The European Banking Authority (EBA) published yesterday its Report on Environmental, Social and Governance (ESG) risks management and supervision.
Even if three quarters of the European economy is financed by banks, the EU sustainable framework was mainly developed towards capital markets actors.
Born from the Capital Markets Union project, the High-level expert group on sustainable finance (HLEG), established in December 2016, comprised 20 senior experts from civil society, the finance sector, academia and observers from European and international institutions. But it is not insulting these experts to say that they did not know a lot about banking,
It’s why EBA ESG work is so important to provide a comprehensive proposal on how ESG factors and ESG risks should be included in the regulatory and supervisory framework for credit institutions and investment firms.
In the necessary transition towards a decarbonized economy, financial institutions assets will be exposed to transition risks and changing physical conditions.
Although these risks are likely to fully materialize over the long-term, action is needed now to identify what institutions’ and supervisors’ responses should be and to progressively start implementing the necessary steps.
In this context, the actions taken by the EBA to support the full incorporation of ESG risks by institutions and supervisors aim to safeguard the resilience of the financial sector in the short, medium and long-term and ensure that banks and investment firms are well-equipped and -positioned for this purpose.
Let’s be honest : there is still a lot to do !
Iconography : a pile of Euro banknotes, Berlin, Germany, © Ibrahim Boran
After working as an international banker for emerging countries, Laurent Lascols became global head of country risk / sovereign risk (from 2008 to 2013) then global director of public affairs (from 2014 to 2019) for Societe Generale. In 2021, he founded Aristote, an advisory firm and training organization dedicated to environmental economics, sustainable finance and impact finance.