On 18 January 2024, the European Banking Authority (EBA) issued a consultation on draft guidelines on the management of environmental, social and governance (ESG) risks.
The EBA has developed these draft guidelines in line with its roadmap on sustainable finance and they address the mandate specified in letters a, b, and c of Article 87(a)5 of the Capital Requirements Directive (letter d of that mandate referring to the criteria for setting specific climate-related scenarios will be addressed through subsequent EBA work).
The draft guidelines therefore seek to enhance the identification, measurement, management and monitoring of ESG risks by institutions and support their safety and soundness as they are confronted with the short, medium and long-term impact of ESG factors. The draft guidelines also contain requirements as to the internal processes and ESG risks management arrangements that institutions should have in place, including specific plans to address the risks arising from the transition and process of adjustment to relevant sustainability legal and regulatory objectives. The draft guidelines also include minimum reference methodologies to be developed and used by institutions to measure ESG risks. The focus is on the main features of key types of methodologies with some flexibility given to institutions as regards specific details.
The deadline for comments on the consultation is 18 April 2024. The EBA expects to finalise the draft guidelines by the end of this year.