Simplified ESG Information Disclosure Consultation Document
The European Banking Authority (EBA) releases a consultation document on simplified ESG information disclosure, aiming to incorporate ESG risks into the prudential regulatory framework and establish differentiated disclosure obligations.
The EU Capital Requirements Regulation requires regulatory agencies to assess the exposure of financial institutions to environmental and climate related risks, as well as risk mitigation strategies. This consultation document focuses on the interoperability between ESG disclosure policies and the Corporate Sustainability Reporting Directive (CSRD).
Related Post: European Banking Authority Releases a Consultation Paper on ESG Information Disclosure in the Banking Industry
Background of Simplified ESG Information Disclosure
The EU Capital Requirements Regulation requires ESG information disclosure to be based on the principle of proportionality. This consultation document categorizes it into the following aspects:
- Provide data for regulatory agencies: The document aims to provide detailed ESG information for the European Banking Authority to support risk-based regulation.
- Strengthen the consistency of regulatory policies: The definition, explanation, and data points of documents should be consistent with other regulatory policies to reduce compliance burdens.
- Apply differentiated templates and materiality thresholds: Based on the size, complexity, and risk status of financial institutions, use simplified templates and focus on material issues.
- Simplify data collection: Focus on the basic data required for regulatory purposes and eliminate duplicate disclosure requirements.
Based on the above factors, the European Banking Authority has proposed the following template system:
- Comprehensive Template Set: Suitable for large listed and non-listed companies. This template has added two specific templates, namely the Environment-related Concentration Risk and Exposures to Environmental Risks (Beyond Climate). Large financial institutions with total assets exceeding 30 billion euros are required to disclose information risk and climate stress tests every six months.
- Simplified Template Set: Suitable for other listed companies, this template set includes a simplified version of the physical risk template.
- Reduced Template Set: Suitable for small listed and non-listed companies, this template set provides a simplified summary of physical and transition risks, integrating key regulatory data into a single reporting format.
In terms of materiality thresholds, the consultation document requires financial institutions to disclose geographic distribution information when the proportion of non-domestic exposure exceeds 10% and only need to disclose countries with a proportion exceeding 1%. If the proportion of non-domestic exposure of financial institutions is less than 10%, they only need to disclose simplified information on domestic and non-domestic exposure.
Contents of Simplified ESG Information Disclosure
This consultation document will divide the simplified ESG information disclosure template into the following sections:
- Climate change transition risk template: The core component of the entire template system, divided into three specific templates based on institutional size, with information disclosure requirements ranging from high to low.
- Template for the transition risk of real estate mortgage loans: Pay attention to the energy efficiency risk of real estate mortgage loans and require financial institutions to disclose the transition risk of loans and collateral recovery.
- Physical risk template and environmental risk template: The physical risk template requires institutions to disclose physical risk exposure information according to industry, geographic location, and disaster category. The environmental risk template is specifically designed for environmental risks such as biodiversity loss, ecosystem degradation, and pollution, and is consistent with the guidelines of the Taskforce on Nature-related Financial Disclosures (TNFD) and the Network for Greening the Financial System (NGFS).
- Concentration risk and mitigation action template: The concentration risk template focuses on environmental exposure at the debtor level, as well as information on transition plans, industry decarbonization pathways, and financing emissions. The mitigation template focuses on activities related to climate change mitigation, adaptation, and other environmental goals.
Reference:
The EBA Consults on Major Simplification of Supervisory Reporting
