Consultation Paper on ESG Information Disclosure in the Banking Industry
European Banking Authority (EBA) releases a consultation paper on ESG information disclosure in the banking industry, aimed at improving transparency and consistency in ESG information disclosure, while simplifying the reporting process.
The European Banking Authority releases ESG risk management guidelines and ESG scenario analysis guidelines, providing guidance to identify, manage, and disclose ESG risks.
Related Post: European Banking Authority Officially Releases Guidelines on Management of ESG Risks
ESG Information Disclosure in the Banking Industry
The EU Capital Requirements Regulation requires the European Banking Authority to develop Implementing Technical Standards to regulate information disclosure in the banking industry. These disclosures will provide comprehensive and comparable information for information users to assess the bank’s risk exposure. In addition to ESG information disclosure, this consultation paper also includes content such as equity exposure, cryptocurrency exposure, and non-performing asset exposure. The requirements for ESG information disclosure in this consultation document are divided into qualitative and quantitative aspects:
Qualitative ESG Information Disclosure
The Capital Requirements Regulation stipulates that banks are required to disclose ESG risk information, distinguish environmental, social, and governance risks, and disclose physical and transitional risks in environmental risks. Banks also need to disclose how to incorporate ESG risks into their business strategies, governance, and risk management, which will supplement material ESG information disclosure. The European Banking Authority maintains its disclosure requirements for social and governance risks, and makes separate modifications to environmental risk disclosures:
- Add explanations for the time frame of environmental risks.
- Clarify the allocation of governance functions among business departments in environmental governance and simplify some information.
- Add explanations on the definition, methods, and international standards of environmental risk assessment in the field of environmental risk management.
Quantitative ESG Information Disclosure
The European Banking Authority has made the following modifications to the disclosure of quantitative ESG information:
- Climate change transition risk: Revise industry segmentation rules to ensure transparency in banks’ disclosure of traditional energy business exposures and assist market participants in disclosing bank risk exposures. Clarify risk disclosure as on balance sheet risk and add Scope 1 and Scope 2 greenhouse gas emission details. Evaluate and enhance the ESG risk disclosure methods for asset-backed bond pools, and design relevant indicators. Banks also need to disclose the risk exposure of the top 20 carbon intensive enterprises and consider categorizing them by counterparty sector.
- Climate change physical risks: Update geographical area scope, require banks to separately disclose physical risks in different regions and calculate total physical risks. Add new industry categories and include industries that are susceptible to physical risks. Delete disclosure requirements for acute and chronic physical risks and simplify the calculation method for physical risk exposure.
- Small and medium-sized banks and non-listed banks: Provide simplified ESG information disclosure templates, covering physical and transition risks.
Reference:
Consultation on Implementing Technical Standards on Amended Disclosure Requirements for ESG Risks
