon economy, or by a combination of both.

To support its members, the ABBL has launched a task force dedicated to ESG risks, which will work on a better understanding of the recommendations issued by the European Central Bank (ECB) and the European Banking Authority (EBA), and in the practical implementation of those recommendations.

ESG data and disclosures on top of the agenda

Along with the management of ESG risks, ESG data and disclosures is now at the top of the agenda of all financial institutions. A recent interesting development in that perspective is the European Commission consultation on the establishment of a European Single Access Point (ESAP) for financial and non-financial information publicly disclosed by companies (consultation is open until 3 March 2021).

ESG data will see many other developments in 2021, such as the forthcoming Disclosure Regulation applicable from 10 March, the UK government proposing mandatory disclosures in line with the Task Force on Climate-related Financial Disclosures (“TCFD”) from October 2021, the accelerating consolidation among ESG data providers and the various calls for establishing a legal framework (at least at the EU level) to supervise sustainability-related service providers.

The ABBL is closely monitoring sustainable finance developments, especially in the data and disclosure areas, and will inform its members accordingly as new initiatives arise.

Please contact Julien Froumouth if you are an ABBL member and would like to:

  • join the ABBL Sustainability Community and stay tuned
  • join the ABBL ESG Risk task force and share insights, best practices and concerns with other members
  • join the ABBL task force on EU Taxonomy, and contribute to the EBF-UNEP FI project on “testing the application of the EU Taxonomy to core banking products.”

Next key dates

  • The SFDR will come into force on 10 March 2021
  • EBA final report on ESG risks is expected by June 2021
  • The CSSF is also working on circular on how Less Significant Institutions must apply ECB recommendations on climate-related and environmental risks
  • The renewed sustainable finance strategy is expected for March 2021
  • The NFRD review is expected for Q1 2021

By Julien Froumouth

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