On 6 December 2019, the European Banking Authority (EBA) published its action plan on sustainable finance outlining its proposed timeline for delivering mandates relating to environmental, social and governance (ESG) factors.
The EBA’s remit and mandates on ESG factors and risks are set out in the following legislative acts:
- the amended Regulation establishing the EBA;
- the revised Capital Requirements Regulation (CRR II) and Capital Requirements Directive (CRD V);
- the new Investment Firms Regulation (IFR) and Investment Firms Directive (IFD); and
- the European Commission’s action plan: financing sustainable growth and related legislative packages (Commission Action Plan).
The CRR II and the CRD V contains three mandates for the EBA in the area of sustainable finance. The first, Article 98(8) CRR II, calls on the EBA to assess the potential inclusion of ESG risks in the supervisory review and evaluation process performed by Member State competent authorities. The second, Article 449a of CRR II, requires large institutions with publicly listed issuances to disclose information on ESG risks, physical risks and transition risks as defined in the report referred to in Article 98 of the CRD V. The third requires the EBA to assess whether a dedicated prudential treatment of exposures related to assets or activities associated substantially with environmental and/or social objectives would be justified (as a component of Pillar 1 capital requirements). Similar mandates are to be included in the IFR and IFD package.
As part of the Commission’s Action Plan, the three European Supervisory Authorities (ESAs) have been asked to collect evidence of potential undue short-term pressure from capital markets on corporations. The EBA received a specific call for advice on 4 February 2019 and the advice is due to be delivered by the end of 2019. The Regulation on disclosures relating to sustainable investments and sustainability risks also envisages mandates for the ESAs to develop technical standards covering: (i) public due diligence policy statements (at entity level); (ii) pre-contractual disclosure (for products); (iii) website disclosure (product level); and (iv) periodic reporting requirements (product level).