Sustainable Finance
ESG risks management – more guidance AND flexibility!
Published on 23 April 2024
The ABBL supports the EBA’s ESG risk management guidelines while calling for greater flexibility, practical implementation timelines and clearer regulatory alignment to help banks adapt to evolving sustainability requirements.
Summary
On 18 April 2024, the ABBL submitted its response to the consultation on the EBA guidelines on ESG risks management. In its response, the ABBL welcomes first the work and the general objectives taken by the EBA in developing the draft guidelines. The ABBL also raised specific attention points including the need for ensuring a risk-based, proportionate and flexible approach while clarifying certain concepts and ensure consistency across various requirements and publications. Finally, flexibility and practicality of the guidelines remain a critical prerequisite for banks to adapt to their specific risk profile and activities.
As part of its mandate and workplan on sustainable finance, the European Banking Authority (EBA) published in January 2024 its Guidelines on ESG risks management for consultation until the 18th of April.
The guidelines are articulated around the identification and assessment of ESG risks, the management and monitoring of such risks and the prudential transition plans to address ESG risks under the Capital Requirements Directive (CRD VI).
In its response to the consultation, the ABBL highlights the following key messages:
- A risk-based approach must be ensured across the Guidelines (‘GL’)
- Prefer methodological flexibility and practical recommendations over (too) prescriptive GL for banks to set their own targets and develop their own metrics and risk management tools based on their own strategies, their own commitments as well as their profile, activities and exposures.
- Clarify certain concepts to avoid misinterpretation or confusion especially in the case where there might be overlaps between regulatory expectations.
- Ensure consistency across regulations and publications that would prevent banks to navigate different guidelines, reports and recommendations to identify what is effectively expected from them.
- Welcome the flexible approach regarding the CRD transition plans which requires consistency with the CSRD but leaves flexibility as to whether this results to single transition plan. The articulation between the CSRD transition plans and CRD plans should however be further clarified, in particular how the CRD based transition plans are to be implemented and managed in relation to the overall strategy.
- Given the current level of maturity of tools and methodologies for the management of ESG risks (not only in the financial sector) and the numerous regulatory developments banks will have to comply with in the next few years (notably the CSRD), institutions will need sufficient time for the application of the Guidelines. Implementation period of at least two years is necessary given the complexity of the topic and its interdisciplinary nature (data, IT, strategy, risk processes). In this regards banks would welcome further clarification on the entry into force and the application date of the GL. Concerning the application, the ABBL suggests a phased approach on certain elements and perimeters in line with the EBA Guidelines on Loan Origination and Monitoring, where phased implementation timelines were also established.
Useful links
ABBL Contacts
Contact Julien Froumouth, Head of Sustainability at the ABBL
Contact Gilles Pierre, Head of Banking Regulation and Financial Markets at the ABBL
Julien Froumouth
Head of Sustainability, ABBL
Published on 23 April 2024