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Financial institutions given new ESG reporting requirements by EBA

Financial Institutions Given New ESG Reporting Requirements By EBA

An EU watchdog has censured banks for lack of transparency after releasing new ESG reporting requirements, writes Fiona Keating

The European Banking Authority (EBA) has published its final draft implementing technical standards (ITS) on Pillar 3 disclosures on ESG risks.

The EU watchdog has suggested that banks put forward comparable disclosures to demonstrate how climate change may endanger risks within institutions’ balance sheets. The EBA has also set out a challenge to banks to show how they offset those risks.

Financial institutions have been accused of cherry picking information to disclose, and not using common definitions or universally accepted KPIs.

Banks will need to follow stricter rules on what to disclose when the European Banking Authority releases further new mandatory templates and instructions.

“It’s important that stakeholders will soon have access to more information which is fully comparable and more transparent on the ESG issues,” said Meri Remmanen, director of data analytics, reporting and transparency.

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The new requirements are awaiting approval by the European Commission, with a goal of providing comparability between banks. Lenders are expected to show figures which demonstrate how they are working towards making their working practices line up with the Paris Agreement.

Banks will need to submit to the new climate reporting requirements twice a year. Pilar Gutierrez, head of Pillar 3 disclosures, said that financial institutions need to take part in the Task Force on Climate-related Financial Disclosures (TCFD).

“We hope this will create best practices at an international level and for other initiatives,” he added.

The EBA requirements for banks in disclosing ESG information include:

  • Indicators to monitor performance focusing on financing activities that are consistent with the Taxonomy, including a green asset ratio (GAR)
  • Information on exposures to carbon-related assets susceptible to climate change events
  • Disclosing the bank’s mitigating measures to support adaptation and transition to carbon-neutral economy

What are your views on the new ESG reporting requirements? Get in touch.

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