EBA publishes sustainable finance action plan
The European Banking Authority has published a new action plan on sustainable finance, setting out a timeline for delivering on environmental, social and governance (ESG) factors.
Climate change and the response to it by the public sector and society in general have led to “an increasing relevance of ESG factors for financial markets,” the body writes.
“It is, therefore, essential that financial institutions are able to measure and monitor the ESG risks in order to deal with transition and physical risks.”
According to the EBA’s report, climate change gives rise to both transition risk and physical risk. It calls on European Supervisory Authorities (ESAs) to provide “direct support” by providing guidance on how sustainability considerations can be implemented into financial services legislation.
In the first instance, the EBA will start with a focus on strategy and risk management and associated key metrics and disclosure. It plans to follow this stage with the development of a dedicated climate change stress test.
Finally, it plans to look into the evidence around the prudential treatment of “green” exposures. The order has been determined by the need to understand institutions’ current business mix, it says, to then tailor an appropriate future strategy.
The report’s publication arrives after Valdis Dombrovkis, vice president at the European Commission, said that the body would be looking into easing banking rules to boost investment in green companies across Europe.
“The urgent need to act explains why we have also set out early expectations for interim measures,” says Jose Manuel Campa, EBA chair. “[This includes] the identification of simple metrics that can foster market discipline and allow banks to set clear green strategies.”