The European Banking Authority (EBA), the independent authority which works to ensure effective and consistent prudential regulation and supervision across the European banking sector, announced that it has published a discussion paper on Environmental, Social and Governance (ESG) risks management and supervision. The new paper provides a comprehensive proposal on how ESG factors and ESG risks could be included in the regulatory and supervisory framework for credit institutions and investment firms, and aims to collect feedback prior to the EBA’s publication of its final report.

The EBA was established in 2011 as part of the European System of Financial Supervision (ESFS), taking over all responsibilities of the Committee of European Banking Supervisors. The main task of the EBA is to contribute to the creation of the European Single Rulebook in banking whose objective is to provide a single set of harmonised prudential rules for financial institutions throughout the EU. The Authority also plays an important role in promoting convergence of supervisory practices and is mandated to assess risks and vulnerabilities in the EU banking sector.

According to the EBA, the organization is looking to address the need for enhanced incorporation of ESG risks into institutions’ business strategies, processes and internal governance arrangements. The EBA stated that this integration could be accomplished by evaluating the long-term resilience of institutions’ business models, setting ESG risk-related objectives, engaging with customers and considering the development of sustainable products.

The aim of the paper, according to the EBA, is to enhance the existing supervisory reviews with ESG factors and, more importantly, to introduce a new area of supervisory analysis and evaluation of the long-term resilience of the business model against the time horizon of the relevant public policies or broader transition trends.

The EBA consultation runs until 3 February 2021. Click here for a link to the discussion paper.