EU: Council endorses measures requiring banks to disclose ESG-related financial risks
The ECOFIN Council adopted three sustainability measures of the Capital Requirement Directive and Capital Requirement Regulation for banks as part of the EU’s ‘Risk Reduction Measures package’:
- A report from the European Banking Authority in the next two years on potential brown and green factors for banks’ capital requirements;
- A report from the European Banking Authority in the next two years on the potential inclusion of Environmental, Social and Governance (ESG) risks in the review and evaluation performed by financial regulators;
- Mandatory disclosure of ESG risks for banks in three years.
Capital requirements for banks serve to reduce the risk of default and are in place to ensure banks’ assets... These requirements should as such reflect long-term risks [...] but to date though, banks have not properly been disclosing climate-related risks, nor are such risks adequately monitored by financial regulators...
“The ECOFIN Council decision on these two European Banking Authority reports is an important and necessary step to assess the financial risks posed by climate-related and other ESG impacts... The mandatory disclosure of climate and ESG-related risks for banks is another important advancement,” said Sebastien Godinot, an economist at the WWF European Policy Office...