EBA/GL/2025/01

08/01/2025

Final Report

Guidelines on the management of environmental, social and

governance (ESG) risks
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

Contents
1. Executive Summary 3
2. Background and rationale 4
3. Guidelines 13
4. Reference methodology for the identification and measurement of ESG risks 18
5. Minimum standards and reference methodology for the management and monitoring of
ESG risks 27
6. Plans in accordance with Article 76(2) of Directive 2013/36/EU 38
7. Accompanying documents 46

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

1. Executive Summary
The EBA is mandated in accordance with Article 87a(5) of Directive 2013/36/EU to issue guidelines
on minimum standards and reference methodologies for the identification, measurement,
management and monitoring of environmental, social and governance (ESG) risks by institutions.

ESG risks, in particular environmental risks through transition and physical risk drivers, pose
challenges to the safety and soundness of institutions and may affect all traditional categories of
financial risks to which they are exposed. To ensure the resilience of the business model and risk
profile of institutions in the short, medium and long term, the guidelines set requirements for the
internal processes and ESG risk management arrangements that institutions should have in place.

Institutions, based on regular and comprehensive materiality assessments of ESG risks, should
ensure that they are able to properly identify and measure ESG risks through sound data processes
and a combination of methodologies, including exposure-, portfolio- and sector-based, portfolio
alignment and scenario-based methodologies.

Institutions should integrate ESG risks into their regular risk management framework by considering
their role as potential drivers of all traditional categories of financial risks, including credit, market,
operational, reputational, liquidity, business model, and concentration risks. Institutions should
have a robust and sound approach to managing and mitigating ESG risks over the short, medium
and long term, including a time horizon of at least 10 years, and should apply a range of risk
management tools including engagement with counterparties. Institutions should embed ESG risks
in their regular processes including in the risk appetite, internal controls and ICAAP. Besides,
institutions should monitor ESG risks through effective internal reporting frameworks and a range
of backward- and forward-looking ESG risk metrics and indicators.

Institutions should develop specific plans to address the risks arising from the transition and process
of adjustment of the economy towards the regulatory objectives related to ESG factors of the
jurisdictions they operate in. To this end, institutions should assess and embed forward-looking ESG
risk considerations in their strategies, policies and risk management processes through transition
planning considering short-, medium- and long-term time horizons. CRD-based plans take a risk-
based view and contribute to the overall resilience of institutions towards ESG risks and should be
consistent with transition plans prepared or disclosed by institutions under other pieces of EU
legislation.

Next steps
The guidelines will apply from 11 January 2026 except for small and non-complex institutions for
which the guidelines will apply at the latest from 11 January 2027.

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

2. Background and rationale

2.1 Impact of ESG risks

1. Climate change, environmental degradation, biodiversity loss, social issues and other
environmental, social and governance (ESG) factors pose considerable challenges for the
economy. The impact of acute and chronic physical risk events, the need to transition to a
low-carbon, resource-efficient and sustainable economy, as well as other ESG challenges, are
causing and will continue to cause profound economic transformations that impact the
financial sector.

2. The Commission’s Renewed Sustainable Finance Strategy and the banking package (Directive
2013/36/EU (Capital Requirements Directive, CRD) and Regulation (EU) No 575/2013 (Capital
Requirements Regulation, CRR)) recognise that the financial sector has an important role to
play both in terms of supporting the transition towards a climate-neutral and sustainable
economy, as enshrined in the Paris Agreement, the United Nations 2030 Agenda for
Sustainable Development and the European Green Deal, and for managing the financial risks
that this transition may entail and/or those stemming from other ESG factors.

3. Environmental risks, including climate-related risks, are expected inter alia to become even
more prominent going forward through different possible combinations of transition and
physical risks. These may affect all traditional categories of financial risks to which institutions
are exposed. In addition, institutions’ counterparties or invested assets may be subject to the
negative impact of social factors, such as breaches of human rights, demographic change,
digitalisation, health or working conditions, and governance factors, such as shortcomings in
executive leadership or bribery and corruption, which may in turn lead to financial risks that
institutions should assess and manage.

4. To maintain adequate resilience to the negative impacts of ESG factors, institutions

established in the EU need to be able to systematically identify, measure and manage ESG
risks. However, the specificities of ESG risks such as their forward-looking nature and distinct
impacts over various time horizons, as well as the lack of relevant historical experience, means
that understanding, measurement and management practices can differ significantly across
institutions. The EBA’s observations stemming from the monitoring of supervisory colleges,
as well as supervisory experience from competent authorities, also show that the
management of ESG risks is still at an early stage and ‘work in progress’, with only nascent
practices on ESG risks other than climate-related risks in most EU institutions. Despite action
taken in recent years, several shortcomings have been observed in the inclusion of ESG risks
in business strategies and risk management frameworks that may pose challenges to the
safety and soundness of institutions as the EU transitions towards a more sustainable
economy and the materialisation of ESG risks intensifies.

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

2.2 Legal mandate and objective of these guidelines

5. To enhance the prudential framework’s focus on ESG risks faced by institutions, new
provisions have been introduced and adjustments have been made to several Articles in the
CRD and in the CRR. In particular and to ensure a uniform understanding of ESG risks,
definitions of ESG risks, environmental risk, physical risk, transition risk, social risk and
governance risk have been laid down in Article 4 of the CRR. Articles 73 and 74 of the CRD
have been amended to require that short-, medium- and long-term horizons of ESG risks be
included in credit institutions’ strategies and processes for evaluating internal capital needs
as well as adequate internal governance. A reference to the current and forward-looking
impacts of ESG risks and a request for the management body to develop concrete plans to
address these risks have also been introduced in Article 76 of the CRD.

6. In addition, a new Article 87a has been included in the CRD, according to which:

1. Competent authorities shall ensure that institutions have, as part of their robust
governance arrangements including risk management framework required under
Article 74(1), robust strategies, policies, processes and systems for the
identification, measurement, management and monitoring of ESG risks over the
short, medium and long term.

2. The strategies, policies, processes and systems referred to in paragraph 1 shall be

proportionate to the scale, nature and complexity of the ESG risks of the business
model and scope of the institution’s activities, and consider the short and medium
term, and a long-term time horizon of at least 10 years.

3. Competent authorities shall ensure that institutions test their resilience to long-
term negative impacts of ESG factors, both under baseline and adverse scenarios
within a given timeframe, starting with climate-related factors. For such resilience
testing, competent authorities shall ensure that institutions include a number of
ESG scenarios reflecting potential impacts of environmental and social changes and
associated public policies on the long-term business environment. Competent
authorities shall ensure that in the resilience testing process, institutions use
credible scenarios, based on the scenarios elaborated by international
organisations.

4. Competent authorities shall assess and monitor developments of institutions’

practices concerning their ESG strategy and risk management, including the plans,
quantifiable targets and processes to monitor and address the ESG risks arising in
the short, medium and long-term, to be prepared in accordance with Article 76(2).
This assessment shall take into account the institutions’ sustainability-related
product offering, their transition finance policies, related loan origination policies,
and ESG-related targets and limits. Competent authorities shall assess the
robustness of those plans as part of the supervisory review and evaluation process.
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Where relevant, for the assessment referred to in the first subparagraph,

competent authorities may cooperate with authorities or public bodies in charge
of climate change and environmental supervision.

7. To foster robust risk management practices and ensure convergence across the Union, the
EBA has been empowered in Article 87a(5) of the CRD to issue guidelines to specify:
a) minimum standards and reference methodologies for the identification, measurement,
management and monitoring of ESG risks;

b) the content of plans to be prepared in accordance with Article 76(2) of the CRD, which
shall include specific timelines and intermediate quantifiable targets and milestones, in
order to monitor and address the financial risks stemming from ESG factors, including
those arising from the process of adjustment and transition trends towards the relevant
Member States and Union regulatory objectives in relation to ESG factors, in particular
the objective to achieve climate neutrality by 2050 as set out in Regulation (EU)
2021/1119, as well as, where relevant for internationally active institutions, third-
country legal and regulatory objectives;

c) qualitative and quantitative criteria for the assessment of the impact of ESG risks on the
risk profile and solvency of institutions in the short, medium and long term;

d) criteria for setting the scenarios referred to in paragraph 3 of Article 87a of the CRD,
including the parameters and assumptions to be used in each of the scenarios, specific
risks and time horizons.

8. These guidelines address the aspects included in points a), b) and c) of the mandate entrusted
to the EBA. Point d) of the mandate will be addressed through the development of
complementary guidelines on scenario analysis related to ESG factors. Therefore, these
guidelines on the management of ESG risks only include a broad requirement for institutions
to perform scenario-based analyses, which will be further specified by the future guidelines
on scenario analysis.

9. These guidelines aim at enhancing the identification, measurement, management and

monitoring of ESG risks by institutions, as referred to under Article 4(1) point 3 of Regulation
(EU) No 575/2013, and at supporting their safety and soundness as they are confronted with
the short-, medium- and long-term impact of ESG factors. The guidelines contain
requirements as to the internal processes and ESG risk management arrangements that
institutions should have in place, including specific plans to address the risks arising from the
transition and process of adjustment to relevant sustainability legal and regulatory objectives.

10. The guidelines include minimum reference methodologies to be developed and used by
institutions to assess ESG risks. Acknowledging the continuous progress in the availability and
development of ESG risk data and methodologies, the focus is on the main features of key

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

types of methodologies, whilst flexibility is left to institutions regarding specific details, also
to facilitate the development of institutions’ own methodologies over time.

2.3 Plans to monitor and address ESG risks

11. The long-term nature and the profoundness of the transition process towards a climate-
neutral and sustainable economy may entail significant changes in the business models of
institutions and in the types and levels of risks they are confronted with. As a result, according
to Article 76(2) of the CRD, institutions shall set out specific plans to monitor and address the
financial risks arising from ESG factors, including those arising from the transition and process
of adjustment to the relevant Member States and Union regulatory objectives in relation to
ESG factors, as well as, where relevant for internationally active institutions, third-country
objectives.

12. These guidelines specify requirements for CRD-based plans and are focused on risk-based
transition planning from a micro prudential perspective. Their objective is to ensure that
institutions comprehensively assess and embed forward-looking ESG risk considerations in
their strategies, policies and risk management processes, including by taking a long-term
perspective and with a view to ensuring their soundness and resilience to the risks faced.

13. Whilst based on the prudential framework for banks, these guidelines and especially Section
6 and the Annex have been prepared by taking into consideration other initiatives and
legislative frameworks related to plans, commonly called transition plans, that should be
disclosed and/or developed by sets of non-financial and financial corporates to ensure that
their business model and strategy are compatible with the transition. These include the
Corporate Sustainability Reporting Directive (CSRD) 1 , the Corporate Sustainability Due
Diligence Directive (CSDDD)2, and the European Commission’s (EC) Recommendation of June
2023 on facilitating finance for the transition to a sustainable economy3 as well as, where
relevant, other international public or private initiatives.

14. The requirements related to plans that are included under various pieces of EU legislation
have specific but complementary purposes and should be addressed by institutions that are
in the scope of these requirements in a coherent and consistent manner. Notably, CSRD and
CSDDD include requirements for the disclosure and adoption, respectively, of plans to ensure
the compatibility of business models of undertakings with the transition to a sustainable
economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement
and the objective of the EU to achieve climate neutrality by 2050. CSRD aims at providing
transparency to investors and other stakeholders. CRD and these guidelines include

1
Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation
(EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate
sustainability reporting.
2
Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability
due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859.
3
Commission Recommendation (EU) 2023/1425 of 27 June 2023 on facilitating finance for the transition to a sustainable
economy - [Link]
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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

requirements for the monitoring and management of financial risks stemming from ESG
factors, including those arising from the transition towards a climate-neutral and more
sustainable economy, and therefore have a deeper focus on risk assessment and
management. Plans required under CRD as specified by these guidelines are not subject to
disclosure, although some parts may be covered by transparency requirements of CSRD
and/or Pillar 3, but will be assessed by prudential supervisors of institutions as part of the
supervisory review and evaluation process.

15. Whilst these guidelines are focused on the prudential aspects of transition planning, the EBA
emphasises that institutions will need to develop a single, comprehensive strategic planning
process that covers all regulatory requirements stemming from applicable legislation (also
beyond the strictly prudential, i.e. including CSRD, CSDDD, sectoral legislation, etc.) and all
relevant aspects, including inter alia business strategy, risk management, due diligence, and
sustainability reporting. Such an integrated, holistic internal approach should ensure
consistent outcomes when addressing all applicable requirements, the coordination of all
efforts related to transition planning within institutions, the operationalisation of strategic
climate targets and commitments, a reduced administrative burden, and the development of
risk management arrangements commensurate with the strategies followed by institutions.
In particular, an institution that carries out its sustainability reporting in accordance with
Articles 19a and 29a of the Accounting Directive4 should ensure consistency of information
used to comply with these guidelines and information disclosed in accordance with the
European Sustainability Reporting Standards (ESRS) and rely on the already available
materially identical or significantly comparable relevant information to the extent possible.

16. These guidelines do not require CRD-based plans to set out an objective of fully aligning with
Member States or Union sustainability objectives or one specific transition trajectory. At the
same time, it must be noted that plans developed by institutions to monitor and address ESG
risks in accordance with the CRD also need to consider and ensure consistency with
institutions’ voluntary commitments and other requirements stemming from non-prudential
regulations. Such consistency is explicitly required under Article 87a(5) subparagraph 2 of the
CRD which states that, where relevant, the methodologies and assumptions sustaining the
targets, the commitments and the strategic decisions disclosed publicly by institutions under
the Accounting Directive, or other relevant disclosure and due diligence frameworks, shall be
consistent with the criteria, methodologies, assumptions, and targets used in the plans to be
prepared in accordance with the CRD.

17. In addition, while these guidelines do not prescribe any particular business strategy,
institutions need to assess financial risks stemming from misalignments of their portfolios
with relevant EU regulatory objectives towards a sustainable economy, including the climate

4
Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements,
consolidated financial statements and related reports of certain types of undertakings
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targets for 2030 and 2050 included in the European Climate Law5, namely the reduction by
2030 of greenhouse gas emissions levels by 55% compared to 1990, and achieving net-zero
emissions by 2050. From a risk management perspective, institutions therefore need to
understand the potential implications for their business models of the transition process and
of the broader EU legislative framework and develop a strategic response to manage the risks
associated with these developments as part of a unified internal transition planning exercise.

18. It should also be pointed out that the goal of CRD-based plans is not to force institutions to
exit or divest from greenhouse gas-intensive sectors but rather to stimulate institutions to
proactively reflect on technological, business and behavioural changes driven by the
transition, to thoroughly assess the risks and opportunities they entail, and to prepare or
adapt accordingly through structured transition planning, including by engaging with their
clients and supporting them where appropriate, notwithstanding other mitigation actions
consistent with sound risk management.

19. Moreover, CRD-based plans are closely related to the policy proposals included in the EBA
report on the management and supervision of ESG risks6, which recommended institutions to
integrate ESG risks into their processes, including by extending the time horizon for strategic
planning to at least 10 years, at least qualitatively, and by testing their resilience to different
scenarios.

20. Against this background, CRD-based plans can be understood as the overview and articulation
of the strategic actions and risk management tools deployed by institutions, based on a
forward-looking business environment analysis and a single, comprehensive transition
planning process, to demonstrate how an institution ensures its robustness and preparedness
for the transition towards a climate and environmentally resilient and more sustainable
economy. These plans aim at ensuring that institutions identify, measure, manage and
monitor ESG risks, in particular environmental transition and physical risks, over several time
horizons including long-time horizons while also setting targets and milestones at regular time
intervals. Such plans should be embedded in the institutions’ strategy and risk management
and address the risks arising from the structural changes that may occur within the industries
and counterparties to which institutions are exposed, taking into account the transition
pathways and adaptation frameworks compatible with the legal and regulatory objectives of
the Member States, EU, and where relevant, other jurisdictions in which they operate.

21. These guidelines refer to transition planning as the internal strategic and risk management
process undertaken by institutions to prepare for risks and potential changes in their business
model associated with a transition to an environmentally resilient and more sustainable
economy, including the implementation of their objectives and targets for monitoring and
addressing ESG risks. The plans are in turn the outputs of the transition planning process.

5
Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework
for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (‘European Climate
Law’)
6
EBA Report on management and supervision of ESG risks for credit institutions and investment firms (EBA/REP/2021/18)
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22. Acknowledging the fast-evolving developments related to transition plans and the need to
preserve the responsibility of the management bodies to set the overall business strategies
and policies, these guidelines focus on processes, principles, core expectations and main
features, including metrics, of sound plans for the management of ESG risks, while leaving
flexibility and responsibility to institutions as to the specific details and levels of targets. The
Annex provides guidance on how institutions could structure the presentation of their plans
in line with the requirements established in the guidelines, while not introducing additional
requirements nor intending to be exhaustive.

2.4 Proportionality
23. The guidelines have been drafted taking into account the proportionality principle set out in
Article 87a(2) of the CRD (see paragraph 6 above). This means that proportionality should
firstly be understood as driven by the materiality of ESG risks associated with the institution’s
activities and business model. As such, these guidelines establish in Section 4.1 that
institutions should rely on the results of their materiality assessments of ESG risks to design
and implement proportionate strategies, policies, processes and plans.

24. In addition, since these guidelines cover internal governance and risk management
arrangements of institutions, they apply in accordance with the general principle of
proportionality applicable to internal governance and risk management arrangements of all
institutions, as laid out in Title I of the EBA Guidelines on internal governance7.

25. The size of institutions is not a sufficient criterion to apply proportionality with regard to the
management of ESG risks. Smaller institutions are not immune to ESG risks, for example in
case of concentrations of exposures in ESG-sensitive economic sectors or in geographical
areas prone to physical risks. All institutions should therefore implement approaches that are
commensurate with the results of their materiality assessment and that ensure their ability
to manage ESG risks in a safe and prudent manner.

26. However, the size and complexity of institutions do play a role in the level of available
resources and capacities to manage ESG risks. These guidelines therefore provide some
differentiated provisions for small and non-complex institutions (SNCIs) as well as for other
non-large institutions, where appropriate, allowing them to implement less complex or
sophisticated arrangements. On the other hand, these guidelines include some more
extensive requirements for large institutions8.

27. Concretely, the specific provisions included in these guidelines for SNCIs and other non-large
institutions relate to the frequency of updates of the materiality assessment (see paragraph
11 of the guidelines), the extent to which qualitative considerations and/or estimates and
proxies can be used (see e.g., paragraph 15 of the guidelines), the number and granularity of
risk assessment methodologies (see section 4.2.3) and monitoring metrics (see paragraph 81)

7
EBA Guidelines on internal governance under Directive 2013/36/EU (EBA/GL/2021/05)
8
Definitions of SNCI and large institution provided in Article 4(1)(145) and Article 4(1)(146) of the CRR, respectively, apply.
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as well as certain aspects of CRD-based plans such as their granularity (paragraph 110), update
frequency (paragraph 114), scenarios (paragraph 97) and metrics (paragraph 106).

28. With regard to CRD-based plans, Article 76(2) of the CRD allows Member States to indicate in
what areas a waiver or a simplified procedure may be applied by SNCIs. Section 6 of these
guidelines already provides proportionality measures for SNCIs and other non-large
institutions which apply even in cases where Member States do not make use of the
mentioned CRD provision. If a Member State decides to apply the provision, Section 6 of these
guidelines will apply to SNCIs dependent on the transposition of CRD into national law.

2.5 Environmental risks and ESG risks

29. As reflected in the CRD provisions, and in line with the sequenced approach adopted under
other EBA regulatory products on ESG risks such as the Implementing Technical Standards on
Pillar 3 disclosures, these guidelines put emphasis on environmental risks while still containing
some minimum requirements on the remaining categories of ESG risks.

30. Although currently institutions are typically more advanced as regards the measurement and
assessment of climate-related risks, it is important that institutions progressively develop
tools and practices that aim at assessing and managing the impacts of a sufficiently
comprehensive range of environmental risks, as defined in Article 4(1)(52e) of the CRR,
extending beyond merely climate-related risks to also include broader environmental risks
such as risks stemming from the degradation of ecosystems and biodiversity loss, as well as
from other ESG factors9. Given the widespread dependence of economic activities on nature,
it is particularly relevant that institutions properly understand the potential physical and
transition risks that could result from nature degradation and from actions aimed at
protecting and restoring it.

31. In addition, it should be kept in mind that institutions can be both impacted by (so-called
‘financial materiality’) and have an impact on (so-called ‘environmental and social
materiality’) environmental and social factors through their core business activities, i.e. their
lending to counterparties and their investments in assets. On the financial materiality side,
the economic and financial activities of counterparties or invested assets can be negatively
impacted by environmental or social factors, which might affect the value and risk profile of
such activities and in turn translate into a financial impact on the institution. On the
environmental and social materiality side, the economic and financial activities of
counterparties or invested assets can have a negative impact on environmental and social
factors, which could in turn translate into a direct financial impact on the institution or affect
it through reputational, litigation or business model risks. The assessment and management
of environmental and social risks should take both of these dimensions into account to the
extent that they affect the financial risks to which institutions are exposed.

9
Annex 1 of EBA Report on management and supervision of ESG risks provides a non-exhaustive list of ESG factors
(EBA/REP/2021/18)
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2.6 Articulation with international developments and other EBA

products
32. These guidelines build on existing EU and international requirements and/or principles on the
management of ESG risks, such as the BCBS principles for the effective management and
supervision of climate-related financial risks 10 . They also take into account the analysis
performed and recommendations included in the EBA Report on the management and
supervision of ESG risks, guidance published by supervisors or networks of central banks such
as the Network for Greening the Financial System (NGFS), various initiatives related to
transition planning and plans 11 as well as supervisory experience regarding institutions’
practices on the management of climate and environmental risks.

33. These guidelines are consistent with and include cross-references to other EBA guidelines or
standards which refer to ESG risks, such as the EBA Guidelines on loan origination and
monitoring (with respect to integration of ESG risks in credit risk policies), the EBA Guidelines
on internal governance (with respect to integration of ESG risks in governance arrangements),
and the EBA Implementing Technical Standards on Pillar 3 disclosure of ESG risks (with respect
to ESG risk metrics). In addition, based on the recent amendments to the CRD, the EBA will
introduce or incorporate further ESG risk considerations when developing future guidelines
on scenario analysis and when updating its guidelines on internal governance, guidelines on
fit-and-proper assessments and guidelines on remuneration policies. These future
developments and updates will be done in a way that ensures consistency with these
guidelines on the management of ESG risks, complementing them in specific areas such as
scenario analysis, the responsibilities of the management body or the integration of ESG risks
into institutions’ remuneration frameworks.

34. These guidelines are part of the EBA’s mandates and tasks in the area of sustainable finance
and ESG risks which cover the three pillars of the prudential framework for banks as well as
other areas related to sustainable finance and the assessment and monitoring of ESG risks, as
laid out in the EBA’s roadmap on sustainable finance12.

10
BCBS Principles for the effective management and supervision of climate-related financial risks
[Link]
11
Non-exhaustive examples include publications by the NGFS, EU Platform on Sustainable Finance, UK Transition Plan
Taskforce, Taskforce on Nature-related Financial Disclosures.
12
EBA roadmap on sustainable finance
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3. Guidelines

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EBA/GL/2025/01

08/01/2025

Guidelines on the management of

environmental, social and governance
(ESG) risks

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

1. Compliance and reporting

obligations

Status of these guidelines

1. This document contains guidelines issued pursuant to Article 16 of Regulation (EU) No

1093/20101. In accordance with Article 16(3) of Regulation (EU) No 1093/2010, competent
authorities and financial institutions must make every effort to comply with the guidelines.

2. Guidelines set the EBA view of appropriate supervisory practices within the European System
of Financial Supervision or of how Union law should be applied in a particular area. Competent
authorities as defined in Article 4(2) of Regulation (EU) No 1093/2010 to whom guidelines
apply should comply by incorporating them into their practices as appropriate (e.g. by
amending their legal framework or their supervisory processes), including where guidelines
are directed primarily at institutions.

Reporting requirements
3. According to Article 16(3) of Regulation (EU) No 1093/2010, competent authorities must
notify the EBA as to whether they comply or intend to comply with these guidelines, or
otherwise with reasons for non-compliance, by [[Link]]. In the absence of any
notification by this deadline, competent authorities will be considered by the EBA to be non-
compliant. Notifications should be sent by submitting the form available on the EBA website
with the reference ‘EBA/GL/2025/01’. Notifications should be submitted by persons with
appropriate authority to report compliance on behalf of their competent authorities. Any
change in the status of compliance must also be reported to EBA.

4. Notifications will be published on the EBA website, in line with Article 16(3).

1
Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a
European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing
Commission Decision 2009/78/EC, (OJ L 331, 15.12.2010, p.12).
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2. Subject matter, scope and definitions

Subject matter and scope of application

5. These guidelines specify robust governance arrangements institutions need to have in place
in accordance with Articles 87a(1) and 74 of Directive 2013/36/EU 2, and cover: 1

(a) minimum standards and reference methodologies for the identification, measurement,
management and monitoring of environmental, social and governance (ESG) risks, in
accordance with Article 87a(5)a) of that Directive;

(b) qualitative and quantitative criteria for the assessment of the impact of ESG risks on the
risk profile and solvency of institutions in the short, medium and long term, in accordance
with Article 87a(5)c) of that Directive;

(c) the content of plans to be prepared in accordance with Article 76(2) of that Directive by
the management body, which shall include specific timelines and intermediate quantifiable
targets and milestones, in order to monitor and address the financial risks stemming from
ESG factors, including those arising from the process of adjustment and transition trends
towards the relevant Member States and Union regulatory objectives in relation to ESG
factors, in particular the objective to achieve climate neutrality by 2050 as set out in
Regulation (EU) 2021/1119, as well as, where relevant for international active institutions,
third country legal and regulatory objectives, in accordance with Article 87a(5)b) of that
Directive.

6. These guidelines address the ESG risk management processes of institutions as part of their
broader risk management framework. They apply in relation to the robust strategies, policies,
processes and systems for the identification, measurement, management and monitoring of
ESG risks over the short, medium and long term that institutions subject to Directive
2013/36/EU shall have as part of their robust governance arrangements including risk
management framework required under Article 74(1) of Directive 2013/36/EU. These
guidelines also complement and further specify EBA Guidelines on internal governance3 and
EBA Guidelines on loan origination and monitoring4 in relation to the management of ESG
risks.

7. Competent authorities and institutions should apply these guidelines in accordance with the
level of application set out in Article 109 of Directive 2013/36/EU.

2
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit
institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC
and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).
3
EBA Guidelines on internal governance under Directive 2013/36/EU (EBA/GL/2021/05)
4
EBA Guidelines on loan origination and monitoring (EBA/GL/2020/06)
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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

Addressees
8. These guidelines are addressed to competent authorities as defined in Article 4(2) point (i) of
Regulation (EU) No 1093/2010 and to financial institutions as defined in Article 4(1) of
Regulation (EU) No 1093/2010 which are also institutions in accordance with Article 4(1) point
3 of Regulation (EU) No 575/20135.

Definitions
9. Unless otherwise specified, terms used and defined in Directive 2013/36/EU and Regulation
(EU) No 575/2013 have the same meaning in these guidelines.

3. Implementation

Date of application
10. These guidelines apply to institutions other than small and non-complex institutions from
11 January 2026. These guidelines apply to small and non-complex institutions at the latest
from 11 January 2027.

5
Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential
requirements for credit institutions and amending Regulation (EU) No 648/2012 (OJ L 176, 27.06.2013, p. 1).
17
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

4. Reference methodology for the

identification and measurement of ESG
risks

4.1 Materiality assessment

11. As part of the reference methodology for institutions’ identification and measurement of ESG
risks to be included in their strategies and internal procedures, institutions should provide for
the regular performance of a materiality assessment of ESG risks. That assessment should be
performed at least every year or, for small and non-complex institutions (SNCIs), every two
years. Institutions including SNCIs should, however, update their assessment more frequently
in case of a material change to their business environment related to ESG factors, such as
significant new public policies or shifts in the institution’s business model, portfolios or oper-
ations.

12. The materiality assessment of ESG risks should be performed as an institution-specific assess-
ment which provides the institution with a view on the financial materiality of ESG risks for its
business model and risk profile, supported by a mapping of ESG factors and transmission
channels to traditional financial risk categories. The materiality assessment of ESG risks should
be consistent with other materiality assessments conducted by the institution, in particular
those made for the purpose of disclosing material sustainability risks in accordance with Di-
rective 2013/34/EU6 and Commission Delegated Regulation (EU) 2023/27727, where applica-
ble, and should be integrated into the internal capital adequacy assessment process (ICAAP)
materiality assessment.

13. The materiality assessment of ESG risks should use a risk-based approach that takes into ac-
count the likelihood of occurrence and the potential magnitude of the financial effects of ESG
risks in the short and medium term and over a long-term horizon of at least 10 years.

14. With a view to comprehensively assessing the materiality of ESG risks, institutions should
ensure that the scope of their materiality assessment sufficiently reflects the nature, size and
complexity of their activities, portfolios, services, and products. Institutions should consider
the impact of ESG risks on all traditional financial risk categories to which they are exposed,
including credit, market, liquidity, operational (including litigation), reputational, business
model and concentration risks. The determination of material ESG risks should consider both

6
Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements,
consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC
of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182,
29/06/2013, p. 19).
7
Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU of the
European Parliament and of the Council as regards sustainability reporting standards (OJ L, 2023/2772, 22.12.2023).
18
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

their impacts on financial risk categories and the amounts and/or shares of exposures,
revenues and profits exposed to the risks.

15. With regard to the materiality assessment of environmental risks, institutions should use both
qualitative and quantitative information. Institutions should consider a sufficiently large
scope of environmental factors that includes at least climate-related factors, degradation of
ecosystems and biodiversity loss. Institutions should assess both transition and physical risk
drivers, taking into account at least the following:

a) For transition risks:

i. the main economic sectors that the financed assets support or in which the
institution’s counterparty has its principal activities;

ii. ongoing and potential future material changes in public policies, technologies
and market preferences (e.g. new environmental regulations or tax incen-
tives, development of innovative low-carbon technologies, shifts in consumer
or investor demand);

iii. with respect to climate-related risks:

1. exposures towards sectors that contribute highly to climate change

as specified in Recital 6 of Commission Delegated Regulation (EU)
2020/1818 i.e. the sectors listed in Sections A to H and Section L of
Annex I to Regulation (EC) No 1893/2006 8 , with particular
consideration given to exposures towards fossil fuel sector entities;

2. the degree of alignment or misalignment of portfolios with the

relevant regulatory objectives of the jurisdictions where they operate
– for SNCIs and other non-large institutions at least on the basis of a
high-level qualitative assessment;

b) For physical risks:

i. the geographical areas in which key assets of counterparties (e.g. production

sites) and, in particular for real estate exposures, physical collateral is located;

ii. the vulnerability level to environmental hazards (e.g. temperature-related,

wind-related, water-related, solid mass-related hazards) associated with dif-
ferent climate scenarios and transition pathways or, for SNCIs and other non-
large institutions, associated with at least one adverse scenario.

8
Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the
European Parliament and of the Council as regards minimum standards for EU Climate Transition Benchmarks and EU
Paris-aligned Benchmarks (OJ L 406, 03/12/2020, p. 17) - Climate Benchmark Standards Regulation - Recital 6: Sectors
listed in Sections A to H and Section L of Annex I to Regulation (EC) No 1893/2006
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16. Institutions should substantiate and document as part of their ICAAP their materiality
assessments of ESG risks, including methodologies and thresholds used, inputs and factors
considered and main results and conclusions reached, including non-materiality conclusions.

17. Institutions should develop and implement measurement methods, risk management
arrangements and transition planning processes, respectively in accordance with Section 4.2,
Section 5, and Section 6, that are commensurate with and informed by the outcomes of the
materiality assessment. To this end, institutions should have more extensive and
sophisticated arrangements for ESG risks identified as material. In turn, the ESG risk
measurement methodologies and ESG risk monitoring metrics used by institutions should
support and inform the regular updates of the materiality assessment. Smaller institutions
with less complex activities may apply less extensive and sophisticated arrangements, which
however should be commensurate with the results of their materiality assessment of ESG
risks.

4.2 Identification and measurement of ESG risks

4.2.1 General principles

18. As part of the minimum standards to identify and measure ESG risks, institutions’ internal
procedures should include tools and methodologies to assess ESG risk drivers and their trans-
mission channels into the different prudential risk categories and financial risk metrics affect-
ing the institution’s exposures, including with a forward-looking perspective.

19. To ensure a proper identification and management of ESG risks, institutions should consider
the potential impact of these risks in the short, medium and long term. The level of granularity
and accuracy of data points, quantification tools, methods and indicators used by institutions
should take into account their materiality assessment and their size and complexity and gen-
erally be higher for the short and medium term. Long-term time horizons should at least be
considered from a qualitative perspective and support strategic assessments and decision-
making.

20. With regard to environmental risks, internal procedures and methodologies should allow in-
stitutions to:

a. quantify climate-related risks, such as by estimating the probabilities of materialisa-

tion and magnitude of financial impacts stemming from climate-related factors;

b. properly understand the financial risks that may result from other types of environ-
mental risks, such as those stemming from the degradation of nature, including bio-
diversity loss and the loss of ecosystem services, or the misalignment of activities with
actions aimed at protecting, restoring, and/or reducing negative impacts on nature;

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

c. establish key risk indicators (KRIs) covering at least short- and medium-term time ho-
rizons and a scope of exposures and portfolios determined in line with the results of
the materiality assessment.

21. With regard to social and governance risks, where quantitative information is initially lacking,
institutions’ internal procedures should provide for methods that start by evaluating qualita-
tively the potential impacts of these risks on the operations of, and financial risks faced by,
the institution, and should progressively develop more advanced qualitative and quantitative
measures. Institutions should gradually enhance their approaches in line with regulatory, sci-
entific, data availability and methodological progress.

22. With regard to the interactions between the different categories of, respectively, environ-
mental, social and governance risks, institutions’ internal procedures should ensure that each
category of risk is first assessed taking into account its specific characteristics, before consid-
ering potential interconnections and interdependencies in the measurement of these risks.

4.2.2 Data processes

23. Institutions’ internal procedures should provide for the implementation of sound information
management systems to identify, collect, structure and analyse the data that is necessary to
support the assessment, management and monitoring of ESG risks. Such systems should be
implemented across the institution as part of the overall data governance and IT infrastruc-
ture. Institutions should regularly review their practices to ensure they remain up to date with
public (e.g. increased data availability due to regulatory initiatives) and market developments
and should have in place arrangements to assess and improve data quality.

24. Institutions’ internal procedures should ensure that institutions gather and use the infor-
mation needed to assess, manage, and monitor the current and forward-looking ESG risks
they may be exposed to via their counterparties, by aiming at collecting client- and asset-level
data at an appropriately granular level.

25. Institutions’ internal procedures should build on both internally and externally available ESG
data, including by regularly reviewing and making use of sustainability information disclosed
by their counterparties, in particular in accordance with European Sustainability Reporting
Standards developed under the Directive 2013/34/EU or voluntary reporting standard for
non-listed Small and Medium-size Enterprises (SMEs) as per the Communication COM (2023)
535 on the SME relief package9.

26. Institutions should assess which other sources of data would effectively support the
assessment, management and monitoring of ESG risks, such as information obtained through
engagement with clients and counterparties as part of new and existing business
relationships, or third-party data. When institutions use services of third-party providers to

9
COM (2023) 535 - Communication from the Commission to the European Parliament, the Council, the European
Economic and Social Committee and the Committee of the Regions - SME Relief Package
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gain access to ESG data, institutions should ensure they have a sufficient understanding of the
sources, data and methodologies used by data providers, including their potential limitations.

27. Where the quality or availability of data is initially not sufficient to meet risk management
needs, institutions should assess these gaps and their potential impacts. Institutions should
take and document remediating actions, including the use of estimates or proxies, e.g. based
on sectoral- and/or regional-level characteristics and, when feasible, making adjustments to
account for counterparty-specific aspects. Institutions should seek to reduce the use of
estimates and proxies over time as ESG data availability and quality improve.

28. For large corporate counterparties as defined by Article 3(4) of Directive 2013/34/EU,
institutions should consider collecting or obtaining the following data points, where
applicable:

a. For environmental risks:

i. geographical location of key assets (e.g. production sites) and exposure to

environmental hazards (e.g. temperature-related, wind-related, water-related, solid
mass-related hazards) at the level of granularity needed for appropriate physical risk
analysis, and availability of insurance;

ii. current and, if available, targeted greenhouse gas (GHG) scope 1, 2 and 3 emissions in
absolute value and, where relevant, in intensity value;

iii. dependency on fossil fuels, either in terms of economic factor inputs or revenue base;

iv. energy and water demand and/or consumption, either in terms of economic factor
inputs or revenue base;

v. level of energy efficiency for real estate exposures and the debt servicing capacity of
the counterparty;

vi. the current and anticipated financial effects of environmental risks and opportunities
on the counterparty’s financial position, financial performance and cash flows;

vii. transition-related strategic plans, including transition plan for climate change
mitigation disclosed in accordance with Article 19a or Article 29a of Directive (EU)
2022/2464, when available;

b. For social and governance risks:

i. alignment with the OECD Guidelines for Multinational Enterprises, UN Guiding

Principles on Business and Human Rights and International Labour Organisation
Declaration on Fundamental Principles and Rights at Work;

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

ii. negative material impacts on own workers, workers in the value chain, affected
communities and consumers/end-users including information on due diligence efforts
or processes to avoid and remediate such impacts.

29. For exposures towards other types of counterparties than large corporates, institutions
should:

a. determine the data points needed for the identification, measurement and
management of ESG risks, considering the list provided in paragraph 28 to support
that assessment;

b. where needed to address data gaps, use expert judgment, qualitative data,
portfolio-level assessments and proxies in line with paragraph 27.

4.2.3 Main features of reference methodologies for the identification and

measurement of ESG risks

30. Institutions’ internal procedures should provide for a combination of risk assessment
methodologies, including exposure-based, sector-based, portfolio-based, and scenario-based
methodologies, as set out in paragraphs 31 to 42. The combination of methodologies should
be put together in a way that allows institutions to comprehensively assess ESG risks over all
relevant time horizons. In particular, institutions should at least use exposure-based methods
to obtain a short-term view of how ESG risks are impacting the risk profile and the profitability
of their counterparties, use sector-based, portfolio-based and scenario-based methods to
support the medium-term planning process and the definition of risk limits and risk appetite
for steering the institution towards its strategic objectives, and assess through scenario-based
methods their sensitivities to ESG risks across different time horizons including long-term
ones.

a. Exposure-based methods

31. At an exposure-based level, in line with the provisions in paragraphs 126 and 146 of the EBA
Guidelines on loan origination and monitoring, institutions should have internal procedures
in place to assess the exposure of their counterparties’ activities and key assets to ESG factors,
in particular environmental factors and the impact of climate change, and the
appropriateness of the mitigating actions. To this end, institutions should ensure that ESG
factors, in particular environmental factors, are properly reflected in their internal risk
classification procedures, are taken into account in the overall assessment of default risk of a
borrower and, where justified by their materiality, are embedded into the risk indicators,
internal credit scoring or rating models, as well as into the valuation of collateral.

32. With regard to the assessment of environmental risks at exposure level, institutions’ internal
procedures should include a set of risk factors and criteria that capture both physical and
transition risk drivers. For large institutions, this includes, where applicable, at least the
following:
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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

a) the degree of vulnerability to environmental hazards, taking into account the

geographical location of the key assets of counterparties and guarantors, or of the
physical collateral backing the exposures, considering both on-balance sheet and off-
balance sheet exposures;

b) the degree of vulnerability to transition risks, taking into account relevant technological
developments, the impact of applicable or forthcoming environmental regulations
affecting the sector of activity of the counterparty, the current and if any targeted GHG
emissions in absolute and, where relevant, intensity value of the counterparty, the
impact of evolving market preferences, and the level of energy efficiency in the case of
residential or commercial real estate exposures together with the debt service capacity
of counterparties;

c) the exposure of the counterparty’s business model and/or supply chain to critical
disruptions due to environmental factors such as the impact of biodiversity loss, water
stress or pollution;

d) the exposure of the counterparty to reputational and litigation risks taking into account
completed, pending or imminent litigation cases related to environmental issues;

e) the (planned) maturity or term structure of the exposure or asset;

f) risk-mitigating factors, such as private or public insurance coverage, for example based
on applicable national catastrophe schemes or similar frameworks, and the capacity of
the counterparty to ensure resilience to transition and physical risks including through
forward-looking transition planning.

33. Where data needed to assess certain criteria is not yet available, such as for smaller corporate
counterparties, institutions should follow the steps outlined in paragraphs 26, 27 and 29.

34. With regard to the assessment of social and governance risks at exposure level, institutions
should implement due diligence processes with a view to assessing the financial impacts
stemming from, and the vulnerability of counterparties’ business model to, social and
governance factors, taking into account the adherence of corporate counterparties to social
and governance standards such as those mentioned in paragraph 28 b(i), the exposure of the
counterparty to litigation risk driven by social or governance issues, as well as the applicable
legislation in the jurisdiction where the counterparty operates.

b. Sector-based, portfolio-based and portfolio alignment methods

35. Institutions’ internal procedures should provide for sector-based and portfolio-based
methodologies, in particular heat maps that highlight ESG risks of individual economic (sub-)
sectors in a chart or on a scaling system as referred to in paragraphs 127 and 149 of the EBA
Guidelines on loan origination and monitoring. Institutions’ methodologies should allow to

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map their portfolios according to ESG risk drivers and identify any concentration towards one
or more type(s) of ESG risks.

36. With regard to non-climate related ESG factors, large institutions should develop:

a) methods to identify sectors that are highly dependent on, or have significant impact
on, ecosystem services, and tools to measure the financial impact of nature
degradation and actions aimed at protecting, restoring and/or reducing negative
impacts on nature;

b) approaches to measuring the positive or adverse impacts of their portfolios on the

achievement of the UN Sustainable Development Goals and evaluating potential
related financial risks.

37. With regard to climate-related risks, institutions’ internal procedures should provide for the
use of at least one portfolio alignment methodology to assess on a sectoral basis the degree
of alignment of institution’s portfolios with climate-related pathways and/or benchmark
scenarios. Institutions should also consider assessing the alignment at counterparty level e.g.
by comparing the GHG emissions intensity of a given counterparty with an applicable sectoral
benchmark.

38. For the purposes of paragraph 37, institutions should use scenarios that are science-based,
relevant to sectors of economic activity and the geographical location of their exposures, up
to date and originating from national, EU or international organisations such as national
environmental agencies, Joint Research Center of the EU Commission, the International
Energy Agency, Network for Greening the Financial System, International Panel on Climate
Change. Sectoral decarbonisation pathways should be consistent with the applicable policy
objective, such as the EU objective to reach net-zero GHG emissions by 2050 and to reduce
emissions by 55% by 2030 compared to the 1990 level, or any national objective where
applicable.

39. For the purposes of paragraph 37, institutions should determine the appropriate scope of the
portfolio alignment assessments and the degree of sophistication of the methodologies used
based on the characteristics of their portfolios, the results of their materiality assessment and
their size and complexity. Large institutions with securities traded on a regulated market
within the Union should take into account the list of sectors included in Template 3 of Annex
I of the Commission Implementing Regulation (EU) 2022/245310. SNCIs and other non-large
institutions may use representative samples of exposures in their portfolios to undertake
portfolio alignment assessments.

10
Commission Implementing Regulation (EU) 2022/2453 of 30 November 2022 amending the implementing technical
standards laid down in Implementing Regulation (EU) 2021/637 as regards the disclosure of environmental, social and
governance risks (OJ L 324, 19.12.2022, p. 1).
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40. Institutions should justify and document their methodological choices including the choice of
scenario(s) and the base year, the selection of sectors and, for SNCIs and other non-large
institutions, the identification of a representative sample of exposures, as well as any
significant methodological change over time. When data needed to measure alignment is
missing, institutions should follow the steps set out in paragraphs 26, 27 and 29.

41. Institutions should consider insights gained from climate portfolio alignment methodologies
to:

a. assess and monitor climate-related transition risks stemming from misalignments of

counterparties and/or portfolios with EU, Member State or third-country regulatory
objectives and pathways consistent with applicable climate goals, and potential
related financial risks;

b. inform their decision-making process on the formulation and implementation of their

risk appetite, business strategy and transition planning including regarding
prioritisation of engagement with certain counterparties.

c. Scenario-based methods

42. In addition to exposure-based, sector-based, portfolio-based and portfolio alignment

methods, institutions’ internal procedures should provide for the use of scenario-based
analyses to test their resilience to ESG risks, starting with climate-related risks, under various
scenarios11.

11
Point d) of the mandate included in Article 87a(5) of Directive 2013/36/EU will be addressed through the development
of complementary EBA Guidelines on scenario analysis to test the resilience of institutions to environmental, social and
governance factors.
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5. Minimum standards and reference

methodology for the management and
monitoring of ESG risks

5.1 ESG risk management principles

43. For the purposes of integrating ESG risks into the institution-wide risk management frame-
work in accordance with paragraph 152 of the EBA Guidelines on internal governance, insti-
tutions should consider the role of ESG risks as potential drivers of all traditional categories
of financial risks, including credit, market, operational (including litigation), reputational, li-
quidity, business model, and concentration risks.

44. Institutions should embed ESG risks within their regular risk management systems and pro-
cesses ensuring consistency with their overall business and risk strategies, including plans in
accordance with Article 76(2) of Directive 2013/36/EU as further specified in Section 6. Insti-
tutions should ensure that they have a fully integrated approach where ESG risks are properly
captured and considered as part of risk management strategies, policies and limits. Where
institutions have in place specific arrangements for ESG risks, they should ensure this is re-
flected in, and feeds into, the regular risk management framework.

45. Institutions should develop a robust and sound approach to managing and mitigating ESG
risks over the short and medium term and over a long-term horizon of at least 10 years, taking
into account the principles outlined in paragraph 19.

46. Institutions should determine which combination of risk management and mitigation tools
would best contribute to this, by considering a range of tools, including the following:

a) engagement with counterparties aiming at better understanding the risk profile of the
counterparty and at ensuring consistency with the institution’s risk appetite and stra-
tegic objectives, in particular by:

i. determining the scope of counterparties with whom to engage, taking into

account the outcomes of the materiality assessment and of the risk measure-
ment process;

ii. establishing a dialogue with those counterparties to review their resilience

towards ESG risks, taking into account the sectoral legislation that affects
those counterparties and any transition plan they have developed;

iii. where relevant and possible, providing relevant information and advice to
clients on the assessment or mitigation of ESG risks they are exposed to; and
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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

iv. considering a range of counterparty-specific actions, such as adjustment to

product offering, agreement on a plan and remedial actions to support tran-
sition efforts and an enhanced resilience of the counterparty, or as a last re-
sort cessation of the relationship when continuation is considered incompat-
ible with the institution’s planning and risk appetite.

b) adjusting financial terms (e.g. including contractually-agreed safeguards and correc-

tive measures), conditions (e.g. tenor) and/or pricing based on ESG risk-relevant cri-
teria and the institution’s risk strategy and internal capital policy;

c) considering ESG risks when developing sectoral policies and when setting global, re-
gional and sectoral risk limits, exposure limits and deleveraging strategies;

d) diversification of lending and investment portfolios based on ESG risk-relevant crite-

ria, e.g. in terms of economic sectors or geographical areas;

e) other risk management tools deemed appropriate in line with the institution’s risk
appetite, such as a possible reallocation of financing between and within sectors to-
wards exposures more resilient to ESG risks.

5.2 Strategies and business models

47. Institutions should account for ESG risks when developing and implementing their overall
business and risk strategies, which should include at least:

a) understanding and assessing the business environment in which they operate, and
how they are exposed to structural changes in the economy, financial system, and
competitive landscape over the short, medium and long term as a result of ESG fac-
tors;

b) understanding and assessing how ESG risks, in particular environmental risk drivers
including transition and physical risks, can have an adverse impact on the viability of
their business model and sustainability of their business strategy, including profitabil-
ity and revenue sources, over the short, medium and long term;

c) considering how these ESG risks, in particular environmental risk drivers including
transition and physical risks, may affect their ability to achieve their strategic objec-
tives and remain within their risk appetite;

d) formulating, implementing and monitoring plans and targets as set out in Section 6.

48. For the purposes of paragraph 47 and with a view to ensuring sufficiently informed strategies,
institutions should consider insights gained from a combination of forward-looking risk as-
sessment methods, including:

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

a) portfolio alignment methodologies, as described in Section 4.2;

b) environmental risk scenario analyses, taking into account the (potential) business en-
vironment(s) in which they might be operating in the short, medium and long term,
including a time horizon of at least 10 years;

c) climate or environmental stress tests performed by the institution.

49. Institutions should have a comprehensive understanding of their business model, strategic
objectives and risk strategy from an ESG risk perspective and should ensure that their govern-
ance, transition planning process and risk management framework, including risk appetite,
are adequate to implement them.

5.3 Risk appetite

50. Institutions should ensure that their risk appetite clearly defines and addresses ESG risks
which are part of their risk inventory following the materiality assessment. The risk appetite
should specify the level and types of ESG risks institutions are willing to assume in their port-
folio, including as regards the portfolio’s concentration and diversification objectives. The in-
tegration of ESG risks in the risk appetite should be consistent with the institution’s strategic
objectives and commitments and with the plans and targets specified under Section 6.

51. The risk appetite should be implemented with the support of ESG-related KRIs, including e.g.
potential limits, thresholds or exclusions. For the determination of relevant and appropriate
KRIs, institutions should consider the results of their materiality assessment and the specific
features of their business model, taking into account relevant business lines, activities, prod-
ucts, and exposures towards economic sectors and geographies, including jurisdictions and
more granular geographical areas. Institutions should consider the metrics listed in Section
5.7 when determining which selected KRIs to use in their risk appetite framework.

52. Institutions should ensure that all relevant group entities and business lines and units bearing
risk properly understand and implement the institution’s risk appetite in terms of ESG risks.
In particular in large institutions risk limits should be set at different levels within the institu-
tion, ensuring consistency with the overall risk appetite, and should anchor ESG risk consid-
erations in relation to the products or financial instruments issued, originated or held by the
institution, client segments, type of collateral and risk mitigation instruments.

53. The institution’s risk appetite and associated KRIs should be subject to monitoring and esca-
lation processes as set out in paragraph 80.

5.4 Internal culture, capabilities and controls

54. Institutions should develop on an ongoing basis their capabilities to identify, assess, monitor,
manage and mitigate ESG risks as appropriate. Institutions should ensure, as part of their

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training policy, that their management body and staff are adequately trained to understand
the implications of ESG factors and ESG risks with a view to fulfilling their responsibilities ef-
fectively. The policies and procedures on training activities should be kept up to date and take
into account scientific and regulatory developments; the procedure for managers should take
into account that knowledge of ESG factors and ESG risks is relevant for the assessment of the
suitability of members of the management body and for key function holders in line with the
Joint EBA and ESMA Guidelines on suitability assessments12.

55. The sound and consistent risk culture that accounts for ESG risks implemented within the
institution in accordance with Title IV of the EBA Guidelines on internal governance13 should
include clear communication from the management body (‘tone from the top’) and appropri-
ate measures to promote knowledge of ESG factors and ESG risks across the institution, as
well as awareness of the institution’s ESG strategic objectives and commitments.

56. For the purposes of Title V of the EBA Guidelines on internal governance14, institutions should
incorporate ESG risks into their internal control frameworks across the three lines of defence.
The internal control framework should include a clear definition and assignment of ESG risk
responsibilities and reporting lines.

57. The first line of defence should be responsible for undertaking assessments of ESG risks, tak-
ing into account materiality and proportionality considerations, during the client onboarding,
credit application, credit review and, where relevant, investing processes, and in ongoing
monitoring and engagement with existing clients. Staff in the first line of defence should have
an adequate understanding and knowledge to be able to identify potential ESG risks.

58. As part of the activities of the second line of defence:

a) the risk management function should be responsible for undertaking ESG risk assess-
ment and monitoring independently from the first line of defence, including by en-
suring adherence to the risk limits, questioning and where necessary challenging the
initial assessment conducted by the business relationship officers;

b) the compliance function should oversee how the first line of defence ensures adher-
ence to applicable ESG risk legal requirements and internal policies, and should advise
the management body and other relevant staff on measures to be taken to ensure
such compliance. In addition, in relation to the sustainability claims and/or commit-
ments made by the institution, it should provide advice on the reputational and con-
duct risks associated with the implementation or failure to implement such claims
and/or commitments;

12
Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key
function holders under Directive 2013/36/EU and Directive 2014/65/EU (EBA/GL/2021/06)
13
Title IV – Risk culture and business conduct
14
Title V – Internal control framework and mechanisms
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c) the compliance function and the risk management function should be consulted for
the approval of new products with ESG features or for significant changes to existing
products to embed ESG aspects.

59. As third line of defence, the internal audit function (IAF) should provide an independent re-
view and objective assurance of the quality and effectiveness of the overall internal control
framework and systems in relation to ESG risks, including the first and second lines of defence
and the ESG risk governance framework.

5.5 Internal capital adequacy assessment process and internal

liquidity adequacy assessment process
60. Institutions should incorporate material ESG risks and their impacts on financial risk catego-
ries into their ICAAP to assess, and maintain on an ongoing basis, the amounts, types and
distribution of internal capital that they consider adequate to cover the nature and level of
ESG risks, taking into account the short, medium and long term.

61. When institutions take into account longer time horizons for the coverage of ESG risks, these
time horizons should be used as a source of information to ensure a sufficient understanding
of the potential implications of ESG risks for capital planning within the regular ICAAP time
horizons. The time horizons considered for the determination of adequate internal capital to
cover ESG risks should be consistent with the time horizons used as part of the institutions’
overall ICAAP. The ICAAP should be sufficiently forward-looking and where an institution as-
sesses that risks should not be covered by capital but be mitigated through other tools or
actions, it should be explained.

62. Institutions should use insights gained from their risk assessment methodologies, including
those referred to in Section 4.2, to identify and measure internal capital needs for exposures
or portfolios assessed as more vulnerable to ESG risks, taking into account the differing levels
of availability and maturity of quantification methodologies for environmental risks compared
to social and governance risks.

63. With regard to environmental risks, institutions should include in their ICAAP a forward-look-
ing view of their capital adequacy under an adverse scenario that includes specific environ-
mental risks elements. In addition, institutions should specify any changes to the institution’s
business plan or other measures derived from climate or environmental risks stress testing
and/or reverse stress testing, in line with paragraph 90 of EBA Stress Testing Guidelines15.

64. Institutions should incorporate material environmental risks and their impacts on liquidity in
their internal liquidity adequacy assessment process (ILAAP) over appropriate time horizons
within the scope of the ILAAP coverage.

15
EBA Guidelines on institutions stress testing (EBA/GL/2018/04)
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65. Institutions should include in their ICAAP and ILAAP frameworks a description of the risk ap-
petite, thresholds and limits set for, respectively, material ESG risks and material environmen-
tal risks and their impacts on their solvency or liquidity, as well as the process applied to keep-
ing these thresholds and limits up to date. Institutions should provide sufficient contextual
information to understand their analysis of the capital and liquidity implications of, respec-
tively, ESG and environmental risks, including by providing clarity on the methodologies used
and underlying assumptions.

66. When integrating ESG risks into their ICAAP and environmental risks in their ILAAP, the com-
plexity of the processes and the degree of sophistication of the methodologies used by insti-
tutions should take into account their size and complexity and the results of their materiality
assessment.

5.6 Policies and procedures for financial risk categories

67. Institutions should understand and manage the current and potential future impact of ESG
risks on their exposures to credit risk, on the valuation of their positions subject to market
risk, in particular for prudent valuation purposes, on their liquidity risk profile and buffers, on
their operational (including litigation) risks, and on reputational risks, including through the
use of forward-looking analyses.

5.6.1 Credit risk

68. For the purposes of integrating ESG risks into credit risk policies and procedures as set out in
paragraph 56 of the EBA Guidelines on loan origination and monitoring, institutions should
ensure that their credit sectoral policies, reflecting ESG risks, are cascaded down and trans-
lated into clear origination criteria available to business lines staff and credit decision-makers,
and should ensure that ESG risks are embedded into the credit risk monitoring framework.
69. With regard to environmental risks, institutions should include in their policies and proce-
dures a combination of qualitative and quantitative aspects. Based on their materiality as-
sessment and their risk appetite, institutions should set quantitative credit risk metrics cov-
ering the most significant client segments, types of collateral and risk mitigation instruments.

5.6.2 Market risk

70. With respect to market risk, institutions should consider how ESG risks could affect the value
of the financial instruments in their portfolio, evaluate the potential risk of losses on their
portfolio and increased volatility in their portfolio’s value, and establish effective processes
to control or mitigate the associated impacts as part of their market risk management frame-
work including where needed reviewing the trading book risk appetite and setting internal
limits for positions or client exposures.

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5.6.3 Liquidity and funding risk

71. With respect to liquidity and funding risk, institutions should at least consider how ESG risks
could affect net cash outflows (e.g. increased drawdowns of credit lines) or the value of assets
that constitute their liquidity buffers and, where appropriate, incorporate these impacts into
the calibration of their liquidity buffers or their liquidity risk management framework.

72. In addition, with regard to environmental risks, institutions should consider how these risks
could affect the availability and/or stability of their funding sources and take them into ac-
count in their management of funding risk. To this end, institutions should consider different
time horizons and both normal and adverse conditions, which should reflect among others
the potential impacts of environmental risks on reputational risks, a situation of hampered or
more expensive access to market funding and/or accelerated deposit withdrawals.

5.6.4 Operational and reputational risks

73. With respect to operational risk, institutions should consider how ESG risks could affect the
different regulatory operational risk event types referred to in Article 324 of Regulation (EU)
No 575/2013 and their ability to continue providing critical operations and should incorporate
material ESG risks in their operational risk management framework.

74. With regard to environmental risks, institutions should:

a) identify and label losses related to environmental risks in their operational losses reg-
isters, in line with the risk taxonomy and methodology to classify the loss events set
out by the regulatory technical standards adopted by the Commission pursuant to
Article 317(9) of Regulation (EU) No 575/2013;

b) develop processes to assess and manage the likelihood and impact of environment-
related litigation risks;

c) use scenario analysis to determine how physical risk drivers can impact their business
continuity; and

d) take material environmental risks into account when developing business continuity
plans.

75. With respect to reputational risks, institutions should consider and manage the impact of ESG
risks on their reputation, including by considering potential risks associated with lending to
and investing in businesses which may be prone to ESG-related controversies, such as viola-
tions of social or human rights. Institutions should also consider, where applicable, the repu-
tational risks associated with the failure to deliver on their sustainability commitments or
transition plans, or with the (perceived) lack of credibility of such commitments and plans.

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76. As part of their management of conduct, litigation and reputational risks, institutions should
have in place sound processes to identify, prevent and manage risks resulting from green-
washing or perceived greenwashing practices taking into account the ESAs high-level princi-
ples set out in Section 2.1 of the EBA Final Report on greenwashing monitoring and supervi-
sion16. To this end, institutions should take all necessary steps to ensure that sustainability-
related communication is fair, clear, and not misleading, and that sustainability claims are
accurate, substantiated, up to date, provide a fair representation of the institution’s overall
profile or the profile of the product, and are presented in an understandable manner. That
should be done at both the institution level (e.g. in relation to sustainability commitments
including forward-looking targets) and the product or activity level (e.g. in relation to products
and activities marketed as sustainable), including by monitoring legal developments, market
practices, and controversies around alleged greenwashing practices.

5.6.5 Concentration risk

77. With respect to concentration risk, institutions should consider and manage the risks posed
by concentrations of exposures or collateral in single counterparties, interdependent coun-
terparties or in certain industries, economic sectors, or geographic regions which may present
a higher degree of vulnerability to ESG risks. To identify ESG-related concentration risks, insti-
tutions should consider the size and/or shares of their exposures that may be affected by ESG
risks relative to total exposures and as a proportion of Tier 1 capital. Institutions should take
into account several ESG factors amongst which GHG emissions, sectoral characteristics, vul-
nerability of geographical areas to physical risks, and social or governance deficiencies or con-
troversies identified in jurisdictions where exposures or collateral are located, as well as the
availability of risk mitigating factors. Institutions should assess if and how ESG-related con-
centration risk aggravates the prior financial vulnerability of exposures.

5.7 Monitoring
78. Institutions should monitor ESG risks through effective internal reporting frameworks that
convey appropriate information and aggregated data to senior management and the man-
agement body, such as by integrating ESG risks into regular risk reports or in the form of dash-
boards containing metrics that support an effective oversight.

79. Institutions should monitor ESG risks on a continuous basis and ensure that they maintain an
institution-wide view, adequately covering the nature, size and complexity of their activities,
as well as, for the most significant portfolios determined on the basis of the materiality as-
sessment, a portfolio view of their vulnerability to ESG risks. Furthermore, institutions should
implement granular and frequent monitoring of counterparties, exposures, and portfolios as-
sessed as materially exposed to ESG risks, including through incorporating considerations of
ESG risks into the credit risk monitoring process of retail counterparties and into regular credit

16
EBA Final report on greenwashing monitoring and supervision (EBA/REP/2024/09)
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reviews for medium-sized and large counterparties and/or by increasing the frequency and
granularity of these reviews due to ESG risks.

80. Institutions should set early warning indicators and thresholds and should have in place pro-
cedures to escalate alerts, deviations and breaches and to take corrective and/or mitigation
actions in case limits are exceeded, including through adaptations to business strategy and
risk management tools.

81. Institutions should monitor a range of backward- and forward-looking ESG risk metrics and
indicators. Large institutions should monitor at least the following indicators:

a) Amount and share of exposures to, and income (interest, fee and commission) stem-
ming from, business relationships with counterparties operating in sectors that highly
contribute to climate change in accordance with Recital 6 of Commission Delegated
Regulation (EU) 2020/1818, i.e. the sectors listed in Sections A to H and Section L of
Annex I to Regulation (EC) No 1893/2006.

Institutions should use a sectoral differentiation that is as granular as possible. In par-

ticular, the degree of granularity should allow institutions to monitor the amount and
share of exposures to, and income stemming from, relationships with specific coun-
terparties, such as fossil fuel sector entities and/or companies excluded from EU
Paris-aligned benchmarks17.

b) Portfolio alignment metrics showing at a sectoral level the extent to which exposures
and production capacities operated by clients are, or are projected to be,
(mis-)aligned with a pathway consistent with the applicable climate legal and regula-
tory objective, such as reaching net-zero GHG emissions by 2050, based on alignment
metrics relevant to the selected sectors and using methods described in Section 4.2.3
b).

Institutions should complement these indicators with information related to the as-
sessment of potential financial risk impacts resulting from misalignments.

c) Financed GHG emissions with a breakdown by scope 1, 2 and 3 emissions in absolute

value and, where relevant, intensity relative to units of production or revenues, split
by sectors, using a sectoral differentiation that is as granular as possible and at least
for selected sectors determined on the basis of the materiality assessment.

Institutions should complement these metrics with qualitative or quantitative infor-

mation and criteria supporting the interpretation of their evolution over time, includ-
ing e.g. a temporary increase due to the provision of transition finance to GHG-in-
tense counterparties, and identifying the underlying drivers of the changes in emis-
sions.

17
In accordance with Article 12(1), points (d) to (g), and Article 12(2) of Climate Benchmark Standards Regulation.
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Examples of methodologies or databases that may support institutions when compu-

ting these metrics include the Global GHG Accounting and Reporting Standard for the
Financial Industry, developed by the Partnership for Carbon Accounting Financials,
and the Carbon Disclosure Project.

d) The level of progress achieved in the implementation of key financing strategies de-
termined by the institution to ensure its resilience to ESG risks and preparedness for
the transition towards a more sustainable economy, e.g. by monitoring financial flows
towards financial assets or counterparties that share a common set of characteristics
relevant to the institution’s targets or risk appetite in relation to ESG risks.

e) Client engagement metrics providing information about:

i. the percentage of counterparties for which an assessment of ESG risks has

been performed, also as regards their transition strategies and, where avail-
able, transition plans and their consistency with the institution’s objectives,
specifying the scope of selected sectors, products and business lines covered
by these assessments;

ii. the results and outcomes of such engagement such as the positive (or any
sub-classification within that category) or negative (or any sub-classification
within that category) assessments of these counterparties’ adaptability and
resilience to the transition to a sustainable economy, the alignment progress
against the institution’s targets and objectives, and follow-up actions taken
by the institution.

f) A breakdown of portfolios secured by real estate according to the level of energy ef-
ficiency of the collateral.

g) The ratio of financing of low-carbon energy supply technologies in relation to the fi-
nancing of fossil-fuel energy supply technologies.

h) The ratio of environmentally sustainable exposures financing activities that contrib-

ute or enable the environmental objective of climate change mitigation referred to in
Article 9 point (a) of Regulation (EU) 2020/85218 in relation to the GHG-intense expo-
sures.

i) Levels of physical risk the institution is exposed to, and their impact on financial risks,
by considering several scenarios and all hazards relevant to the institution’s activity,
supplemented with information on the progress achieved in the implementation of
risk mitigation measures.

18
Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (OJ L 198, 22/06/2020, p. 13).
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j) Measures of concentration risk related to physical risk drivers (e.g. measurement of

exposures and/or collateral in high flood risk, water-stressed or wildfire risk areas)
and transition risk drivers (e.g. exposures to sectors with elevated transition risks), by
using a sufficiently granular geographical split of exposures.

k) Amount of historical losses related to ESG risks and, based on scenario-types meth-
ods, forward-looking estimate(s) of exposures-at-risk and potential future financial
losses related to ESG risks.

l) A measure of ESG-related reputational risk tracking how regulation, communication,

commitments or public controversies regarding current and future business-related
activities impact directly or indirectly the institution, by considering interactions with
operational risk and strategic and business model risks, such as loss of business
opportunities or strategic partnerships.

m) Any ESG-related litigation claims in which the institution has been, is or may become
involved in, based on available information.

n) The status of ESG risk-related capacity building, such as the percentage of staff who
have received specific training.

o) Metrics related to non-climate related factors such as portfolio-level dependencies

and impacts on ecosystem services, or exposures to counterparties with material de-
pendencies or negative impacts on biodiversity, taking into account both sectoral and
geographical location information.

p) Progress against all of the institution’s targets set in relation to ESG risks and ESG
objectives, including as part of the institution’s plan as referred to in Section 6 or as
part of other sustainability commitments made by the institution.

82. SNCIs and other non-large institutions should monitor a range of indicators included under
paragraph 81, selected on the basis of the results of their materiality assessment, and should
take steps to expand the list of monitored indicators over time.

83. Institutions should have clear and well-documented methodologies pertaining to their moni-
toring metrics and indicators. When data needed to compute metrics is initially missing, insti-
tutions should follow the steps set out in paragraphs 26, 27 and 29.

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6. Plans in accordance with Article 76(2)

of Directive 2013/36/EU

6.1 Overarching principles

84. Plans developed in accordance with Article 76(2) of Directive 2013/36/EU are a product of the
transition planning process outlined in Section 6.3 and should be based on a forward-looking
business environment analysis and a comprehensive strategic planning process within insti-
tutions. They should provide an overview of the strategic actions and risk management tools
deployed by institutions to demonstrate how they ensure their robustness towards ESG risks
and preparedness for the transition towards a climate and environmentally resilient and more
sustainable economy.

85. Institutions should ensure that their plans address forward-looking ESG risk management
aspects while being consistent with other applicable requirements including those relating to
due diligence, sustainability reporting, and strategic actions to ensure the compatibility of
business models with the transition to a sustainable economy. In particular, plans should
include objectives, actions and targets with regard to the business model and strategy of the
institution that are consistent with the plans disclosed pursuant to Article 19a or Article 29a
of the Directive 2013/34/EU, where applicable, and with ESG-related objectives or
commitments that institutions are required to meet by law or regulation, as well as those they
have voluntarily set. Where institutions disclose plans in accordance with Article 19a
paragraph 2 (a) (iii) or Article 29a paragraph 2 (a) (iii) of the Directive 2013/34/EU, they should
consider reusing the already available relevant information as a first step.

86. Institutions should ensure that their plans and targets are well integrated into their business
strategies and that they are aligned and consistent with their risk and funding strategies, risk
appetite, ICAAP and risk management framework as set out in Section 5. The extensiveness
of the governance arrangements, transition planning process, and the degree of
sophistication of objectives, targets and metrics of the plans should reflect the nature, size
and complexity of institutions’ activity and their materiality assessment of ESG risks.

87. In view of the institutions’ obligation to ensure that arrangements, processes and mecha-
nisms related to their plans are consistent and well-integrated, including in their subsidiaries
established outside of the Union, and the obligation of those subsidiaries to be able to pro-
duce data and information relevant to the purpose of supervising consolidated plans in ac-
cordance with Article 109(2) of Directive 2013/36/EU, parent institutions should take into ac-
count ESG risks to which subsidiaries established outside of the Union are materially exposed
when elaborating and implementing the consolidated plan, by having regard to applicable
local legislation and ESG regulatory objectives, and should be able to demonstrate a well-
informed consolidated approach.
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6.2 Governance
6.2.1 Roles and responsibilities

88. Institutions should clearly identify and allocate responsibilities for the development,
validation, implementation and monitoring of the plans. When assigning roles and
responsibilities at the appropriate level of seniority, institutions should take into account the
interrelation and influence that the transition planning process should have on other
processes such as the broader business strategy and risk appetite.

89. The management body should be responsible for the approval of the plans and should
oversee their implementation, including being regularly informed of relevant developments
and progress achieved in relation to the institution’s targets and taking decisions on remedial
actions in case of significant deviations.

90. For the purposes of integrating ESG risks across the three lines of defence in line with Section
5.4:

a) the first line of defence should be responsible for establishing a dialogue with
counterparties about their own transition strategies and assessing consistency with
the institution’s objectives and risk appetite, based on clear engagement policies as
set out in paragraph 109 e(i). To this end, institutions should ensure that relevant staff
possess sufficient expertise and capabilities to assess the extent to which the
transition strategies of counterparties, including their transition plans where
available, will enhance their resilience to ESG risks and align with the institution’s
targets;

b) the risk management function should ensure that the risk limits set in the risk appetite
statement as part of the risk management framework are consistent with all aspects
of the institution’s plan, including sectoral policies;

c) the IAF should review the institution’s plan as part of the risk management framework
and assess whether it complies with legal and regulatory requirements and whether
it is consistent with the risk strategy and risk appetite of the institution as regards ESG
risks. To this end, the IAF should consider whether the plan allows the institution to
detect and address changes in its risk profile, how the institution addresses deviations
from its targets, and whether the underlying assumptions, methodologies and criteria
have been selected and used with integrity.

6.2.2 Internal processes and capacity

91. Institutions should ensure meaningful and regular interaction and exchanges at all levels of
the organisation to ensure that insights and feedback from internal stakeholders can be taken
into account in the process of formulating, implementing and reviewing the plans. To this end,
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institutions should at least involve units, departments and functions responsible for strategic
planning, risk management, sustainability disclosures, legal services and compliance in the
elaboration of the plans, and should assess which additional units, departments and functions
should be involved.

92. In line with Section 5.4, institutions should ensure they possess sufficient capacity, expertise
and resources to develop and implement their transition planning process as well as to
regularly assess the robustness of their plans and monitor their implementation. Institutions
should map existing gaps in skills and expertise and take remedial actions where necessary.

6.2.3 Data management

93. Institutions should have in place sound governance processes to collect, validate and
aggregate the data that are needed to inform their transition planning efforts and monitor
their implementation, including by using available public information and counterparties’
transition plans as set out in Section 4.2.2.

6.3 Transition planning

6.3.1 Scenarios and pathways

94. Institutions should understand their sensitivity to ESG risks, in particular environmental
transition and physical risks, under different scenarios, including those implying higher levels
of physical risk or a disorderly transition. Institutions should understand how different
scenarios may affect their transition planning efforts.

95. For the purposes of monitoring and addressing the specific environmental risks that may stem
from the process of adjustment towards the climate-related and environmental regulatory
objectives of the jurisdictions in which they operate, institutions should carefully select
scenarios by taking all the following steps:

a) assess the potential implications of EU, Member States and, where relevant, third
countries’ objectives for transition pathways, at least for selected sectors determined
on the basis of the materiality assessment. In this process, institutions should take into
account the likely pathways originated from the European Green Deal, the EU Climate
Law, and the latest reports and measures prescribed by the European Scientific
Advisory Board on Climate Change;

b) consider science-based and up-to-date scenarios originating from national, EU or

international organisations as referred to in paragraph 38;

c) take into account voluntary or regulatory-mandated objectives or commitments of the

institution with respect to climate change mitigation and adaptation.

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96. The geographical reference and granularity, such as in terms of regional breakdowns, of the
scenarios and pathways used by institutions should be relevant to their business model and
exposures.

97. The range and complexity of the scenarios used by institutions should be proportionate to
their size and complexity. SNCIs and other non-large institutions may rely on a simplified set
of main parameters and assumptions, included risks, time horizons considered, and regional
breakdown of impacts. Large institutions should benchmark their plans (including final and
intermediary targets) against a scenario compatible with the limiting of global warming to
1.5°C in line with the Paris Agreement and with the objective of achieving climate neutrality
by 2050 as established by the EU Climate Law.

98. Institutions should ensure that scenarios and pathways used as part of their plans are
consistent across the organisation and time horizons considered, such as when building
business strategies and setting targets for the short, medium and long term. Institutions
should document the process for scenario selection, and the reasons for any change or
different usage. Decisions to use different scenarios for different purposes as well as decisions
to modify scenarios should be clearly justified.

6.3.2 Time horizons and milestones

99. Institutions should establish a set of different time horizons as part of their plans which should
include the short term, medium term and a long-term planning horizon of at least 10 years.
The arrangements developed to monitor and address ESG risks across time horizons should
take into account the principles outlined in paragraph 19.

100. Institutions should set milestones at regular time intervals to monitor and address ESG risks
that stem from the short-, medium- and long-term regulatory objectives of the jurisdictions
in which they operate. This includes the objectives of the EU to reduce GHG emissions by 55%
by 2030 compared to 1990 level and achieve net-zero emissions by 2050, other intermediate
climate targets set by EU or, where applicable, national legislation, as well as objectives
related to other environmental factors such as nature restoration19 or deforestation20.

101. Institutions should ensure that short-, medium- and long-term objectives and targets
interact and are well-articulated. This includes ensuring that long-term objectives, such as
commitments to achieve net-zero GHG emissions, translate into medium-term strategies (e.g.
medium-term sectoral policies or growth targets for business lines) and that short-term
financial metrics or targets (e.g. profitability indicators, cost of risk, KPIs, KRIs, risk limits,
pricing frameworks) are coherent and consistent with the medium-term and long-term
objectives.

19
Regulation (EU) 2024/1991 of the European Parliament and of the Council of 24 June 2024 on nature restoration and
amending Regulation (EU) 2022/869 (OJ L, 2024/1991, 29.7.2024).
20
Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on
the Union market and the export from the Union of certain commodities and products associated with deforestation and
forest degradation and repealing Regulation (EU) No 995/2010 (OJ L 150, 09/06/2023, p. 20).
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6.3.3 Materiality assessment basis

102. The transition planning process of institutions should aim at managing material ESG risks,
in particular environmental transition and physical risks identified on the basis of a robust,
regularly updated materiality assessment of ESG risks conducted in accordance with Section
4.1. Institutions should set out dedicated actions to monitor and address material ESG risks
stemming from exposures, portfolios, and the economic activities and production capacities
being financed, which may be particularly vulnerable to the process of adjustment of the
economy towards the applicable legal and regulatory objectives related to ESG factors.

6.3.4 Metrics

103. Institutions should use a range of metrics including forward-looking metrics to support
target-setting and drive and monitor the implementation of their plans.

104. For the purposes of setting targets, institutions should use a set of metrics and indicators
considering the ones included in paragraph 81. Institutions should determine, taking into
account their business strategies and risk appetite, which other risk-based and forward-
looking metrics and targets they will include in their plans with a view to monitoring and
addressing ESG risks. This includes assessing, computing, and using metrics to evaluate the
financial implications of transition planning for institutions’ business and risk profile over the
short, medium, and long term, including by measuring the impact of transition planning on
financial performance, revenue sources, profitability, and risk level of portfolios.

105. When data needed to compute metrics and support the setting of targets is missing,
institutions should follow the steps outlined in paragraphs 26, 27 and 29.

106. SNCIs and other non-large institutions may rely on a smaller range of indicators for the use
of metrics and setting of targets and formulate to a higher extent qualitative objectives.

107. Whilst institutions should at least use a combination of metrics related to climate-related
risks, they should take steps to progressively include metrics that support risk assessment and
strategic steering related to institutions’ exposure to, and management of, environmental
risks other than climate-related, e.g. risks stemming from the degradation of ecosystems and
biodiversity loss and their potential reflective influence with climate-related risks, as well as
social and governance risks.

6.4 Key contents of the plans

108. Institutions should document their plans including their methodologies, assumptions, cri-
teria, targets and actions planned to reach targets, along with performed and scheduled revi-
sions. Institutions should specify the scope of risks captured by each part of the plan, e.g.
whether it applies to environmental, social or governance risks, and should ensure that all
aspects of the plan address at least environmental risks.

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109. Large institutions should ensure that their plans include at least the following aspects:

a. Strategic objectives and roadmap of the plans:

i. high-level overarching strategic objective to address ESG risks in the short,

medium and long term, in line with overall business strategy and risk
appetite;

ii. comprehensive set of long-term goals with intermediate milestones to

ensure resilience of the business model towards ESG risks, including
consistency of business structure and revenues with such milestones;

iii. key assumptions, inputs and background information relevant to the

understanding of institutions’ objectives and targets, including selection of
central or reference scenario(s) and institutions’ conclusions stemming
from the outcomes of materiality assessments of ESG risks, portfolio
alignment assessments and other scenario analyses;

b. Targets and metrics:

i. quantitative targets set to address ESG risks, including those stemming

from the process of adjustment towards the legal and regulatory
sustainability objectives of the jurisdictions where the institution operates
and broader transition trends towards a sustainable economy, and metrics
used to monitor ESG risks and the progress in achieving the targets;

ii. portfolios, sectors, asset classes, business lines and, where applicable,
economic activities (i.e. individual technologies) covered by targets and
monitoring metrics, ensuring that the scope of targets and metrics
sufficiently reflects the nature, size and complexity of institution’s activity
and its materiality assessment of ESG risks;

iii. time horizons over which targets and metrics apply;

c. Governance:

i. governance structure for the plans including roles and responsibilities for
the formulation, validation, implementation, monitoring and updating of
the plan, including escalation steps in case of deviation from targets;

ii. capacity and resource-related actions to ensure appropriate knowledge,

skills and expertise for effective implementation of the plan, including ESG
risk-related trainings and internal culture;

43
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

iii. remuneration policies and practices to promote sound management of

ESG risks in line with the institution’s objectives and risk appetite;

iv. data and systems used for the transition planning process;

d. Implementation strategy:

i. overview of short-, medium-, and long-term actions taken or planned in

core banking activities and processes to achieve the plan’s targets,
including how the institution embeds the plan’s objectives into its decision-
making process and its regular risk management framework,
complemented by information on the observed effectiveness or estimated
contribution of each action to the relevant target(s);

ii. adaptations to policies and procedures on financial risk categories and to

lending and investment policies and conditions on key economic activities,
sectors and locations;

iii. changes introduced to the mix and pricing of services and products to
support the implementation of the plan;

iv. investments and strategic portfolio allocation supporting the institution’s

business strategy and risk appetite in relation to ESG risks, including
information on sustainability-related and transition-related products and
services, and how any changes in strategic financing choices are
accompanied by commensurate risk management procedures;

e. Engagement strategy:
i. policies for engaging with counterparties, including information on the
frequency, scope and objectives of engagement, types of potential actions
and escalation processes or criteria;

ii. processes, methodologies and metrics used for collecting and assessing
information related to counterparties’ exposure to ESG risks and
alignment towards the institution’s objectives and risk appetite;

iii. outcomes of engagement practices, including an overview of

counterparties’ adaptability and resilience to the transition towards a
more sustainable economy.

110. SNCIs and other non-large institutions should include in their plans at least the aspects
covered in points a(i)-(ii), b(i)-(ii), c(i), d(i)-(ii) and e(i)-(ii) of paragraph 109.
111. Institutions should consider using the Annex as a supporting tool to develop and formalise
their plans.
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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

6.5 Monitoring, review, and update of the plans

112. Institutions should monitor the implementation of their plans using monitoring processes
and metrics in line with Section 5.7 and Section 6.3.4. Institutions should perform regular
projections to assess their ability to achieve their targets.

113. The monitoring framework should allow the management body to simultaneously track
how ESG risk monitoring metrics evolve and the progress achieved towards the plan’s
milestones, with a clear and detailed rationale behind missed targets or objectives, and
evaluations of the potential impact on different types of financial risks for different time
horizons.

114. Institutions should regularly, and at least every time they update their business strategy in
accordance with Article 76(1) of Directive 2013/36/EU, review and, where needed, update
their plans, taking into account updated information such as new materiality assessments of
ESG risks, developments in their portfolios and counterparties’ activities, new available
scenarios, benchmarks or sectoral pathways, and impacts of current or upcoming regulation.

45
Annex
This Annex provides a supporting tool for institutions for the development of plans required under Article 76(2) of Directive 2013/36/EU as further
specified by Section 6 of these guidelines. It does not introduce additional requirements but provides for each key content required by the guidelines
some examples, references and potential metrics that institutions may consider as they structure and formalise their plans. Institutions may adapt the
format of this common approach provided they ensure that all required key contents are included in their plans. In line with the need for consistency
with other applicable requirements as per section 6.1 and in particular paragraph 85, institutions should ensure consistency of information used to
comply with the guidelines with information disclosed in accordance with Directive 2013/34/EU and Commission Delegated Regulation (EU) 2023/2772.

Key words or elements of the Examples of qualitative and quantitative out- References to other EU
required key content puts and their potential supporting metrics frameworks
.6.4 Key contents of plans
Clarifications and reference to Potential Output Potential Output
Pillar 3 CSRD / ESRS
the Guidelines (Qualitative) (Quantitative)
How to read this tool?
Clarifying guidance Quantitative description Links towards Pillar 3 and ESRS
Key Qualitative description of potential output re- requirements that institutions,
with reference to the
words or of potential output re- lated to this Guidelines' where applicable, should con-
relevant section(s) or
sub-ele- lated to this Guide- requirement: sider to ensure consistency and
paragraph(s) of the
ment lines' requirement: - With examples or interconnections and rely to the
Guidelines
- With examples or ‘warnings’ in using met- extent possible on materially
Direct extract from section 6.4,
‘do not forgets’, rics and targets, identical or significantly compa-
paragraph 109 of the Guidelines Clarifying guidance - For example, narra- - For example, recalling rable relevant information.
Key
with reference to the tives characteristics. the different angles a KPI
words or
relevant section(s) or could cover. References to Pillar 3 and ESRS
sub-ele-
paragraph(s) of the All examples are for il- All examples of KPIs / may need to be updated to re-
ment
Guidelines lustration only. KRIs are for illustration flect future regulatory develop-
only. ments.
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

Key words or elements of the required key Examples of qualitative and quantitative out- References to other EU
content puts and their potential supporting metrics frameworks
6.4 Key contents of plans
Clarifications and reference to the Guide- Potential Output (Qual- Potential Output
Pillar 3 CSRD / ESRS
lines itative) (Quantitative)
a. Strategic objectives and roadmap of the plan
This pertains to the overarch- # Qualitative description
ing strategic objective institu- of strategies to ensure the
tions seek to accomplish con- compatibility of business
cerning ESG risks, in line with models with the transition
Overarching
the incorporation of ESG risks to a climate-neutral and
objective: # Overarching objec-
in business and risk strategies sustainable economy, par-
tives could be linked to
and risk appetite in accord- ticularly when subject to Qualitative:
i. High-level overarching stra- selected KPI or KRI tar-
ance with section 5.2 and sec- CSDDD and/or CSRD re- Table 1
tegic objective to address ESG gets ESRS-E1-1
tion 5.3. quirements, and how (a) (b)
risks in the short, medium and ESRS 2 - BP1
these strategies affect the Table 2
long term, in line with overall # Cross-reference to ESRS-E1-MDR-P
direction and priorities for (a) (b)
business strategy and risk appe- other parts of the plan ESRS-E1-2
ESG risk management ini- Table 3
tite. This pertains to how the stra- may be considered e.g.
tiatives (c) (d)
Short, me- tegic objective applies across towards part a(ii) or
# High-level approaches
dium and long the different time horizons part b
to manage ESG risks iden-
term: considered in accordance with
tified as most material
section 6.3.2.
given the institution's
scope of activities and ma-
teriality assessment
ii. Comprehensive set of long- Long term goals that support # Long-term goals to ad- Qualitative:
# Financial exposure to
term goals with intermediate the realisation of the over- dress risks stemming from Table 1 ESRS-E1-1
different economic
milestones to ensure resilience arching objective over a time the EU objective to (b) (j)
Long term sectors
of the business model towards horizon of at least 10 years in achieve net-zero GHG Table 2 GHG reduction
goals: # Portfolio alignment
ESG risks, including consistency accordance with the CRD and emissions by 2050, with (b) (k) (l) targets: ESRS-
metrics
of business structure and reve- paragraph 99 of the Guide- intermediate milestone in Table 3 E1-4
# Profitability metrics:
nues with such milestones. lines. 2030 considering the EU (c) (d)

47
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

Intermediate milestones objective to reduce emis- return and risk ad-

measuring progress towards sions by 55% compared to justed return indica- Quantita-
Intermediate
long-term goals, in accordance the 1990 level tors across relevant tive:
milestones:
with paragraph 100 of the # Long-term goals and in- breakdowns (e.g. sec- Template 1
Guidelines. termediate milestones to tors, portfolios, prod- Template 3
address risks stemming ucts...)
from EU objectives re- # Business strategy
lated to deforestation or metrics: forward look-
Consistency of nature restoration ing KPIs describing the
How the institution will ensure
business # How the institution en- institution's strategy in
its ability to generate ade-
structure and sures that its business terms of pricing, capi-
quate profitability along the
revenues with structure and revenue tal, liquidity, balance
path.
milestones: streams are aligned with sheet allocation
its long-term goals and in- # Percentage of ESG
termediate milestones milestones achieved
on time
This pertains to the documen-
Key assump- tation of key methodological
# Degree of alignment
iii. Key assumptions, inputs tions and se- criteria and assumptions in ac-
or misalignment com-
and background information rel- lection of ref- cordance with paragraph 108, # Identification of and jus-
pared to climate-re-
evant to the understanding of in- erence sce- including reference scenario(s) tification for scenario(s) Qualitative:
lated pathways and/or
stitutions’ objectives and tar- nario(s): selected by the institution in selected e.g. from na- Table 1
benchmark scenarios
gets, including selection of cen- line with section 6.3.1. tional environmental (j) (k) (l)
for selected sectors
tral or reference scenario(s) and agencies, Joint Research Table 2
and/or counterparties
institutions’ conclusions stem- Center of the EU Commis- (h) (i) (j) ESRS-E1-SBM3
ming from the outcomes of ma- Outcomes of sion, IEA, NGFS, IPCC Table 3 ESRS-E1-IRO
# Quantitative
teriality assessments of ESG materiality as- Key findings and conclusions (d) ESRS-E1-9
measures of environ-
risks, portfolio alignment assess- sessment, from materiality assessment, # Qualitative description
mental risk impacts on
ments and other scenario anal- portfolio portfolio alignment methods of material environmental Quantita-
financial risk categories
yses. alignment as- and scenario analyses, con- transition and physical tive:
sessments and ducted in accordance with sec- risks faced by the institu- Template 3
# Quantitative out-
scenario anal- tion 4. tion
comes of the material-
yses:
ity assessment of ESG
risks

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

b. Targets and metrics

# Exposures towards
Targets to ad- This pertains to the metrics
high-risk sectors or
dress ESG risks and targets used by institu-
counterparties
and monitor- tions in accordance with sec-
# Portfolio alignment
ing metrics: tion 5.7 and section 6.3.4.
metrics and targets
# Financed emissions
i. Quantitative targets set to across relevant break-
address ESG risks, including downs Qualitative:
those stemming from the pro- # Progress achieved in Table 1
cess of adjustment towards the key financing strate- (b) (c)
ESRS-E1-1
legal and regulatory sustainabil- This pertains to the specific gies Table 2
Risks stem-
ity objectives of the jurisdictions metrics and targets to monitor # Real estate portfolios (b)
ming from the N/A GHG reduction
where the institution operates and address ESG risks arising with certain level of en-
process of ad- targets: ESRS-
and broader transition trends to- from the transition and pro- ergy efficiency Quantita-
justment to- E1-4
wards a sustainable economy, cess of adjustment to the rele- # Energy supply bank- tive:
wards regula-
and metrics used to monitor ESG vant regulatory objectives, ing ratio All tem-
tory sustaina-
risks and the progress in achiev- such as those included in the # Level of physical risk plates
bility objec-
ing the targets. EU climate law in accordance the institution is ex-
tives:
with Article 76(2) CRD posed to
# Information on the
riskiness of the portfo-
lio across relevant
breakdowns (e.g. non-
performing exposures)

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

# Percentage of identi-
# For each target, what
fied ESG risks that are
are the activities, asset
actively monitored and
classes, sectors and busi-
managed
ness lines covered
# Percentage of busi-
# Institution-level targets
ii. Portfolios, sectors, asset ness units with ESG
broken down into more ESRS-E1-1
classes, business lines and where risk-related targets in-
specific sectoral targets ESRS 2 - MDR-T
applicable economic activities tegrated into their op-
# Targets applied to spe-
(i.e. individual technologies) cov- This pertains to information erational plans
cific portfolios, exposures, Current reve-
ered by targets and monitoring related to the scope of targets # Percentage of opera-
Scope of cov- groups of assets or invest- nues by sectors:
metrics, ensuring that the scope and metrics and its signifi- tions in different re-
erage: ments that share similar ESRS 2 - SBM -1
of targets and metrics suffi- cance from both a risk and fi- gions that have ESG
characteristics or risks
ciently reflects the nature, size nancial perspective. risk-related targets and Qualitative:
# Specific, actionable tar- GHG reduction
and complexity of institution’s initiatives in place Table 1
gets for particular pro- targets: ESRS-
activity and its ESG risks materi- # Percentage of sectors (b) (c) (j)
jects, technologies, or E1-4
ality assessment. that have developed Table 2
business activities
specific action plans (h) (i)
# On- and off-balance
aligned with group-
sheet activities captured
level ESG risks targets. Quantita-
# Exclusion in coverage
# Achievement of sec- tive:
and planned coverage
toral targets All tem-
plates

# Qualitative description
of the set of targets and
This pertains to the short, me- metrics applied for the # Evolution e.g. in-
iii. Time horizons over which [Link]-
dium or long-term time hori- short, medium and long crease/decrease in the
targets and metrics apply. 1_10_ AR 12a
Time horizons: zons with which metrics and term level of target(s) to be
ESRS-E4-1_04
targets are associated in line achieved across differ-
13d
with section 6.3.2. # Justification of short- ent time horizons
term increases in metrics
and targets, if applicable

50
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

c. Governance
The governance structure for # Frequency of board
Governance the plan in accordance with meetings dedicated to
# Roles and responsibili-
structure: section 6.2.1, section 6.2.2. the plan
ties of the management
and section 6.5. # Delays in approval of Qualitative:
i. Governance structure for body, any sub-committee
the plan Table 1
the plans including roles and re- and three lines of defence
# Number of internal (e) (g) (h)
sponsibilities for the formula-
audits conducted on (q) ESRS 2 GOV-1
tion, validation, implementation, # Escalation protocol that
Governance arrangements for the plan Table 2 _AR 4
monitoring and updating of the defines the process for ad-
Deviation and decision-taking on remedial # Percentage of audit (d) (f)
plan, including escalation steps dressing deviations, in-
escalation actions in case of significant recommendations im- Table 3
in case of deviation from targets. cluding who should be no-
procedure: deviations in line with para- plemented (a)
tified and the steps to be
graphs 80 and 89. # Number of escala-
taken.
tions processed and/or
unresolved escalations
# ESG risks-related
The capacity and resources re- training completion
# Training and develop-
ii. Capacity and resources-re- lated actions for the effective rate
ment programs for ESG
lated actions to ensure appropri- execution of the plan, based # Identified gaps in ESG
risks ESRS 2-GOV-1 -
ate knowledge, skills and exper- on an initial assessment by the risk-related skills and Qualitative:
Capacity and # Hiring and recruitment para 23
tise for effective implementation institution of the potential knowledge Table 1
resources: plans ESRS G1 GOV-1
of the plan, including ESG risk- gaps and needs as regards in- # Frequency and qual- (f) (m)
# Knowledge sharing and - para 5b
related trainings and internal ternal culture and capabilities ity of internal commu-
collaboration platforms
culture. for ESG risks in line with sec- nications regarding
# Leadership commitment
tion 5.4. ESG risk-related objec-
tives and progress
# Metrics used to em-
# Qualitative description Qualitative:
This pertains to how the insti- bed the risk appetite
iii. Remuneration policies and of how remuneration pol- Table 1
tution takes into account its related to ESG risks in
practices to promote sound Remuneration icies and practices have (i) ESRS 2-GOV-2 -
risk appetite in relation to ESG remuneration policies
management of ESG risks in line policies and been, are or will be ad- Table 2 para 29
risks as part of its remunera- # Proportion of staff
with the institution’s objectives practices: justed to align with the (g) ESRS-E1-GOV-3
tion policies and practices in with ESG risk-related
and risk appetite. overarching strategic ob- Table 3
line with Article 74(1)e of CRD. metrics included in re-
jective to address ESG (a)
muneration

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

risks and with the risk ap- # Weighting of ESG-risk

petite related metrics in the
overall remuneration

ESRS 1 Appen-
# Data inventory with an
# Percentage of rele- dix B
This pertains to the data and identification of all rele-
vant data points col- ESRS 2 AR 2
systems used for the formula- vant ESG risk data points
lected and available Qualitative: ESRS 2 SBM-
iii. Data and systems used for Data and sys- tion, implementation and and assessment of their
Table 1 1_42a
the transition planning process tems: monitoring of plans in accord- availability and quality
# Percentage of sys- (p)
ance with section 4.2.2 and
tems and processes ESRS-E2-4_30c
paragraph 93. # Policies and procedures
that integrate ESG data ESRS-S1-6_50d
to ensure data quality
ESRS-S1-7_55b

d. Implementation strategy
Actions taken This pertains to how the insti-
i. Overview of short-, me- or planned in tution will implement its ob- Key actions:
# Implementation of new
dium-, and long-term actions core banking jectives and targets through ERSR-E1-1_16b
tools for assessing ESG # Percentage of activi-
taken or planned in core banking activities: its core activity.
risks in current portfolios ties affected by imple-
activities and processes to ESRS-E1 MDR-A
mentation actions Qualitative:
achieve the plan’s targets, in- ESRS 2 MDR-A
# Integration of ESG risk- Table 1
cluding how the institution em- This pertains to how the insti- ESRS-E1-2
related objectives into the # Percentage of busi- (n)
beds the plan’s objectives into tution will embed its targets ESRS-E1-3
Changes to medium and long-term ness decisions that aim Table 2
its decision-making process and into the mix of existing risk -------------------
the regular strategic planning and de- at implementing the (a)
its regular risk management management tools (e.g. ESRS-E2-E5
risk manage- cision-making processes plan's targets Table 3
framework, complemented by ICAAP, ILAAP, RAS, risk limits, ESRS-S1-S4
ment frame- (c)
information on the observed ef- capital/portfolio allocation, ESRS-G1 MDR-A
work: # Incorporating ESG risks # Adoption rate of ESG
fectiveness or estimated contri- budgeting process, strategic ESRS-E3 MDR-A
into the risk management risk management tools
bution of each action to the rele- plan, funding plan, etc), in line ESRS-E4 MDR-A
framework
vant target(s). with section 5. ESRS-E5 MDR-A

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

Policies and Policies and the conditions # A list of current policies

conditions on that govern them, including and original ESG risk sta-
activities, sec- updates to existing policies tus
# Policy adoption rate,
tors, loca- and newly created policies, in # A roadmap detailing
e.g. percentage of
tions: line with paragraph 46(b-c). which policies & condi-
branches or depart-
tions, and their scope, will
ments that have
be updated or created,
adopted new ESG risks
how, when and by whom ESRS-E1-1_16b
policies
# For each policy, the fol- ESRS-E1-2
lowing aspects may be in- ESRS-E1-3
# Number of times ESG Qualitative:
ii. Adaptations to policies and cluded:
risk policies are re- Table 1
procedures on financial risk cate- . Goal: how it reflects the
viewed and updated (d) (o)
gories and to lending and invest- strategic objective, risk Activities re-
within a given period Table 2
ment policies and conditions on strategy and supports the lated to sites
Policies and This pertains to the adapta- (c) (e)
key economic activities, sectors implementation of the in/near biodi-
procedures on tions made to policies and pro- # Percentage of opera- Table 3
and locations. plan versity-sensitive
financial risk cedures in accordance with tions in compliance (c) (d)
. Scope: precise iteration areas:
categories: section 5.6. with updated ESG risk
of business, location, sec- ESRS [Link]-
policies
tor etc that are governed 1_19a
and impacted
# Outcomes of internal
. Conditions: clear criteria
and external audits fo-
ensuring ease of applica-
cused on ESG risk man-
bility and tracking
agement framework
. Exclusions: any exclu-
sions in line with risk ap-
petite

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

# Risk-based pricing: ad-

This pertains to how the insti-
justing pricing based on # Frequency and extent Qualitative:
tution will adapt its mix of ser- Activities in-
the ESG risk profile of the of pricing adjustments Table 1
iii. Changes introduced to the vices and products and their compatible with
Mix and pric- borrower or project based on ESG risk pro- (r)
mix and pricing of services and pricing based on ESG risk-rele- transition:
ing of services # Incentives for risk miti- files Table 2
products to support the imple- vant criteria and the institu- [Link]-1
and products: gation: offering incentives # Number of clients (j)
mentation of the plan. tion’s risk strategy and inter- AR12
for clients who implement taking advantage of in- Table 3
nal capital policy, in line with
effective ESG risk mitiga- centive pricing (d)
paragraph 46b.
tion strategies

# Growth in sustaina-
ble financing: year-to-
The types of financial instru-
Sustainability- year growth in the vol-
ments (green and sustainabil- # Strategy, policies and
related and ume and proportion of
ity-linked loans, bonds, mort- criteria on green or transi-
transition-re- sustainable financing
gages, funds…) and advisory tion or ESG-linked mort-
lated products # Default rate on green
services offered or managed gages, loans and bonds
and services: or transition or ESG-
iv. Investments and strategic by the institution.
linked mortgages or
portfolio allocation supporting Qualitative:
loans ESRS-E1-3
the institution’s business strat- Table 1
# Diversification of lend- ESRS-E4-1 AR 1
egy and risk appetite in relation (m) (r)
ing and investments port- # Proportion of new fi- e
to ESG risks, including infor- Table 2
folios based on ESG risk- nanced projects that
mation on sustainability-related (e)
relevant criteria e.g. in undergo a comprehen- Outcomes for
and transition-related products
This pertains to how the insti- terms of economic sectors sive ESG risk assess- affected com-
and services, and how any Consistency of Quantita-
tution will ensure, when it de- or geographical areas ment munities:
changes in strategic financing strategic fi- tive:
cides to adapt its business mix # Credit risk policies on # Percentage of credit ESRS-S3-4 AR 34
choices are accompanied by nancing Templates
and strategy, that those green loans and mort- decisions that explicitly b
commensurate risk management choices with 06>10
changes fit the risk manage- gages consider ESG risks
procedures. risk manage-
ment arrangements to have in # How an institution that # Profit margins on
ment proce-
place in accordance with sec- finances renewable en- ESG-related products:
dures:
tion 5. ergy projects ensures that comparison of profit
the projects comply with margins between ESG-
environmental regula- related products and
tions to avoid legal and traditional products
reputational risks

54
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

e. Engagement strategy
# The percentage of
counterparties with
Clear policies that the institu-
# Purpose and overall ob- which dialogue has
tion will follow to engage
i. Policies for engaging jective e.g. understanding been pursued or is Qualitative:
identified counterparties to
with counterparties, including of risk profile and/or planned to be pursued Table 1
achieve its strategic and risk
information on the frequency, checking consistency with # The percentage of (d) (o)
Engagement management objectives, tak-
scope and objectives of engage- risk appetite and targets counterparties for Table 2 ESRS 2-SBM 2
policies: ing into account outcomes of
ment, types of potential actions # Available solutions to which an assessment (c)
the materiality assessment
and escalation processes or cri- counterparty of ESG risks has been Table 3
and risk measurement meth-
teria. # Escalation and valida- performed (b) (c)
ods, in line with paragraph
tion process # Proportion of sectors,
46a.
products and business
lines captured
# The percentage of
counterparties under-
going ESG risk due dili-
# Due diligence screening
gence
to identify high-risk coun-
# Changes in the credit
ii. Processes, methodolo- terparties based on pre-
ratings of counterpar-
gies and metrics used for collect- Process, This relates to the institution's defined criteria Qualitative:
ties given impact of [Link]-1
ing and assessing information re- methods and application of exposure-based, # ESG risks reflected in in- Table 1
ESG risks
lated to counterparties’ expo- metrics for as- sector-based, portfolio-based ternal or external scores (k) (l)
# Concentration of ex- [Link]-
sure to ESG risks and alignment sessing ESG and portfolio alignment meth- and/or ratings Table 2
posures within specific 1a
towards the institution’s objec- risks: ods in line with section 4.2.3. # Methods for measuring (i) (k)
sectors subject to ele-
tives and risk appetite. alignment of select coun-
vated transition or
terparties against climate
physical risks
pathways
# Involvement in ESG-
related controversies
or incidents

55
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

# Criteria used to identify

counterparties with signif-
icant ESG risks that may
require immediate atten-
tion
# Positive (or any sub-
# Adjustment of credit
classification within
terms, such as interest
that category) or nega-
rates or collateral require-
tive (or any sub-classifi-
ments, based on ESG risk
This relates to the outcomes of cation within that cate- Qualitative
iii. Outcomes of engage- assessments
engagement, allowing for a gory) assessments of Table 1
ment practices, including an # Enhanced due diligence,
meaningful interpretation of these counterparties’ (o) ESRS-E1
overview of counterparties’ e.g. implementing more
Outcomes: the risk profile of the counter- resilience and align- Table 2 ESRS 2 -SBM-
adaptability and resilience to the rigorous due diligence
parties and actions taken by ment against the insti- (m) 2_45a AR 16
transition towards a more sus- processes for high-risk
the institution, in line with tution’s targets and Table 3
tainable economy. counterparties
paragraph 81e(ii). risk appetite (c) (d)
# (More) targeted engage-
ment, e.g. developing spe-
# Number and types of
cific engagement plans to
follow-up actions
address identified ESG
taken by the institution
risks, such as setting im-
provement targets or of-
fering new financial prod-
ucts that cater to the
needs of counterparties

56
7. Accompanying documents

7.1 Cost-benefit analysis / impact assessment

1. On 31 May 2024, the European Commission published the directive amending the Capital Re-
quirements Directive (from now on CRD VI). Article 87a of the CRD VI mandates the EBA to issue
guidelines to specify minimum standards and reference methodologies for ESG risk manage-
ment practices. These guidelines provide the EBA answer to such mandate.

2. As per Article 16(2) of the ESAs regulation (Regulation (EU) No 1093/2010, (EU) No 1094/2010
and (EU) No 1095/2010 of the European Parliament and of the Council), any guidelines devel-
oped by the ESAs shall be accompanied by an Impact Assessment (IA) annex which analyses ‘the
potential related costs and benefits’ of the guidelines. Such annex shall provide the reader with
an overview of the findings as regards the problem identification, the options identified to re-
move the problem and their potential impacts.

3. The EBA prepared the IA included in this section analysing the policy options considered when
developing the guidelines. Given the nature of the study, the IA is qualitative in nature.

A - Problem identification

4. Environmental, social and governance (ESG) factors are causing and are expected to increasingly
lead to significant changes in the real economy that will in turn impact the financial sector
through new risks and opportunities.

5. Since the adoption of the Paris Agreement on climate change and the UN 2030 agenda for Sus-
tainable Development in 2015, governments around the world are taking action to encourage
the transition to low-carbon and more sustainable economies. In Europe in particular, the Euro-
pean Green Deal targets the ambitious objective of making Europe the first climate-neutral con-
tinent by 2050 and it is expected that the financial sector will play a key role in this process.

6. In this regard, the European Commission has launched a set of initiatives to enhance the resili-
ence and contribution of the financial sector. As a result, several efforts have been initiated to
incorporate ESG risks into prudential supervision. These guidelines target the inclusion of ESG
risks in institutions’ broader risk management frameworks.

B - Policy objectives

7. The main objective of these guidelines is to answer the mandate set up in Article 87a of the CRD
VI which requests the EBA to issue ESG risk management guidelines.

8. As a result, the general objective is to provide guidance on how institutions will incorporate ESG
risks in their risk management processes including defining how ESG risks should be considered
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

when defining business and risk strategies, risk appetite levels and internal controls, risk moni-
toring, etc.

9. The specific objectives of the guidelines are defined in the CRD VI mandate which indicates that
the guidelines should specify:

- the minimum standards and reference methodologies for the identification, measurement,
management and monitoring of ESG risks;

- the content of plans to be prepared in accordance with Article 76(2) of the CRD, which shall
include specific timelines and intermediate quantifiable targets and milestones, in order to
monitor and address the financial risks stemming from ESG factors, including those arising
from the process of adjustment and transition trends towards the relevant Member States
and Union regulatory objectives, in particular the objective to achieve climate neutrality by
2050 as set out in Regulation (EU) 2021/1119, as well as, where relevant for internationally
active institutions, third country legal and regulatory objectives;

- the qualitative and quantitative criteria for the assessment of the impact of ESG risks on
the financial resilience and risk profile of institutions in the short, medium and long term.

C - Baseline scenario

10. The current framework does not specify any guidelines about how institutions shall incorporate
ESG risks in their internal risk management nor it defines how institutions shall define their plans
to monitor and address ESG risks. As a result, institutions may follow different criteria to con-
sider ESG risks and incorporate them in their plans which would create divergencies in how
banks account for those risks and pose difficulty for the work of supervisors to monitor and
control that banks operate at adequate risks levels.

D - Options considered

[Link] drafting the present guidelines, the EBA considered several policy options under nine
main areas:
1) Scope of the ESG risks covered by the guidelines

Article 87a of the CRD VI mandates the EBA to issue guidelines on ESG risk management
practices. The definition of risk management practices for environmental but also for
governance and social risks is an ambitious target considering the less advanced data,
methodological and regulatory developments in social and governance aspects. Therefore,
while developing the current guidelines, the EBA has analysed three possible options:

Option 1: To focus equally on the three aspects.

Option 2: To focus on environmental aspects only.
Option 3: To mainly focus on environmental aspects but give some guidance on social and
government aspects.

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2) Frequency of the materiality assessment of ESG risks

Institutions should regularly assess the potential effects of ESG risks on their business models
and risk profile. Such assessment will provide the institution with a view on the financial
materiality of ESG risks to which it is or may become exposed. The adequacy of regularity in
which such assessment should be carried out will ensure that the materiality of ESG risks
remains adequately measured. Therefore, while developing the current guidelines, the EBA
has analysed three possible options:

Option 1: Every year for all institutions.

Option 2: Every two years for all institutions.
Option 3: Every year for non-SNCIs and at least every two years for SNCIs.

3) Consideration of ESG risks in banks’ business models and strategies

The needed transition towards a more sustainable economy will lead to new business
opportunities but will also expose financial institutions to risks stemming from the transition.
Therefore, while developing the current guidelines, the EBA has analysed if banks should
consider ESG risks when defining their business models and strategy. In particular, the EBA
has analysed two possible options:

Option 1: ESG risks should be considered in banks’ business models and strategies
considering different time horizons.
Option 2: ESG risks may not be considered in banks’ business models and strategies.

4) Data processes

To ensure an adequate identification and measurement of ESG risks, institutions should

analyse enough information and data. Therefore, while developing the current guidelines,
the EBA has analysed how banks’ data processes should be defined to incorporate ESG risks.
In particular, the EBA has analysed three possible options:

Option 1: Institutions may rely only on publicly available ESG data, aggregate it and exploit
it to manage ESG risks.
Option 2: Institutions should aggregate and exploit publicly available data but also collect
additional ESG data when engaging with their clients and counterparties.
Option 3: Institutions should gather and use the information needed to assess current and
forward-looking ESG risks, building on available ESG data but also considering where
needed collecting data from clients and counterparties or using third-party data, and using
where needed for certain counterparties proxies or portfolio-level assessments.

5) Features of reference methodologies for the identification and measurement of ESG

risks

When defining their methodologies to identify and measure ESG risks, institutions should
select one or more features of reference. Therefore, while developing the current guidelines,

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the EBA has analysed two options regarding which are the most adequate features
institutions should refer to:

Option 1: Institutions should develop exposure-based, portfolio and sector-based, and

scenario-based methodologies.
Option 2: Institutions should develop methodologies based on at least one of the three
elements included in option 1.

6) Materiality assessment

Appropriate risk managements frameworks as well as CRD-based plans should be based on

a robust materiality assessment of the ESG risks faced by institutions. Therefore, while
developing the current guidelines, the EBA has analysed three possible options:

Option 1: The materiality assessment of ESG risks should automatically define as material
certain exposures based on their sector.
Option 2: Institutions should have full flexibility when defining the materiality of ESG risks
independently from the sector of the exposure.
Option 3: Institutions should consider certain criteria, exposures and sectors in their
assessments while remaining responsible for determining their materiality, substantiating
and documenting their assessments.

7) Data and engagement with counterparties in relation to their transition plans

To formulate and implement an adequate plan to monitor and address ESG risks, institutions
need to have information about the risks they face in the transition process and engage
clients. This includes using information about their counterparties and their own risks during
the transition process. Therefore, while developing the current guidelines, the EBA has
analysed three possible options regarding the engagement with counterparties:

Option 1: Institutions should engage and request all counterparties to submit a transition
plan as part of the due diligence phase.
Option 2: Institution should engage and request large counterparties only to submit a
transition plan as part of the due diligence phase.
Option 3: Institution should consider collecting forward-looking plans of at least large
corporate counterparties, including transition plans disclosed under CSRD, and should
determine the scope of counterparties with whom to engage, taking into account
outcomes of the materiality assessment and risk measurement methodologies.

8) Time horizons considered for banks’ plans

Institutions need to consider several time horizons as part of their transition planning
process. Therefore, while developing the current guidelines, the EBA has analysed four
possible options:
Option 1: To focus requirements on short-term time horizons.
Option 2: To focus requirements on medium-term time horizons.
Option 3: To focus requirements on long-term time horizons.

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Option 4: To consider several time horizons, including a long-term time horizon

articulated with short- and medium-term strategies.

9) Plans’ targets

Institutions should define targets as part of their plans. Therefore, while developing the
current guidelines, the EBA has analysed four possible options:
Option 1: To predefine the full list of metrics that institutions should target.
Option 2: Not to predefine the list of metrics that institutions should target and allow
institutions to define their own list of metrics.
Option 3: To include a minimum set of metrics that institutions should target while
seeking to complement them.
Option 4: To require institutions to consider using some metrics included in the guidelines
while complementing them.

E - Assessment of the options and preferred option

12. In respect to the different options considered, the EBA has assessed their potential cost and
benefits, and has selected a preferred option in the nine main areas considered:
1) Scope of the ESG risks covered by the guidelines

ESG risks include environmental, social and governance factors. Article 87a of the CRD VI
mandates the EBA to issue guidelines on management practices for the full scope of these risks.
However, the EU and international regulatory developments for environmental risks are more
advanced than for social and governance risks. Although it is important to continue the
development of management practices for the full set of ESG factors, it is also important to allow
enough time for institutions to introduce the necessary changes. Therefore, in order to reduce
the burden for institutions and the time pressure to adapt to the new regulatory developments,
it is considered that the guidelines should focus on environmental risks mainly, although
introducing some high-level requirements to define the management practices for social and
governance risks. This is indeed in line with the sequenced approach adopted under other EBA
regulatory products (e.g. Pillar 3 ITS). Therefore, the preferred option is Option 3: To mainly
focus on environmental aspects but give some guidance on social and government aspects.

2) Frequency of the materiality assessment of ESG risks

Institutions should perform their ESG risk materiality assessment with sufficient frequency to
ensure that any development in the external environment that could affect their exposure to
ESG factors are adequately captured. Focusing on the E factor, environmental changes can
develop in a fast manner, for example in terms of new policies or technologies or shifts in market
and consumer preferences, potentially affecting the level of banks’ exposures to environmental
risks. For these reasons, the EBA considers that banks’ materiality assessment should be carried
out with a short-term periodicity to ensure that the relevant risks are captured sufficiently and
in time. However, performing such assessment requires an intensive use of resources. It may be
disproportionate to request all types of institutions to perform such assessment with a regularity
of up to a year, as small institutions have limited resources available and such request could be
burdensome for them. An adequate balanced approach would allow SNCIs to perform the
materiality assessment with lower regularity although keeping an adequate periodicity to

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capture all potential risks. For these reasons, the preferred option is Option 3: Every year for
non-SNCIs and at least every two years for SNCIs.

3) Consideration of ESG risks in banks’ business models and strategies

The following reasons justify the consideration of ESG risks in bank’s business models and
strategies:
- The time horizon of ESG risks: the full impact of ESG risks is likely to unfold in a long-
term period. Additionally, changes in business models may require some time to be
implemented. Therefore, it seems reasonable that institutions follow a forward-looking
approach and consider ESG risks when defining their strategies and a business model
that will be viable and adequate when the ESG risks materialise.
- Potential negative financial impact: when defining their business model, institutions
should consider potential financial impacts that may be linked with their strategy. This
includes the consideration of ESG risks.
- Political actions in favour of transforming the current global economy into a more sus-
tainable one: there are several examples of political actions at international and EU
level targeting a transition to a more sustainable economy. These initiatives could push
for significant changes in the business environment in the upcoming years. Banks
should anticipate the potential negative impact of such transformation and take ad-
vantages of the arising new opportunities in the redefinition of their business model.

Moreover, in recent years, some institutions have taken steps to account for ESG factors in their
business strategies. However, as concluded in the EBA report on the management and
supervision of ESG risks for credit institutions and investment firms 34 , more progress is still
needed to adequately incorporate ESG risks in banks’ strategies and business models’ definition
processes. Considering both the reasons that justify the integration of ESG risks in banks’
strategies and business models and the current insufficient implementation in banks’ processes,
the EBA considers that there is a need to incorporate such a requirement as part of the ESG risk
management guidelines and therefore the preferred option is Option 1: ESG risks should be
considered in banks’ business models and strategies considering different time horizons.
Additionally, given the distinctive impacts of ESG risks across different time horizons, banks
should consider different (including a long-term) time horizons when defining their business
models.

4) Data processes

A robust risk management framework heavily relies on data to develop robust metrics and risk
indicators. Well defined, strong data processes are key to adequately gather and exploit data to
identify and measure ESG risks. However, as explained in the EBA report on the management
and supervision of ESG risks for credit institutions and investment firms, the lack of data to
identify and measure ESG risks is one of the main challenges faced by institutions. The EBA has
balanced these two aspects when defining the way data processes should be integrated in
banks’ ESG risk management guidelines. Given the importance of having accurate data to
adequately measure ESG risks, it is considered that institutions should take action to better use
and aggregate the data already available and that will be available as a result of EU and
international developments on sustainability reporting on one hand (e.g. CSRD/ESRS), and on

34
See report here.
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the other hand, improve the availability of ESG data via the collection of relevant ESG
information from their clients and counterparties as part of their business relationship. There
are other ESG regulatory developments such as the Pillar 3 disclosure requirements as per
Article 449(a) of Regulation (EU) 2019/876 that also push institutions to take action in a similar
direction. However, the collection of detailed ESG-related data for all counterparties may create
an excessive burden for institutions. In order to reduce such a burden, the EBA considers that
institutions should be able to use external data in line with the outsourcing framework, as well
as proxies, expert judgments and portfolio-level assessments in those cases where data is not
available or its collection via engagement with clients and counterparties is considered
excessively difficult. Therefore, the preferred option is Option 3: Institutions should gather and
use the information needed to assess current and forward-looking ESG risks, building on
available ESG data but also considering where needed collecting data from clients and
counterparties or using third-party data, and using where needed for certain counterparties
proxies or portfolio-level assessments.

5) Features of reference methodologies for the identification and measurement of ESG

risks

When drafting these guidelines, the EBA has analysed which features should be of reference for
institutions when defining their methodologies to identify and measure ESG risks. The possible
types of methodologies that have been considered include:
a) exposure-based methodologies, which provide a granular assessment of the ESG factors at
counterparty level;
b) portfolio and sector-based methodologies which allow institutions to have a more compre-
hensive risk assessment and to analyse the degree of alignment on a sectoral basis of insti-
tution’s portfolios with climate-related sustainability targets;
c) scenario-based analyses to assess ESG risks allowing for a forward-looking perspective.
The definition of methodologies to assess ESG risks at these different levels will answer to
different risk management needs. Therefore, the EBA considers that all aforementioned
perspectives are needed to adequately measure ESG risks in a comprehensive manner and
taking into account the different time horizons in which ESG risks are expected to materialise.
Therefore, the preferred option is Option 1: Institutions should develop exposure-based,
portfolio and sector-based, and scenario-based methodologies.

6) Materiality assessment

Appropriate risk management frameworks as well as CRD-based plans should be based on a

robust materiality assessment of the ESG risks faced by institutions. To guarantee consistency
across all the processes in the institutions, the materiality assessment of ESG risks should be
consistent with other materiality assessments carried out by the institution. To facilitate such
standardisation, institutions should refer to clear definitions of ESG risks and there should be a
minimum set of criteria, exposures and sectors to be considered as part of those assessments.
Given the limitations of broad, purely sector-based classifications, it is more appropriate to not
automatically define certain sectors as materially exposed to ESG risks but to emphasise banks’
responsibility to conduct robust assessments. Therefore, the preferred option is Option 3:
Institutions should consider certain criteria, exposures and sectors in their assessments while
remaining responsible for determining their materiality, substantiating and documenting their
assessments.

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7) Data and engagement with counterparties in relation to their transition plans

Institutions need information about their counterparties’ risks during the transition process to
formulate and implement an adequate CRD-based plan. However, institutions may encounter
some problems while collecting such information as first, not all counterparties may have
developed a clear and structured transition plan and, second, institutions will need resources to
collect transition plans from all counterparties, review and understand them and assess the
relevant risks. In other words, the collection of all necessary data and information from
counterparties is a complex and costly process for institutions. At the same time, a
comprehensive set of information is needed to adequately evaluate the risks. The direct
interaction between the institution and the counterparty to discuss the risks that the latter may
face arising from the transition and possible options to mitigate them, is key to have a
comprehensive assessment and management of risks. In order to strike the right balance, the
EBA considers that such information should be obtained or collected at least for the large
corporate counterparties as defined by the CSRD. However, institutions should have all the
relevant data at their disposal to adequately assess the level of transition risk for all
counterparties. Therefore, the preferred option is Option 3: Institution should consider
collecting forward-looking plans of at least large corporate counterparties, including transition
plans disclosed under CSRD, and should determine the scope of counterparties with whom to
engage, taking into account outcomes of the materiality assessment and risk measurement
methodologies.

8) Time horizons considered for banks’ plans

ESG risks have distinctive impacts across time horizons. This is also the case when referring to
ESG risks arising from the transition process towards legal and regulatory objectives related to
ESG factors. Therefore, institutions should consider several time horizons when defining their
plans. They should, however, include a horizon that is long enough to cover for those risks that
may fully materialise in the long term. The preferred option is Option 4: To consider several time
horizons, including a long-term time horizon articulated with short- and medium-term strategies

9) Plans’ targets

Institutions should define targets as part of their plans. The EBA is aware that banks are already
using some metrics either voluntarily or based on current or (expected) future EU legislation but
that developments are still ongoing to design most appropriate metrics for target-setting. The
EBA considers that requiring institutions to both monitor several metrics and consider using
some of these metrics for target-setting purposes will help achieving comparable plans and
support the work of supervisors in their reviews. At the same time, it is important to allow
institutions flexibility in defining the exact combination of metrics and setting the level of targets
they deem appropriate given their business strategies. It is also important to ensure that banks
will take steps to progressively include metrics related to non-climate-related risks, in particular
risks stemming from the degradation of ecosystems and biodiversity loss, and compute and use
metrics relating to the financial implications of transition planning for their business and risk
profile. Therefore, the preferred option is Option 4: To require institutions to consider using
some metrics included in the guidelines while complementing them

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7.2 Feedback on the public consultation
Summary of responses to the consultation and the EBA’s analysis

Comments Summary of responses received EBA analysis Amendments to

the proposals

General Overall, the Guidelines are broadly welcomed as stakeholders noted that The EBA has taken note of the comments Guidelines
comments efforts made by EU banks to assess and manage ESG risks have increased received and thanks respondents for their amended as
over recent years but still need to be amplified. A common European contributions. Answers to specific issues and described
framework on the incorporation of ESG risks in banks’ risk management and comments are included below. below.
transition planning will help in that regard and enhance the resilience of the
banking sector. Efforts to give institutions clarity on the expectations
substantiating the CRD requirements before setting out the implications in
terms of supervision are appreciated. A wide range of views was nonetheless
expressed on several issues and whether the Guidelines strike the right
balance between ensuring a sufficiently robust and prudent management of
ESG risks and accounting for feasibility considering data and methodological
challenges.
Risk-based The risk-based approach is supported but the Guidelines are not always The risk-based approach involves managing Section 4.1
approach consistent with it, for instance when referring to the EU Climate Law, financial risks stemming from the transition amended.
measures prescribed by the European Scientific Advisory Board on Climate process towards political objectives including
Change (ESABCC), or the EU Taxonomy. carbon neutrality. EU climate law, measures
The blurring of the prudential boundary is evident through the references to by ESABCC and ‘targets’ are explicitly
‘objectives’ and ‘targets’ which appear to envisage the decarbonisation or mentioned in CRD. See below for EU
reduction of institutions’ impact on ESG factors. Taxonomy and amendments to section 4.1.
Alignment with We wonder how the EBA conciliates its Guidelines that on the one hand The Guidelines do not require to align Section 4.2
EU objectives explain not requiring an objective of fully aligning with Member States or portfolios but to measure and monitor the clarified.
FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

Union sustainability objectives or one specific transition trajectory (i.e., a degree of alignment as an input to strategy
1.5°C or NZE objective), and on the other hand the requirements on portfolio and risk management decision-making in
alignment. relation to climate transition risks.
Where the EBA does believe that it is relevant to cite external political
objectives and targets, it should clearly explain how institutions should
consider alignment/misalignment in relation to their own planning and the
risk implications.
Transition The Guidelines should ensure that risk management strategies and plans The Guidelines require to consider ESG risks Section 6
finance help to support transition finance. Banks should be expected to develop a when formulating and implementing amended.
strategic perspective on capturing and supporting opportunities that arise in business strategies. The section on plans
the transition, consistently with EU legal frameworks, but also to mitigate refers more explicitly to transition finance.
long-term risks arising from lack of climate action.
ESG risks as risk The EBA rightly considers ESG risks as risk drivers of traditional risk types and The definition of ESG risks provided in CRR Sections 4.1,
drivers not as a separate risk type. applies throughout. To ensure that banks 5.3, 5.5 clarified.
properly assess impacts of ESG risks on
This approach is however not consistently applied in the Guidelines where financial risk types, additional processes or
certain requirements suggest that ESG risks should be treated as a separate modifications to existing processes are
risk category. needed and detailed in the Guidelines.
Level of Not prescriptive enough. The Guidelines remain too principle based. The The EBA has considered the range of views No fundamental
prescriptiveness flexibility left and the lack of detailed requirements will undermine the received on the level of prescriptiveness of changes.
quality of the exercise and could lead institutions to develop a purely the draft Guidelines. The EBA recalls that its
administrative exercise to justify not changing their approach to manage ESG mandate is to specify minimum standards,
risks. We recommend EBA to provide additional minimum safeguards and criteria and methodologies for the
clarifications on the practical implementation. identification, measurement, management
and monitoring of ESG risks. Delivering on
Too prescriptive. The Guidelines should adopt a principles-based approach. this mandate entails providing harmonised
The consultation paper sometimes takes an overly prescriptive approach and generally applicable requirements with a
that does not account for challenges faced by banks and would degree of granularity. Given the fact that
constrain the institutions’ learning curve on ESG risks. management of ESG risks is evolving, the
Sufficient flexibility should be left - and maintained over time – with regard Guidelines have nonetheless maintained a
to: methodologies and use of proxies; risk mitigation tools; engagement with degree of flexibility for institutions to
counterparties; data sourcing and gathering; indicators, metrics and targets develop their methodologies. Institutions

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as banks should set their own metrics and targets based on their own remain responsible for developing business
strategies. strategies and for determining the best
The Guidelines should focus on institutions’ achievement of appropriate combination of risk mitigation tools they will
prudential risk outcomes rather than over-specifying the means and/or implement.
method by which institutions should identify, measure, monitor and manage The EBA also recalls that Guidelines set
ESG risks. A "demand-based approach" may be considered in which the requirements institutions should comply
objectives are explained to the institutions but the path to their with, and not good practices.
implementation must be taken largely independently. As another possible
model, we would like to recommend a "solution-based approach". Here, the
tools for assessment and for the management of ESG risks are developed and
explained, even trained and then published by the supervisory authority.
The Guidelines could better distinguish between mandatory requirements
and recommendations for good practices.
Time horizons The guidelines should reflect on what long term entails for prudential A sound management of ESG risks should Sections 4.1,
purposes. It could be clarified that long-term horizon is not expected for consider the short, medium and long term as 5.5. and 6
every risk management tool as this would be too excessive and demanding. required under CRD. However, the amended.
The definition of long-term as at least 10 years should be specific to the Guidelines clarify that the level of granularity
climate and environmental elements and for the purposes of prudential and quantification of tools and indicators
transition plans. Medium and long-term assessments are expected to be used by institutions should be higher for the
mainly qualitative/ subjective/ expert based so supervisory expectations short and medium term. Long-term time
should be high level. horizons should at least be considered from a
Long-term horizon is not consistently applicable across E, S, G risks. More qualitative perspective and support strategic
specifically, given the uncertainty around social and governance factors, considerations.
along with the lack of clear long-term goals, long-term time horizons may not
be relevant for S and G risk drivers.
Scope – scenario More guidance is needed on how to perform ESG scenario analysis, foster These comments deal with aspects that are No change
analysis, transparency of institutions’ practices, and ensure that supervision and addressed by separate mandates on
disclosures, enforcement of the Guidelines will be effective. incorporation of ESG risks in scenario
capital More support to green investments and/or higher capital requirements for analysis, supervision, disclosures (revision of
requirements fossil fuel-related assets held by banks need to be considered in the the Pillar 3 standards) and the prudential
prudential framework. treatment of exposures.

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Scope – banking The Guidelines should be limited to the banking book and focused on credit ESG risks can affect various financial risk No change
book and credit risk, while foreseeing a gradual approach for enlarging the scope to trading types and banks should ensure a
risk book and other risk types when they become more mature and/or material. comprehensive assessment of ESG risks
Limited progress has been made on assessing climate-related financial risk based on their business model and scope of
transmission mechanisms for exposures held for trading. Positions held in activities. Given more advanced
the trading book are actively risk managed, held for very short time horizons understanding on transmission channels to
and, as such, may not present a very meaningful reflection of how the bank credit risk, more extensive requirements are
is exposed to climate-related risk factors. If the trading book was to be in included on the latter.
scope of the final Guidelines, it would be necessary to phase in the
requirements to allow time for solving data and methodological issues.
Articulation with Banks under direct SSM supervision are already under significant pressure by The Guidelines have been prepared with all No change
ECB the ECB on environmental risks management. The Guidelines should be competent supervisory authorities in the EU,
articulated with CRD on one hand and the supervisory practice on the other including the SSM. They take into account
hand. It is desirable to have a common regulatory and supervisory attitude supervisory experience on both
towards ESG. EBA and ECB should ensure alignment and clarity of application shortcomings and progress of banks. The
of the respective Guidelines. Guidelines apply to all EU banks and
supervisors.
International The framework for ESG risks is still evolving at the international level. The Guidelines take into account BCBS No change
developments / Convergence of EU regulations with international standards is important to principles on climate-related risks and
Level playing ensure the level playing field and avoid complexity having to comply with international developments (e.g. NGFS,
field different requirements within the same group for international banks. BCBS) on transition planning, to which the
Certain stringent requirements may generate unlevel playing field, with a risk EBA and its members contribute. They
that clients divert from EU institutions to the benefit of non-EU institutions however provide further details as they are
that are not subject to such requirements. based on the EU legal framework. The EBA
The treatment and relevance of financial institution transition planning is supports international convergence on ESG
currently an area of active discussion and analysis at the international level. risks management and considers that sound
Given that the EBA’s mandate does not require the publication of these risk management and transition planning
specific guidelines until 18 months following the entry into force of the CRD, strengthen banks’ business model. Future
the EBA could use the allowed time to engage with other authorities globally updates to the Guidelines may reflect
and work towards a more aligned approach. The EBA could conduct further international developments if needed.
consultation on the transition planning element in its draft Guidelines later
to reflect international developments.

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EU requirements should be interoperable with future international

standards, which may require future revisions to the EU approach.
Date of The EBA states that their intention is to publish the Guidelines towards end The EBA has published the Guidelines in Date of
publication and of 2024 and for the application date to be aligned with the application date advance of the deadline provided by the CRD application
date of of the amended Directive 2013/36/EU. However, the proposed amendments and decided to align the date of application delayed by 1
application to CRD only require that the EBA publish these Guidelines within 18 months with the date of application of CRD6 i.e. year maximum
from date of entry into force of this amending Directive and do not set January 2026, for most banks. This early for SNCIs.
specific timelines for the application date of the Guidelines. We would publication ensures clarity over upcoming
question why the EBA is seeking to publish significantly in advance of this requirements and gives time to institutions
date. Clarification on the application date of the Guidelines would be to prepare for both the implementation of
appreciated. new obligations under CRD6 and compliance
with the Guidelines. To ensure
Considering the current state of methodological developments and the proportionality and considering other
numerous regulatory requirements banks will have to comply with the next regulatory developments e.g. CSRD, a one-
few years (notably CSRD), banks will need sufficient time for the application year phase-in is provided for the date of
of the Guidelines. Implementation period of at least two years is crucial, application of the Guidelines to SNCIs (i.e.
given the complexity of the topic and its interdisciplinary nature (data, IT, application at the latest from January 2027).
strategy, risk processes).
Large institutions within the meaning of the CSRD that qualify as SNCIs and
are treated as listed SMEs in the CSRD are only subject to the corresponding
reporting obligations for the 2028 reporting year. This should be taken into
consideration when finalizing the Guidelines.

Question 1: EBA’s understanding of the plans required by Article 76(2) of the CRD, and articulation with other EU requirements

Definition of When respondents expressed their direct view on EBA’s understanding, they The EBA Guidelines use the same language as Background and
Plan(s) nearly all agreed it was an appreciated effort and solid tentative to provide per CRD where its mandate originates. To section 6.1
directions and definition based on CRDVI mandate. Yet albeit appreciated, reflect the different but closely related updated.
many had comments, questions, and suggestions about the definition of strategic efforts spanning various EU
(transition) plan(s) and how many plans should exist and flexibility around it. requirements, the background now further
Some respondents express their clear preference for focused, risk-based or clarifies that plans are output of a single
transition planning process which includes all

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single plans only, while others either appreciate the flexibility of the GLs or relevant strategic and implementation
express strong single transition plan views. aspects.
Articulation with Regarding the articulation with CSRD/CSDDD/ISSB/BCBS, answers revolve Linkage with EU disclosure and due diligence Background
EU and other around three clear and complementing points on that matter: frameworks is further recalled in the updated
practices - (further) Clarification needed overall Guidelines background where the
- The absolute necessity of (more) alignment and consistency with complementary purposes of the different EU
CSRD (and CSDDD and ISSB to a lesser extent) with another clarifica- requirements are stressed.
tion sought on articulation and feeding directions between plans. See also below on section 6 and annex.
- Avoiding overlaps between requirements and create complementing
frameworks.
Plans validation A few respondents asked for supervisors’ validation of plans, mostly through Supervision of CRD-based plans is out of Background
SREP while one respondent would prefer less formality. scope of these Guidelines. The background updated
however recalls that banking supervisors will
assess their robustness as part of SREP, as per
CRD6.
Reference and Respondents raised antagonistic views spanning ‘no pathway – no alignment The Guidelines stress that they are not Section 6
pathways – no need to align as it is risk choice’ to improved and inclusive definition to prescribing a specific climate or ESG objective amended
towards EU 2050 explicitly mention EU 2050 objective in definition and/or scenarios or (more) but require transition planning efforts to take
objective pathways. into account the likely pathways implied by
Respondents also raised questions such as: EU legislation and targets.
- Does referring to CSRD suffice to imply that EU 2050 is a target – See also above on alignment with EU
some would like it to be more explicit. objectives.
- Some see no need to indicate or refer to pathways as this is a risk
document.
Which feeds which: CSRD is expected to feed CRD but CSRD is still evolving.
Group / SNCIs Some respondents preferred a scope of application at Group level only for a The level of application of the Guidelines is Background
scope / plan, while others preferred EU entity level and not at Group level or asked aligned with the level of application specified updated
Proportionality for more clarity overall. in CRD article 109.
While proportionality is a recurring theme on various subtopics, there are With regard to SNCIs, CRD requires them to
explicit requests to remove demands for SNCIs or take into account the CRD6 have a plan. It is clarified that in case Member
waiver option, and not having to create a plan solely because CSRD States decide to use the CRD ‘waiver’
disclosures are needed.

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provision, the GLs will apply dependent on

the transposition into national law.
Sectors / Some respondents suggest explicit sectors divesting should be present in the The goal of CRD-based plans is not to force No change
Divesting requirements related to CRD-based plans (mostly fossil fuels). institutions to exit or divest from greenhouse
gas-intensive sectors but to thoroughly
Overall divesting is seeing more cautiously from other respondents given it assess risks and to prepare accordingly
could have some unintended effects. through structured transition planning,
including by engaging clients and supporting
them where appropriate, notwithstanding
other mitigation actions consistent with
sound risk management.

Question 2: Proportionality approach

Size versus Proportionality seems to be mostly based on institution’ size as illustrated by Size is not the decisive factor in the Background
business model the Guidelines’ references to SNCIs. Guidelines, rather the risk materiality clarified
and risk profile associated with institutions’ activities and
Proportionality is a crucial principle for Pillar II and should be considered business model, in line with CRD art 87(a)(2)
more holistically and not only with regard to the size of the institution. and recognising that smaller institutions are
Proportionality should be better linked to the business model, risk profile of not necessarily less exposed to ESG risks.
a bank and to the level and materiality of the financial risk. Nonetheless, smaller and less complex
institutions can implement less sophisticated
Smaller institutions may have even higher ESG risks due to less diversified processes given their limited resources.
portfolios and higher sectoral (e.g. agriculture) and/or geographical Some simplifications are thus provided for
concentrations. Hence it would not be sound to reduce or suspend SNCIs and in certain cases also for all non-
requirements for them. large institutions.

Different institutions have varying capacities and resources. The process of

adaptation to robust ESG risk management could be a significant challenge
for many small institutions.
Cost/benefit Proportionality should be ensured regarding the cost/benefit analysis of the A cost-benefit analysis is included in section Section 7.1
measures proposed. The incorporation of ESG-related risks in the prudential 7.1. The benefits of the requirements of the updated

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framework will imply a significant workload for institutions – it is therefore Guidelines are considered to outweigh costs
important that the proposed requirements provide actual value-added both given the importance of a sound
from an ESG risk management and supervisory perspective. management of ESG risks.
Proportionality Proportionality should be applied throughout the Guidelines. A paragraph on The clarifications regarding the Sections 4.1 and
throughout the the application of the proportionality principle may be added in Chapter 2 proportionality approach are reflected both 6.1 clarified
Guidelines 'Subject matter, scope and definitions' rather than only mentioned in the in the background and in the main body of
background. the Guidelines, such as sections 4.1 and 6.1.

Proportionality should apply to all the Guidelines’ requirements, allowing Proportionality cannot lead to a
institutions to focus on the most material risks. The Guidelines should clarify consideration of whether to implement the
that all requirements are subject to the materiality principle. If materiality Guidelines or not. However, the
assessments of ESG risks do not identify material ESG risks transmission extensiveness of the various risk
channels from counterparties, requirements such as identification data, management processes and procedures
engagement with counterparties, and internal reporting metrics should be should be proportionate to the outcomes of
considered in a proportionate manner, regardless of the size of the the institution’s materiality assessment.
institution. Based on this principle, only relevant risk category(ies) i.e. E, S or
G factors should follow the processes indicated in the Guidelines.
Excessively harsh or detailed requirements could entail the risk of ineffective
mechanisms, a resource allocation inconsistent with the effective level of
financial risk, creating a tick box list and/or banks withdrawing from some
sectors hence jeopardizing the supply of credit required for the transition.
SME clients The principle of proportionality must extend beyond financial institutions to The Guidelines do not penalise SME financing Section 4.2.2
encompass their business partners in particular SMEs. SMEs should receive and data collection efforts are targeted amended
the necessary support to address ESG challenges without facing financial towards large corporates.
penalties or too demanding data collection efforts. Banks’ management of A reference to voluntary reporting standard
ESG risks for SMEs should be based only on data to be reported based on for SMEs has been included.
EFRAG’s proportional and voluntary sustainability reporting standards.
Scope of A consistency with CSRD and CSDDD would mean that the addresses of the The Guidelines are based on CRD which No change
addressees Guidelines are consistent with those of CSRD, CSDDD. Therefore, the applies to all institutions, but they embed
Guidelines should not address SNCIs in general, but only bigger SNCIs, similar proportionality, see above.
to CSRD.

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Specific business The proportionality approach can be further promoted for some types of It is not appropriate for the Guidelines to No change
models institutions with specific business models such as national promotional banks recognise or distinguish between specific
or institutions that focus on positive ESG-related activities and have lower business models, but proportionality should
exposure to regulatory, transitional and reputational risks. A business model apply based on the ESG risk materiality
guided by the principles of the social economy cannot reasonably be associated with institutions’ activities.
interpreted as "more" prone to risk. It is of utmost importance that such
banks be recognized as such, and that their business model be
acknowledged.
Support for small To further support smaller institutions, the EBA should consider providing The simplifications provided for SNCIs aim at Background and
institutions more tailored guidance or examples on understanding, defining, and facilitating their implementation of the section 4.2
implementing proportionate ESG risk management practices. Additionally, Guidelines. amended
facilitating access to ESG data and risk assessment tools could help smaller See also below regarding access to ESG data.
institutions meet the Guidelines without disproportionate effort.
Update The option for small, non-complex institutions to carry out the review of risk Proportionality is provided regarding the Section 6
frequency strategies/policies only every two years, as set out in Art. 76 (1) CRD, shouldfrequency of updates of materiality clarified
be used. assessments and plans, for the latter in line
with Art 76(1) CRD.
Identifying An annex to guidelines or a synoptic table outlining the facilitations or Simplifications provided for SNCIs are Background
simplifications simplifications granted to SNCIs would be helpful in providing an overall view outlined in the background. amended
of the simplifications applied in line with the proportionality principle.

Question 3: Consideration of climate, environmental, and social and governance risks

General Stakeholders broadly supported the Guidelines’ approach i.e. the emphasis Overall the Guidelines maintain the emphasis Section 4.2
comments put on E while including some general requirements on S and G risks. There put on environmental risks, while still amended.
is wide recognition that most progress has been achieved on climate-related containing minimum requirements for social
risks in the financial sector and this should be reflected in the requirements. and governance risks.

Two conflicting views have however been expressed: A restricted scope on E would not be in line
- A first category of respondents considers that a more comprehensive with the CRD provisions. However, the
approach is needed and further guidance would be justified on non- Guidelines recognise that approaches for
climate aspects. S and G are also sources of financial risk and affect social and governance risks are expected to

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banks’ counterparties. The full spectrum of ESG factors is captured be gradually enhanced in line with regulatory
by frameworks such as CSRD, SFDR, SASB materiality mapping or the and methodological progress.
UN SDGs. More guidance is needed on how to approach social risks
for specific customer segments or industries.
- A second category of respondents on the other hand called for an
even more gradual and phased approach, starting with environmen-
tal considerations and in particular climate aspects. This would re-
flect the maturity level reached on various dimensions (e.g. data,
methodologies) and their specificities (e.g. differences in transmis-
sion channels, time horizons, systemic nature of E versus idiosyn-
cratic nature of S and G). The Guidelines should focus on climate and
provide flexibility regarding management of S and G risks, with no
mandatory KRIs and only qualitative requirements. They could fur-
ther capture non-climate aspects at a later stage e.g. in future up-
dates when analytical and operational challenges are addressed.
CSRD and CSDDD The Guidelines could further build on CSRD. CSRD will result in more data Further alignment with CSRD has been Section 4.2.
available on all ESG aspects and also addresses risk management processes ensured for instance in terms of data items amended
and strategies. The data that will be reported by counterparties should be institutions should collect.
the foundation of banks’ approach to social risks. CSRD also defines ESG The Guidelines require banks to take into
factors as opposed to CRD. CSDDD refers to violations of rights and account adherence of counterparties to
prohibitions included in international human rights agreements, with a long applicable social standards, in line with those
list of human rights and fundamental freedom conventions. The Guidelines mentioned in CSRD.
could add that banks should pay attention to any risk deriving from the
violation of legal duties established to pursue social goals in force at national
level, in the jurisdiction of the client.
More support It would be useful to shape an internationally agreed roadmap for the Such initiative would be welcomed by the No change
needed gradual integration of social and governance factors towards quantitativeEBA.
measures. The EBA is not necessarily best placed to do
that, however developments on supervisory
The EBA could consider developing a common risk taxonomy across ESG risk reporting are ongoing and the final
areas, including a taxonomy of nature related risk drivers. Guidelines further refer to nature-related
risks (see below).

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Nature related Greater distinction should be made between climate and non-climate The Guidelines require quantification of Background and
risks – caution aspects such as biodiversity, given the different maturity levels in the climate-related risks and proper section 4.2.1
needed understanding, measurement and management of associated financial risks. understanding of nature-related risks. amended
Nature related Assessment of nature-related financial risks can already be done. The The Guidelines have been amended to Section 4
risks – need for financial sector is vulnerable to destabilising impacts of environmental further explain the relevance of nature- amended
more changes, scientific evidence is available (IPBES assessments), half of world’s related risks - covered by the definition of
requirements GDP is highly dependent on nature, and key sectors and companies have environmental risks in CRR - in the
been identified as high-risk e.g. for deforestation. There are gaps in background as well as to clarify requirements
management and disclosure of nature-related risks and opportunities by in terms of materiality assessment and risk
financial institutions, and a need to integrate further forest and water related measurement methodologies.
risks in strategies. More recommendations on nature related risk
management should be included in the Guidelines, starting with
deforestation and/or building on first publications available (NGFS, TNFD,
SBTN). An integrated approach is needed given the climate-nature nexus.
Scope of E risks We understand that ecosystems degradation and biodiversity loss may be Environmental risks are defined in CRR. No change
only examples of a broader range of elements, which leaves a certain degree Institutions should take into account a broad
of uncertainty. For example, would institutions be expected to include water range of E factors.
and pollution matters in heat maps?
Interactions ESG issues are interconnected and should be considered holistically, by See below regarding clarifications provided No change
between E, S, G considering macro trends and the entire production chain of economic on interactions.
– conceptual activities e.g. for electric vehicles.
comments The green transition can have both positive and adverse effects on social
issues.
Interactions No guidance. It is difficult to provide generally applicable guidance on how The Guidelines include a new paragraph Section 4.2.1
between E, S, G - to deal with interactions. Interdependencies between E, S, G risks would be which states that with regard to the amended
suggestions best considered by institutions in individual risk assessments rather than interactions between the different categories
through general requirements in the Guidelines. of, respectively, environmental, social and
More guidance. The EBA could provide further guidance on how to handle governance risks, institutions should apply an
interactions and/or illustrations on how to do it. approach that firstly assesses each category
Limited guidance. The Guidelines could specify that banks should understand of risk taking into account its specific
interconnections between various dimensions and consider them in risk characteristics, before considering potential
management practices. interconnections. This should prevent the

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risk that institutions would mix or offset risks

Banks should avoid using aggregated scores for ESG and focus separately on of various nature and magnitude.
each dimension to avoid black boxes or mixing risks of various nature and
magnitude. Employing a differentiated approach is needed to take into
account the different inherent characteristics of each category of risk

Using the Taxonomy DNSH criteria – e.g. assessing if counterparties meet

these criteria - can help to assess and mitigate risk across various
environmental objectives.
Transition plans The integration of social and governance risks in transition plans is not clear. Requirements on plans are focused on No fundamental
climate risks but other E and S&G risks cannot change but
Banks should take a holistic approach rather than siloed with separate plans be ignored, in line with CRD. section 6
for different risks. In particular, one single plan for both climate and nature clarified
would be justified.
Para 26 - Double Not for the Guidelines. Double materiality is relevant for sustainability The Guidelines are focused on financial Background
materiality reporting but not for micro-prudential risk management. We recommend materiality in line with CRD but clarify that clarified
that the Guidelines refer to financial materiality only since they are focused adverse impacts should be taken into
on risk management. The last sentence of para 26 – i.e. conditionality on account to the extent that they can drive
financial risks – should be mentioned in the core text of the Guidelines, not financial risks and/or reputation, litigation
only in the background. and business model risks.
Need for more recognition. Double materiality should be recognised more
clearly and integrated throughout the Guidelines, in line with CSRD
approach.
Targeted clarification. The Guidelines strike a good balance but could further
clarify how (adverse) impact that a counterparty may have can entail
financial risks for institutions, for instance through a range of risk categories
including strategic, litigation and reputation risks.

Question 4: Materiality assessment

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FINAL REPORT ON GUIDELINES ON THE MANAGEMENT OF ESG RISKS

General The materiality assessment is a key exercise as an inadequate assessment Robust materiality assessments are key and Section 4.1
comment would undermine the adequacy of the risk management approach as a positioned as starting points for sound ESG amended as
whole. The conclusions of the EBA monitoring exercise on the IFRS9 risk management approaches. explained below
implementation serve as evidence for the need of such guidance, as the EBA
has identified largely divergent practices of banks when handling forward-
looking information for risk assessments.
Flexibility Not enough. Guidance should not be too prescriptive (one size fits all) and The Guidelines strike a balance between No change
should enable some flexibility on how to approach materiality assessment as providing minimum standards and criteria
banks may have developed other internal indicators to identify and maintaining the responsibility of banks to
homogeneous exposures in terms of ESG (e.g. as an alternative to proposed conduct materiality assessments that
activities, services, products segmentation). Individual institutions should correspond to their business model and risk
have greater flexibility to assess the materiality of ESG risks in their specific profile. The Guidelines do not specify
portfolios and across their sectoral exposures. thresholds but require banks to document
Too much. The expectations for the execution of the materiality assessment their methodologies including any threshold
should be better specified completed with minimum safeguards to improve used. See also below on question 5.
the reliability of the exercise. The introduction of qualitative/quantitative
thresholds would be useful.
Significance of There should be further clarification on how materiality and how the It has been clarified that institutions should Section 4.1
activities, significance of activities, services, products should be measured. The ensure that the scope of their materiality clarified
services and significance of activities, services and products could be determined through assessment sufficiently reflects the nature,
products measurable indicators. size and complexity of their activities,
§14b should clarify that the activities can be considered as most significant portfolios, services and products. Institutions
not only from the perspective of their relative size in the portfolio but most should document their methodologies
importantly from the perspective of the potential of these activities to including indicators.
generate substantial impacts for instance in terms of reputation.
Quantification It should be clarified, when referring to the quantitative view to capture It has been clarified that the determination of Section 4.1
potential impacts of ESG risks, that it should not necessarily be a capital or material ESG risks should consider both their amended
P/L impact. Rather, the quantitative view may be supported by the impacts on financial risks categories and the
determination of the amounts of exposures and revenues that are amounts of exposures or revenues exposed
significantly exposed to the said risks. Clear differentiation should be to the risks.
promoted between the assessment of risks (using qualitative and Quantitative information should be used at
least for environmental risks.

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quantitative views) and risk quantification/measurement (which should be

based on a capital or liquidity impact).
For some aspects there are no established calculation methods for
quantifying, therefore the guidelines should enable qualitative assessment
where appropriate.
Asset class A sectoral and geographic classification of portfolio exposures should be It has been further clarified that sectoral and Section 4.1
versus sector required as part of the materiality assessment of climate-related risks. geographic location information should be clarified
and geography Reversely, the traditional classification per asset class should be discouraged, taken into account as part of materiality
as the portfolio vulnerabilities to climate and transition risks depend on the assessments.
sectors and geographies.
E, S, G E, S and G materiality assessments should not be under similar requirements. More detailed requirements are included for Section 4.1
E risks. The Guidelines have been amended to amended
Guidelines should include a reference to nature-related transition and refer to exposures towards sectors highly
physical risks. dependent on nature and ecosystem
services.
Clarification on Guidelines should clarify if portfolio/exposures are encompassed in activities The Guidelines clarify that portfolios are Section 4.1
materiality as per §14b? encompassed in activities. clarified
assessment The transition risk assessment should take
perimeter Guidelines should clarify the materiality assessment for non-UE exposures. It into account exposures’ vulnerabilities to
is proposed that it is circumscribed in terms of transition risk. relevant jurisdictions’ objectives.
Time horizons The materiality assessment for the time horizon proposed (including at least See above regarding the clarifications Section 4.2 and
10 years) is too long to be used for financial resource planning: liquidity provided in paragraph 19 and below for the section 5.4
assessment (including stress testing & planning) focuses on short to medium ICAAP section of the Guidelines. amended
term risks, making it difficult to cater for long term events; while a capital
assessment focus (including stress testing and planning) beyond 5 years
would not be meaningful.
The business model of a bank when determining the length of the forecast
horizon for assessing the materiality of ESG risks should be considered.
Long-term time horizon of the materiality assessment should increase to 20
years or minimum of 25 years to align with transition planning.
Materiality Guidelines should elaborate further on the relationship, synergies and The Guidelines have been amended to refer Section 4.1
assessment differences between the materiality assessment as required under CSRD and to consistency with CSRD and further align amended

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consistency with EFRAG guide and the materiality assessment as required in the EBA with CSRD and EFRAG implementation
CSRD guidelines. Guidelines should enable reusing materiality assessment guidance on the financial materiality
performed under CSRD. Definitions of time horizons should be consistent and assessment, including regarding terminology.
Guidelines should clarify if severity in §15 is the same as in the ESRS (1§45). Wording of former paragraph 15 has been
§15 likelihood and severity of the materialisation of the risks should be aligned.
replaced by likelihood of occurrence and the potential magnitude of the
financial effects; to align with CSRD/ESRS
Double Pros The Guidelines are focused on financial Background
materiality Banks should also assess how their activities can do more good and less harm materiality in line with the nature of the CRD clarified
to the environment in order to mitigate risks that can be amplified in the but clarify that adverse impacts should be
financial system. Guidelines should include requirements on engagement taken into account to the extent that they
with affected stakeholders or their representatives and the assessment of result in financial risks and/or reputational,
the impact of ESG risks on people and the environment. litigation and business model risks.
Cons
Guidelines should clarify that their focus is on financial materiality and the
management of financial risks to the institution only. It would help banks to
deepen their analysis and efforts where the risks are material, in a consistent
manner with the risk-based approach.
More guidance More detailed guidance or best practice would be welcome on: likelihood It has been clarified that likelihood refers to Section 4.1
regarding ESG risks; the number and/or which scenario to be used under likelihood of occurrence, in line with CSRD. amended
§14c including their time horizons and if different scenarios should be The EBA will develop further Guidelines on
considered across time horizons; how counterparties are considered “most scenario analysis. The reference to most
critical”. critical counterparties has been removed.
Divergence of Assessing the divergence of counterparties from transition objectives is too The degree of alignment or misalignment of Section 4.1
counterparties prescriptive, too broad for a bank wide materiality analysis and assumes an portfolios with jurisdictions’ regulatory slightly
from transition unproven correlation between transition recalcitrance and the counterparty objectives is an input to materiality amended
objectives risk. Institutions should be given the flexibility including making their own assessment in particular given its relevance
judgements as to whether counterparty divergence from transition to transition planning.
objectives is a relevant factor. Banks should not have to rigidly refer to a
counterparty’s alignment with different net-zero pathways to quantitatively
assess financial risk.

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Link with Materiality should always be a relevant driver for the transition planning Transition planning should address material Section [Link]
transition obligations (i.e., sectors that are not material for the institution’s business ESG risks. section 6
planning model and/or capital should not be part of the transition plan). clarified.
Guidelines should allow banks to carry out their materiality assessment in a See above regarding E versus S and G. No change
S and G way that is proportionate given the lack of clarification from the
legislator/regulator on the risks to be precisely regulated. Due to missing
social taxonomy, limitation of the use of S and G data should be more
emphasized.
Redrafting • General: Guidelines should refer to ESG risk drivers rather than ESG ESG risks is the term used in CRR. No change
proposals risks
• §14. With a view to comprehensively capturing the material potential Comprehensive assessment is important. No change
impacts of ESG risks
• §14a. The consideration and use of both qualitative and quantitative No change – but limited to E risks. No change – but
elements and data where these are available limited to E risks.
• §14c should clarify further that the banks should first explore the key
propagation channels of climate impacts and transition impacts for The suggestions are considered to be No change
the bank, per sector and country of activity of their counterparties, captured by the Guidelines.
based on a range of information (including forward-looking infor-
mation such as a range of scenarios).
• §15 should include “expert” assessment when considering long term See response on time horizons. No change
horizon.
Frequency Reduced frequency of materiality assessment for SNCI is appreciated. The minimum 2-year frequency has been No change
Guidelines should set a 3-year frequency in line with SREP guidelines. kept for SNCIs. Institutions can rely on past
More generally, materiality assessment frequency should be on an ad hoc assessments but should ensure they remain
basis, when significant changes have occurred is more relevant. valid as part of regular reviews.
ICAAP §18 should be completed to clarify that the banks should justify how criteria It has been further clarified that banks should Section 4.1
are weighted relatively to each other. They should also document how they substantiate and document their clarified.
address the data gaps. The corresponding decisions with respect to the assessments and methodologies, including
treatment of ESG risks should also be clearly documented, alongside the clear thresholds and conclusions.
internal definition of materiality, which is already required in the ICAAP
framework for all risks relevant to the institution.
No change

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Guidelines should clarify whether the execution of the reference The ESG risks materiality assessments should
methodology should be formally in line with the internal mechanisms already be consistent with and integrated into other
established regarding ICAAP or should refer only to the materiality of such assessments such as those made for ICAAP.
ICAAP mechanisms. Additionally, it should be further clarified how to
entangle these material assessments with other materiality assessments
conducted by institutions, i.e., whether one or the other (or both) should
cross-reflect the risk identified in each assessment.
Disclosure Transparency and credibility are key in materiality assessments. Guidelines Disclosure is out of scope of these Guidelines No change
should include requirements for banks to conduct third-party review and and covered by other regulations (e.g. Pillar
consultation and to disclose all details regarding its methodologies, 3, CSRD).
processes and results.

Question 5: Presumption of materiality for E and assessment of physical, S and G risks

Minimum set of Support to the general approach in §16, which is consistent with the climate The Guidelines have been amended to Section 4.1.
exposures (pros) benchmark regulation and Pillar 3 template 1. However, this wide approach include a reference to exposures towards amended
should be completed by a more targeted focus on a few critical sectors, coal, fossil fuel sector entities.
oil, gas. These sectors alone are influential enough to derail the Paris
Agreement and the EU climate law. In addition, this will ensure more
consistency with the CSRD. In particular exploration of new fossil fuel
reserves represents high transition risk.

Care should be given to the justification provided for the purpose of §17. It It has been clarified that conclusions, Section 4.1
is necessary to maintain the requirement for the bank to explain when it including non-materiality ones, should be clarified
considers that these sectoral exposures are non-material. substantiated and documented.

Guidelines should further specify and extend the list to account for nature- The Guidelines have clarified that nature Section 4.1
related risks as well. In the identification of such sectors, it should be built on degradation and dependencies on ecosystem clarified
the extensive body of existing evidence (in particular, key sectors and services should be considered.
companies have been identified as potentially high risk for deforestation).
Use of taxonomy Taxonomy is a good proxy as it means the exposure meet the EU See below regarding the deletion of the Section 4.1
(pros) sustainability goals. Yet, the derogation provided in §17 may imply negative reference to taxonomy-alignment as a proxy amended

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consequences as it does not provide strong guarantees and could benefit to for justifying derogation to presumption of
oil/gas/coal mining exposures (e.g. high level of alignment is not clearly materiality.
established). “Such as” and “high level of [EU taxonomy] alignment” does not
strictly provide mitigation to this derogation. Alignment with taxonomy
should be 100% otherwise sectors could include activities that do not meet
the DNSH criteria hence bear transition risk. The derogation should be
complemented by a second criteria consisting in 100% of the sector/activity
exposure to DNSH taxonomy criteria.

Taxonomy may be used in combination with additional tools (e.g., CPRS,

corporate emissions, elements of corporate transition plans) given the lack
of information on Taxonomy performance, especially for SMEs.

'Transitional' activities should be excluded from the derogation in §17 as

medium-to-long-term transition risks carried by associated sectors remain
high.
Non-UE Guidelines should provide flexibility for group institutions based outside the See below regarding taxonomy-alignment Section 4.1
exposure EU managing activities outside the EU, such as referring to local taxonomy. amended
treatment
Making sole reference to the EU Taxonomy as a proxy for non-materially
would also pose significant extraterritorial effects for banks with presence in
third countries.

EU taxonomy will not be useful for banks with material exposure outside of
EU or a portfolio composition with a potential lower share of eligible assets
for GAR calculation. Voluntary or internally well justified green assessment
should be likewise used for justification, or the materiality assessment will
not allow for level playing field with respect to exclusion of exposure as
materially affected.
Minimum set of More flexibility should be provided as for the sectors to be included in the Institutions should conduct robust Section 4.1
exposures (cons) materiality assessment. Do not support that exposures should automatically materiality assessments that reflect the amended
qualify as materially subject to environmental transition risks on the basis of nature, size and complexity of their activities.

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their sector (§16). This would imply a significant data and assessment burden The final Guidelines have removed the
even when it is qualitatively obvious that the NACE sector in question poses presumption of materiality for certain
no environmental risks to the firm. The reversal of the burden of proof makes sectors considering the limitations of
the risk inventory de facto absurd. automatically classifying all exposures
towards certain sectors as material.
Materiality categorisation can be applied e.g. per risk type and only when However, the Guidelines require institutions
certain quantitative/qualitative materiality thresholds are reached. The to thoroughly assess material ESG risks by
categorisation of certain sectors as material does not automatically mean taking into account a set of criteria and
that they are material from an institution's perspective. Materiality for exposures, including their exposures towards
institutions depends, among other things, on the business model, risk, sectors that highly contribute to climate
concentrations, maturity of the loans, the willingness/possibility of debtor to change, with particular consideration given
shift its business model, whether the sector itself has the possibility to to exposures towards fossil fuel sector
decarbonize etc. Therefore, para. 16 and 17 should be removed, and the entities. Institutions are responsible for
approach to materiality assessment should be left to the discretion of the conducting their assessments and should
institutions. substantiate and document their
conclusions, including non-materiality
The financial materiality and risk-based approach of the prudential conclusions.
framework is not necessarily consistent with a purely sector-based approach.
Other complementary factors will determine the financial materiality of an
activity such as the time horizon, the size of the exposure, the existence of
mitigation mechanisms, effective transition paths or dedicated financing that
are in line with an efficient transition, and stress assumptions. While close
attention is given to high-emitting sectors, the materiality assessment should
be commensurate to the size, business activity and types of risks carried by
the institution.

Sectoral approach including all activities listed in Sections A to H and Section

L of Annex I to Regulation (EC) No 1893/2106 is too broad (e.g. insufficient
differentiation at the level of NACE code 1), especially if including the level of
granularity as NACE 2-3-4 digits and does not take into account the
specific/idiosyncratic client’s situation. This presumption will impose a
disproportionate documentary and audit burden on banks to establish that

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the exposure is not material. There will be many exemptions if classifying all
listed sectors per se as materially subject to environmental transition risks.
The list should be illustrative instead of a mandatory. There is also the risk
that there is no incentive to investigate exposures to sectors not covered by
the predefined list.

The list of sectors is not aligned with sectors covered by NZBA targets. This
approach is also inconsistent with the list of sectors provided by the
International Energy Agency (IEA) for their Net-Zero Emissions (NZE)
scenarios, well-recognised and adopted globally, as the activities in sections
E, F and G are not included in the IEA NZE.
Use of taxonomy The reference to the EU Taxonomy for the exclusion of some sectorial In light of the removal of the presumption of Section 4.1
(cons) activities should be removed: assessing Taxonomy alignment even when it is materiality for certain sectors and the amended
clear that the exposure is not relevant and/or immaterial is too burdensome; limitations of taxonomy-alignment from a
high level of alignment is too ambiguous; taxonomy-eligible portion in the financial risk assessment perspective, the
banking book is very small as benchmarks have shown for many banks. paragraph outlining derogation options has
been deleted.
The mere alignment to the EU taxonomy does not directly imply less ESG risk
as the EU taxonomy regulation classifies the activities as green not from a
risk-based perspective and the EU Taxonomy framework is not designed as a
risk management tool. There is to date no evidence of a generalized positive
risk differential according to green vs. brown features of counterparty
activities.

EU Taxonomy does not have a full coverage of all activities, some

counterparties are not subject to it due to their sizes, there are products
outside the taxonomy (e.g. SLN) with objectives to facilitate/enhance
counterparties’ transition efforts that are not captured by the taxonomy. The
taxonomy operates as a classification tool at the activity level, not at the
sectoral level.

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Similar Similar requirements should not be provided: social and governance risks are The Guidelines contain more detailed No change
requirements for not comparable as a transmission channel of financial risk to environmental requirements for the materiality assessment
S, G, physical risks. It would be disproportionate to include them in the same manner. of E risks.
(cons) Social and governance risks are more related to client-idiosyncrasy. Trying to
build a risk-assessment system or metrics for governance or social risks
would be extremely burdensome and would not be supported by a
cost/benefit analysis.
Given the difficulties stemming from the identification of transition risk, it is
unclear that a similar approach would provide better results on other type of
risks (physical, social, governance). The materiality assessment for social,
governance, biodiversity risks should be done on a best effort basis at this
stage.
Similar Guidelines should provide similar approach / requirements by consistently The risk-based approach outlined in No change
requirements for requiring 1/ use of qualitative and quantitative data, 2/ a risk-based approachparagraph 13 of the final Guidelines applies
S, G (pros) to take into account likelihood and severity of the materialization of the risks.
to ESG risks. Quantitative information is only
required for E.
Guidelines should provide equivalent requirements for biodiversity risk, in A reference to nature degradation and Section 4.1
particular deforestation. Biodiversity loss and deforestation pose significant ecosystem services has been included. amended.
environmental risks and have far-reaching social and governance
implications, including impacts on local communities, indigenous rights, and
supply chain integrity. Nature-related risks financial impact on individual
banks has been well-documented.

Guidelines should provide a minimum set of exposures to be considered as The materiality assessment should be Section 4.1
material for each type of risk - environmental (E), social (S), and governance supported by a mapping of ESG factors and amended.
(G). However, it is essential to recognise that materiality may vary depending transmission channels to financial risks.
on the context and nature of each financial institution's operations.

Guidelines should extend the list to sectors A to U, as they involve risks from The list of sectors identified as highly No change
third parties (data processing including data centers, information and impacting climate change relies on EU
communication) on the physical, social and governance risks sides. regulation.

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Similar Guidelines could refer to minimum set of asset classes to be considered (eg, The Guidelines require institutions to take Section 4.1
requirements for secured by property) as well as to publicly available registers of natural into account the geographical areas in which amended
physical - hazards, which institutions should use in order to exclude exposure from key assets of counterparties or physical
suggestions minimum set. collateral, in particular for real estate
Areas and sectors at high risk of drought, flooding, marine submersion, water exposures, is located. There is no mandatory
stress, soil erosion etc. (alone or combined) should be considered a priority list of exposures for physical risks, but
for materiality. institutions are responsible for conducting
Public actors are making efforts to identify the key risk exposures in Europe; robust assessments by using both qualitative
as illustrated by the EEA’s European Climate Risk Assessment report. A and quantitative information and considering
possible way to integrate this as part of the present guidelines is to require a sufficiently large scope of environmental
that the banks update their list of mandatory material exposures on physical factors. Institutions may use information
risks continuously according to public recommendations. stemming from EEA reports to support their
A minimum list of physical risk hazards that are generally considered as assessments.
"material" by geographical area - in example NUTS3 level would be helpful
for the institution to evaluate the coverage of its own physical risk
assessment framework.

Question 6: Data processes

List of items to Strong support to list in point 23 the information that should at least be A minimum list of data points that Section 4.2.2
collect under gathered when assessing the current and forward-looking ESG risk profile of institutions should consider obtaining or amended.
§23a (pros) counterparties. Points i, ii, iii, iv, v, vi, ix of the list are particularly relevant to collecting for large corporates has been
assess the ESG risk profile of counterparties. maintained in the Guidelines, with some
adjustments.
Some data points should be made more prescriptive:
• Current and forecasted greenhouse gas (GHG) scope 1, 2 and 3 emis- The Guidelines align with CSRD/ESRS i.e.
sions in both absolute and intensity terms. absolute and where relevant intensity.
• Investment (capex) in fossil fuels, split between investment in exist-
ing infrastructures and new ones, and operational expenses (opex) The Guidelines require to consider
related to fossil fuel consumption and/or infrastructures. Such expo- counterparty’s dependency on fossil fuels.
sures bear particularly high financial stability risk.

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Banks should collect some data related to biodiversity. It can start with data
related to deforestation, with data on the dependency to high-risk activities The Guidelines require to consider material
- both in terms of economic factor inputs and revenue base and the impacts on biodiversity and related policies.
investment (capex) in such activities.
List of items to In case the approach of a minimum requirement list is kept, data collection Institutions should determine which data Section 4.2.2
collect under in retail banking should be limited to data on climate related factors such as points they will collect for retail clarified
§23a (cons) greenhouse gas emissions (car financing) and energy efficiency (real estate counterparties by considering the list
financing). provided in the guidelines, which includes
climate related factors.
Transition plans Pros The Guidelines have kept the transition plans No change
Strong support to the recognition of the counterparties’ transition plans as a as one of the data points that institutions
relevant source of forward-looking information for financial institutions’ risk should consider given their ability to inform
assessments. Once the transition plans in the non-financial sector are the forward-looking risk assessment of
streamlined and made credible via the assurance function, such transition counterparties.
plans offer themselves as a credible and comparable source of information,
which should contribute to the convergence of views on transition risk
among financial institutions.
Cons
Do not support the obligation to use data from transition plans to assess Wording has been clarified to refer to plans Section 4.2.2
large companies, particularly as there is no obligation to prepare such plans disclosed in accordance with CSRD, when clarified
under the CSRD. available.
Consistency with The list of data to be collected from counterparties listed in §23 should be The list of data is focused on data large Section 4.2
CSRD primarily focused on data being published under CSRD, which has set up an corporates will have to disclose under CSRD. amended.
extensive reporting framework for ESG data that is quite unique at Alignment has been reinforced for example
international level, attempting to calibrate the reporting burden of to refer to targets instead of forecasts.
companies and the need for ESG data. Although disclosure of litigation cases is not
Data requirement should not go beyond what is required by CSRD and requested under CSRD, this informs the risk
further align: emissions targets instead of forecasts, dependence of natural assessment institutions should perform and
resources rather than on fossil fuels, risk of litigation not requested by CSRD. this has been moved to section 4.2.3.
Timing of requirements of the guidelines should be consistent with that of The Guidelines apply from 2026 or, for SNCI,
disclosure under CSRD so banks can build out their data systems to house a 2027, allowing to make use of CSRD data to a
variety of non-financial datapoints from their clients and counterparties. large extent.

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Client Guidelines should provide some clarification on the extent to which it is The Guidelines require institutions to build Section 4.2.2
engagement needed to engage with counterparts beyond the publicly available ESG data on available ESG data, and to assess which clarified
compared with they provide. Client engagement should not be made necessary if primary other sources of data would effectively
CSRD data is publicly available under CSRD. Some Member States appear to have support the identification of ESG risks, such
asked financial institutions to limit bilateral outreach to corporates to collect as information captured through
data and rely as much as possible on data reported from CSRD and from data engagement.
providers. This goes against the requirements from the Guidelines to
primarily engage with clients to collect data. Counterparties might face
multiple asks from different banks at a time when they are deploying huge
effort to produce CSRD data.
Flexibility with Data collection may prove to be very difficult, as banks will have to look The list of data points has been maintained Section 4.2.2
respect to data through a large number of counterparties with which they can be engaged but it has been clarified that institutions amended
to collect with. should consider obtaining or collecting this
The list of data to be collected for large corporate counterparties should be list, with a view to ensuring they have
indicative (or seen as recommendation) only as it does not depend on appropriate information to assess ESG risks.
materiality analysis and does not include a proportionality approach based Data processes should also be developed
on the type of service offered to these customers. taking into account the outcomes of the
Counterparty data gathering (including for large corporate counterparties) materiality assessment, as clarified by
should be based upon a materiality assessment of the risk of the paragraph 17.
counterparty, ESG risks identified, the type of clients, collateral and
exposures, etc. Data requirements should be determined using a risk-based
approach as some data points are more important to assess risk in certain
sectors.
Para 24 Guidelines should set a baseline for ESG-related data collection for non-large Given data availability, the baseline is set for Section 4.2.2
counterparties, to ensure a minimal level of data collection across large corporates counterparties, but clarified
institutions. institutions should consider the list provided
As per the EBA Guidelines on Loan Origination and Monitoring §126, for those counterparties when determining
institutions may conduct portfolio-based evaluations for micro/small data points needed for other counterparties.
enterprises instead of borrower-specific assessments. This regulation is See also below on exposure-based method
sensible as it reduces the burden on micro and small enterprises. Such for SMEs.
approach should be foreseen in §24.

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Para 25 Guidelines should clarify expectations around the timeframe for reducing No specific timeframe is included in the No change
reliance on proxies, and quality assurance for data procured from third party Guidelines but institutions should
providers. progressively seek to reduce use of proxies
Guidelines should ensure the phase-out of proxies to help fill data gaps by and improve practices and data quality.
specifying the exact timeline for doing so: 3 to 5 years maximum are
recommended.
Data gaps More guidance is expected to address data gaps. Data gap may increase for The EBA notes that efforts are ongoing to No change
the banks to assess ESG risks as the EC is proposing to increase the threshold address ESG data gaps in the EU. Institutions
for corporations to be considered SMEs. It might reduce the scope of the should leverage on these developments and
corporations under the CSRD. assess remaining gaps and document
Guidelines should stress that missing data or difficulties resolving gaps remediating actions.
should not discourage banks from integrating these ESG risks and that
institutions should take precautionary measures.
Use of proxies Pros The Guidelines do not prevent the use of Section 4.2.2
The use of proxies throughout the guidelines should be revised. The proxies but request institutions to make use clarified
collection of ESG data is still very challenging, with multiple issues ranging of available data and assess which other
from comparability of data to coverage of data. Some sections of the sources may be useful. Proxies can represent
guidelines give the impression that the use of estimated values and proxies an alternative to raw data in certain cases but
is an inferior method. However, proxies can generally represent a good and also present limitations which justify efforts
justifiable measure, particularly in the volume business, and need not be by institutions to seek to gradually reduce
inferior to the quality of raw data. Ultimately, proxies also serve to avoid their use.
overburdening small companies and private customers. The use of proxies
should therefore generally be made possible for all companies.
Cons
Proxies have some limitations such as being difficult to use in risk
management functions; they are based on averages; they consider that all
companies in a given sector are similar or they might have a limited time
horizon.
The use of estimates and/or proxies can only be contemplated as a last
resort, and that both the choice to use them (lack of data or unreliable data)
and the choice of a certain estimate and/or proxy instead of others must be
justified.

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Guidance and Guidelines should clarify how institutions should use proxies and estimates The choice of specific proxies and estimates No change
support needed in the case of data unavailability. is the responsibility of institutions who
Guidance would be expected on which sources or proxies can be used for should document and justify their choices.
social and governance risk.
Data providers The data providers are not only used to obtain estimates when data is not The Guidelines have been amended to clarify Section 4.2.2
directly available from the counterparts, but also to optimize the collection that institutions should assess which sources clarified
of the data from corporates even where those data are publicly available of data would effectively support the
(avoiding the need for institutions to examine each of sustainability report of identification of ESG risks. Using data
thousands of entities). Hence, using data providers should be left to the providers is not prohibited but, in line with
institutions in a consistent manner with the outsourcing framework. sound governance and outsourcing practices,
Guidelines should provide that banks rely on the data quality assurance of when institutions use services of third-party
the data provider and make that an important criterion in the vendor providers they should ensure sufficient
evaluation process; the vendor should check the quality of its data and it understanding of the sources, data and
should be selected based on data quality. methodologies used by data providers.
Requirements to verify the quality of the data will place on banks a Institutions should also have in place
responsibility and a cost of resources that is not proportionate to the role of arrangements to assess and improve quality
the banks: data subject to external audit should be presumed of high quality. of data used.
Non-audited data which are provided by the company should also be
presumed to be reliable, except in the case of obvious inconsistency or public
controverses.
Guidelines should clarify how, in what context, for what purpose data from
external parties can be used.
Clarification §23aiii. “Material” is not defined and could imply different A materiality assessment has to be Section 4.2.2
needs assumption/interpretation among financial institutions. Who assesses that performed under CSRD. Banks may rely on clarified
impacts are material? Should it leverage more explicitly on CSRD? that assessment or decide to challenge it. No
§23aix. “Adaptive capacity” should be clarified, as adaptation is typically used change.
in the context of climate physical risk, but here seems to refer to company Wording has been clarified and ‘adaptive
transition plans. These topics require different datasets, and further capacity’ removed.
clarification could help avoid confusion.
Drafting §20-21-25. The use of ESG risk-related data / ESG data / ESG profile / ESG risk Wording has been harmonised to refer to Section 4.2.2
suggestions profile should be harmonized to avoid misunderstandings. ESG risk-related data or ESG data. amended

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§21. Should be amended so that institutions should be allowed to efficiently Data processes should be proportionate to
design data processes based on the relevance of business activities in materiality assessments.
relation to all risk types and the results of the materiality analysis.
§23 could be amended to avoid the reference to generic statements such as Requirements have been amended to align
“Governance practices”, and point to more specific frameworks. with the Taxonomy and CSRD.
§23.a.i. Regarding the collection of geographical location of key assets, we Banks could decide to collect these data but
recommend that, at a minimum, longitude and latitude coordinates, the general requirement is to collect data
addresses, square meters, and building type should be collected. enabling physical risk analysis.
§[Link]. Inconsistency with §94.a. where the metric is in absolute terms only. Guidelines now align with CSRD (absolute
Due to known weaknesses of “monetary intensity” it is proposed to reshape value and where relevant intensity).
this requirement and make a hierarchy of metrics). The intensity approach,
whether promoted or accepted by SBTi and many industry alliances, does not
reflect the fact that global warming is fed by actual emissions, not intensity,
giving a false impression of progress towards a carbon neutral economy and
making targets easier to reach. GHG emission reduction targets should at
least be expressed in absolute amounts.
§[Link]. and v. should be deleted. Institutions and supervisory authorities Adverse impacts and dependence on natural
are in no position to judge or disincentivize environmental impact, as long as resources may result into financial risks.
such impact is legitimate by law and does not constitute financial risk (e.g.
GHG certificate prices) relevant for default risk. The mere fact of resource
consumption, as long as legitimate under the law, does not constitute a
financial ESG risk factor from any institution’s point of view.
§[Link]. More specific metrics should be provided as EPC is not yet EPC has been removed.
standardized.
§[Link]. Requirements for institutions should expand to report on their The Guidelines do not address disclosure
alignment with specific regulatory and framework disclosures, such as the requirements for institutions.
CSRD and the Taskforce on Nature-related Financial Disclosures (TNFD).
§[Link]. The adherence to voluntary or mandatory climate and This data item has been deleted.
environmental reporting (point vii) will also not say much about the actual
level of ESG risk exposure of the counterparty.
§[Link]. The inclusion of litigation risks may not be practical in all cases. The assessment of litigation risk should
Detailed information on imminent or pending litigation is likely to be support the risk identification and

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restricted, and gaining sufficient information to determine the relevance, measurement process. This has been moved
impact and likelihood of outcomes from a litigation will prove extremely to exposure-based method in section 4.2.3.
difficult. § should be amended to include “where available”. An imminent
litigation risk of the counterparty is likely to be provisioned by the
counterparts. Hence, this consideration may lead to a double counting in the
credit risk associated with this counterparty.
§[Link]. Note that CSRD is a disclosure directive and does not require Wording has been clarified.
preparing a transition plan. § should be amended accordingly.
§23.a.x. (new) third party assessments performed regarding environmental Institutions may decide to collect these
performance, notably credibility and robustness of corporate transition plans. assessments or assess counterparty’s plans
As transition plan content is highly complex information, leveraging on third directly.
party assessment should be a useful source of information in order to avoid
unnecessary burden.
§[Link]. More guidance is needed regarding governance practices. For This requirement has been amended to align
instance, different categories of governance practices could be defined. This with CSRD and the EU Taxonomy.
would make the assessment of different institutions’ exposures to
governance risk more understandable and comparable.
[Link]. should be deleted. ESG risk factors are only to be taken into account This requirement has been amended to align
in exceptional cases where local circumstances are such that lawsuits against with CSRD and the EU Taxonomy.
institutions or their clients are evidently imminent and could put the
creditworthiness of borrowers at risk. But this is so rare that the wording of
item (iv) seems much too vague to capture it. Moreover, it is already covered
by item (v).
§23.b.i-v. The below should replace current content: This requirement has been amended as
• due diligence procedures to ensure alignment with the OECD Guide- suggested by the comment to align with
lines for Multinational Enterprises and the UN Guiding Principles on CSRD and the minimum social safeguards of
Business and Human Rights, including the principles and rights set the EU Taxonomy.
out in the eight fundamental conventions identified in the Declara-
tion of the International Labour Organisation on Fundamental Prin-
ciples and Rights at Work and the International Bill of Human Rights.
(exact text of taxonomy minimum safeguards art. 18)

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• negative material impacts on own workers, workers in the value

chain, affected communities and consumers/end-users (to align with
CSRD ESRS 2 SBM 3 and ESRS S1-S4) including information on due dil-
igence efforts to avoid and address such impacts
SNCI Guidelines should introduce an opening clause to allow LSIs or SNCIs to SNCIs should also develop sound data No change
choose the metrics, with §23.a being used only as an example. SNCI should processes but may implement less complex
be excluded from §23b. arrangements in line with the general
The Guidelines should aim to provide additional guidance to SNCIs with proportionality approach.
limited data for their assessment of financial impacts stemming from ESG
factors.
CSDDD Guidelines should clarify how the data collection requirements relate to the The requirements in the Guidelines may No change
due diligence requirements laid down in the CSDDD. Social factors and data support the implementation of CSDDD or
on due diligence should be introduced progressively, in consistent manner leverage on due diligence procedures
with CSDDD, which only covers entities over 1000 employees, and which performed by counterparties.
includes a review clause of 2 years for the application to financial services.
Data sources Institutions may consider below data sources: forests finance, Global Oil Gas Institutions should build on available data No change
Exit list, ENCORE. and assess data quality.
Data quality Guidelines should set clear standards for the quality and integrity of the ESG The Guidelines request banks to review their No change
data collected. This guidance should mirror the specificity found in practices regularly and improve data quality.
frameworks such as the PCAF's guidance on greenhouse gas emissions
ensuring institutions can rely on high-quality, relevant data for risk
assessments and decision-making.

Question 7: Measurement and assessment principles

More guidance Excessive focus on environmental issues. See above regarding the emphasis put on E. No change
needed on S&G The EBA should provide guidance/requirements in terms of quantification for Banks should progressively enhance
risks social and governance risks. practices towards quantification for S and G.
Para. 26a The EBA should clarify that institutions are expected to use analytical models A combination of methodologies should be No change
Single-name that overcome sectoral approaches being able to evaluate single-name used, including at exposure level.
information and information.
mapping

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Mapping of exposures to individual risk drivers would be extremely Not every exposure needs to be mapped
challenging and would represent questionable benefit in terms of risk against all risk drivers but tools should allow
management information versus the effort/ cost involved for institutions. to assess transmission of ESG risks drivers to
This mapping should be restricted to economically material exposures. financial risks.
Para. 26b ESG risk concentration is not yet defined in regulation and implies first See below regarding concentration risk. No change
ESG risk identification and evaluation of ESG risk. Ask for flexibility in the
concentration measurement of concentration risk.
Call for a gradual implementation of this approach and to keep consistency
with other concentration risk related initiatives in Pillar 1 and 2.
Proportionality Support for the broad range of methods. The range of methods has been kept. They No change
and use of the Request for flexibility/discretion in the use of the three methods and should be applied taking into account the
three methods proportionality in the application of them. materiality assessment.
Para. 27 Request for further clarification about which particular methodology The structure of section 4.2 has been Section 4.2
Clarification on responds to which particular risk management need and how the three changed to clarify key principles for amended
use of three methodologies complement each other, how institutions can use different measurement and assessment methods first.
methods methodologies for different portfolios and what are the expectations Paragraph 30 specifies how the methods
regarding forward-looking measurement methods and what are the should be applied for complementary time
differences between portfolio and scenario-based methodologies. horizons and purposes. Portfolio-based
methodologies rely on scenarios but should
be complemented by other types of scenario
analyses, which will be specified by the EBA
in complementary Guidelines.
Specify baseline The integration of forward-looking scenarios, especially concerning The Guidelines specify criteria for exposure- No change
criteria ESG risk environmental risks, enables institutions to gauge potential future states and based methods. The EBA will also issue
measurement adjust their strategies accordingly. While the EBA's approach is Guidelines on climate scenario analysis.
comprehensive, an alternative could involve specifying baseline quantitative
criteria for ESG risk measurement to ensure consistency across institutions.
Allow use of Institutions should be allowed to put more focus on qualitative tools, e.g. Increased flexibility has been incorporated in Section 4.2.2
qualitative questionnaires. the Guidelines regarding assessment of ESG amended
instruments EBA should welcome the possibility of using qualitative data, especially for risks for non-large corporate counterparties,
(esp. SME) counterparties with limited data (e.g., SMEs). including use of portfolio-based assessments,
proxies and qualitative data where needed.

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Instead of (indirectly) obliging SMEs to collect data, all banks and companies
involved should be allowed to use estimated values and proxies. This could
be in the form of portfolio-based assessments instead of borrower-specific
assessments, or sector data.
Para. 27 Portfolio alignment methodologies not considered as relevant, but seen as, See below regarding portfolio alignment No change
Portfolio mostly, an artificial level of technical complexity highly model-dependent. To methods.
alignment some extent, one could consider that collective metrics performed at an
methodology economically sound perimeter (such for instance as a value chain or a
sectoral-based perimeter) might bear some relevance. Portfolio alignment
metrics should only complement other approaches.
Para. 27 While portfolio alignment tools are useful to provide the “big picture”, they The Guidelines clarify that institutions should Guidelines and
Sector-based cannot provide sufficient granularity alone to inform and shift the decision- use sector-based methods as part of their section 4.2.3
approach making process at sector and asset level. For that purpose, sector-specific range of methods. clarified
analysis is necessary for the key sectors. A key entry point for banks is sector-
specific finance (mortgages for buildings; infrastructure finance; energy
finance; shipping finance, etc).
Quantification It is unrealistic to require banks to quantify probabilities and consequences
Quantification of E in particular climate- No change
and probability of environmental risks. related risks is important for sound risk
of EBA should clarify that both physical and transition risk should be includedmanagement. Both physical and transition
materialization and own models should be allowed to be used. risks form part of E.
Para. 28 KRIs EBA should define specific guidance on what specific KRIs institutions should
A list of metrics is included under section 5.7 No change
establish for the measurement of ESG risks. A KRI-list with examples is useful
of the Guidelines and can support institutions
(e.g., transition: green asset ratio, scope 1,2,3 emissions, alignment in the determination of appropriate KRIs,
measures per sector). covering a scope of exposures consistent
Limit KRIs to large corporates (para 23) with the outcomes of the materiality
assessment.
Para. 29 Forward-looking assessment is difficult at this point and building scenario The EBA will issue Guidelines on climate No change
analysis methodology will take time. In future guidelines it would be scenario analysis.
advisable to include specific guidance on how to combine top-down and
bottom-up scenarios.

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It would be useful that regulatory expectations around measurement are See above regarding clarification provided on
framed recognizing those limitations and acknowledging that banks will have time horizons.
to take simplistic projection assumptions when going beyond three years.
Due diligence Institutions should commit to performing due diligence to gather See above regarding data processes. Section 4.2.2
comprehensive data on ESG risks. This involves collecting information amended
directly from counterparties and utilising data from diverse sources such as
NGOs, governments, and civil society organisations.
Asset-level EBA should integrate an asset-level approach for activities that bear a Asset-level data is mentioned in the section No change
approach particularly high transition risk, such as fossil fuel extraction facilities, or on data processes. See also above on
fossil-fuel fired power plants materiality assessment.

Question 8: Exposure-based methodology

Support General support for use of the three methods. Support for the requirements Exposure-based methods are part of the final No change
for the exposure-based methodology Guidelines.
Request for Clarify in paragraphs 30 to 33 that institutions have discretion as to design Institutions should design methods by No change
discretion for the appropriate methodologies i.e. a principle-based approach. complying with the Guidelines and apply
use of methods The exposure-based method should be subject to materiality assessment in them subject to materiality. See also above
4.1. on materiality.
Use more The exposure-based method should be complemented by other tools, such A range of methods is requested including No change
methods as stress testing, scenario analysis and qualitative assessments. scenario-based methods.
Para. 30 Integration of ESG aspects into PD modelling is challenging due to data Institutions should ensure that ESG factors, in No change
unavailability, lack of evidence and the potential technical unsoundness, particular environmental factors, are taken
Concerns about particularly when considering the long-term impact of E-factors. It would be into account in the overall assessment of
mandatory premature to modify credit scoring or rating models. default risk of a borrower and, where
integration ESG It is assumed that banks are not obliged to incorporate ESG risks into their justified by their materiality, embedded in
aspects into PD rating models, provided that an existing ESG score covers all E, S, and G the scoring or rating models.
modelling components and is used as a decision criterion during the lending process.
Request for further clarification.
Para. 30 Question if a dedicated DoD definition related to ESG risk drives is needed. Modifications in the Pillar 1 prudential No change
Need for Introduce a shadow PD factoring in climate-related financial risks. framework are out of scope of the
adjustments in Guidelines. This is covered by EBA report of

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prudential The prudential framework should be adjusted to allow for larger weight of October 2023 and upcoming reports under
framework forward-looking assessments. CRR3.
Introduce pragmatic solution such as the margin of conservatism or a
downturn component.
Para. 30 Give institutions flexibility to rely on existing ESG scores used as decision Institutions should design and use tools as No change
Use of criterion in the lending process or expert judgements/overrides. specified by the Guidelines. See also
scores/expert clarification on the assessment of each
judgements category of risk.
Make Regarding the risk factors and criteria, change “at least’ into “where Where applicable was already included. The No change
requirements applicable” or alike, as the list is not relevant for all exposures and sets method should be applied subject to
discretionary requirement regardless of portfolio materiality. materiality.
Para. 31(a)(b) Support for consideration vulnerability. The degree of vulnerability should be No change
Degree of Clarify what is meant by ‘the degree of vulnerability’ in 31(a)(b). assessed by institutions taking into account
vulnerability Do not limit ‘degree of vulnerability’ to new technical developments (e.g., the factors listed in the Guidelines.
carbon capture projects).
On- and off- Support EBA’s approach to cover both on- and off-balance sheet activities. CRD and the Guidelines require institutions No change
balance sheet Request that this should be made clear through the whole GL. to have risk management processes
comprehensive and proportionate to the
nature, scale and complexity of their
activities.
Para. 31b The EBA should ensure that GHG-emissions are analysed in absolute and See above – alignment with CSRD. Section 4.2.3
intensity terms. amended
Para. 31b should be amended as to clarify that GHG emissions as such are GHG emissions are not a direct predictor of
not a risk driver, as long as they are legitimate under the law, and as long as financial risk but should be taken into
GHG certificate prices do not contribute to the underlying businesses risk of account in the risk assessment.
default.
The analysis should be completed by the level of alignment of counterparties See portfolio alignment method.
with the Paris objectives.
Include scenario analysis in the evaluation of mortgage collateral. Banks should use scenario-based tools.
Para. 31b EBA should include transition plans and the credibility and robustness of Transition plans are part of the risk mitigating Section 4.2.3
Consideration of transition plans of the counterparty to mitigate these risks in para. 31b. factors banks should take into account as clarified
transition plans clarified in paragraph 32.

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Transition plans/objectives are important and given the drawbacks of the

prudential framework (backward-looking; data limitations etc.), EBA is
encouraged to work with other EU/international supervisors towards a
common baseline approach to transition risk analyses and measurement.
Para. 31c Concerns about the inclusion of the supply chain. Request for clarification of To properly assess ESG risks at the exposure Section 4.2.3.
Difficulties with what is expected. Proportionality of the institutions and the counterparty level banks should understand if the business amended
inclusion of should be considered. One respondent asks to only ask broad questions model or supply chain of the counterparty
supply-chain about the supply chain. could be affected by critical disruptions due
Information required should not go beyond the CSRD. It should be made to ESG factors. This is without prejudice to
explicit that the supply chain is not the responsibility of the bank; reference the application of CSDDD and forms part of
is made to the CSDDD where the downstream value chain of financial sound risk management. The wording has
institutions is out of scope. been amended to refer to exposures to
Some respondents note ‘likelihood’ estimation of critical disruptions to the critical disruptions.
business model/supply chain would remain complex in the near future and
the supply chain element is too far-reaching and not manageable.
One respondent asks to change ‘likelihood of critical disruptions’ into
‘exposure to critical disruptions’ to maintain flexibility.
Para. 31c Currently there are no market standards or science based initiatives which Banks should gradually develop their No change
provide such reliable impact assessment of biodiversity loss, water stress or practices and benefit from improving ESG
pollution. data.
Para. 31d Agree to include the maturity. The maturity criteria has been maintained in No change
Maturity Clarify that the maturity of the exposure is needed to identify which risks are the list of factors to consider.
relevant for the exposure, depending on their time-horizon of
materialization.
Para. 31e Agreeance that risk mitigation aspects should be carefully considered to Risk mitigating factors including insurance Section 4.2.3
Risk mitigation enable transition finance for both transition/physical risk. Especially the and transition plans are part of the factors clarified
willingness of the customer to transit. Of possible use: client transition plans. banks should consider when assessing ESG
Provide further clarification on the forward-looking element of risk risks at exposure level, as clarified in
mitigation opportunities and how this is expected to be embedded as part of paragraph 32.
the assessment.

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It is important that banks who are not in the first line, could deduct the
insured portion of their loans and only keep the residual one when assessing
their materiality.
Para. 32 Difficulties of meeting the requirements in para. 32 re. the engagement with See above regarding data processes and the Section 4.2
Engagement smaller counterparties to obtain data. increased flexibility incorporated for non- amended
with small Request for additional considerations and simplifications for SMEs, e.g., to large counterparties.
counterparties use portfolio-based valuation methods like in the EBA GLOM, or the use
proxies on portfolio level, expert judgement or data vendors.
Data collection should only be done in the onboarding process to avoid
burden for the bank and SME later. Respect principle of proportionality.
Under no circumstances should the data requirements to be provided to
SMEs exceed those in the reporting standard of the voluntary reporting
standard for SMEs (VSME).
The issues posed around obtaining useful vendor data would make it
necessary for the EBA to clarify and possibly narrow its definition of
counterparty to allow for institutions to be able to fulfil the requirements.
Para. 33 Limit the time horizon for S+G risks to short-term as para. 33 contradicts The reference to time horizons has been Section 4.2.3
Time horizon S para. 27. removed in this specific paragraph. See also amended.
and G factors The requirements regarding the time horizons are too imprecise and above on time horizons.
clarification is requested of what is expected.
Para. 33 Support for the inclusion of social and governance due diligence. Institutions should perform due diligence to Section 4.2.3
Clarify due EBA should clarify that the due diligence assessment is limited to borrowers assess financial risks stemming from S and G clarified.
diligence for whom such procedures are considered essential/suitable for the business factors. This should be done by taking into
requirements relationship. account outcomes of materiality assessment.
More guidance on how the assessment should be implemented.

Para. 33 It is not clear how S&G factors would drive prudential risk aside from certain Institutions should assess potential financial Section 4.2.3
severe scenarios – therefore we believe that institutions should be allowed risks linked with S and G factors. clarified.
to make their own assessment of the relevance of these factors to their risk
management.

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Para. 33 Include that institutions can consider sector and country risk levels on social When data is not available institutions should No change
and governance matters as a way to assess exposure when limited follow the steps outlined in the data
counterparty data is available. processes section.
Reach out to Financial Institutions may seek scientific validation from universities when Banks may decide to do so. No change
universities developing and using new methodologies on S and G.
Para. 33 There should be global alignment on social/governance aspects, as it cannot Due diligence on clients is part of banks’ risk No change
be expected of banks to reach out to all customers separately in different management, in line with materiality and
jurisdictions, or several times with regulation becoming more concrete and proportionality considerations.
demanding.
The responsibility placed on banks regarding due diligence is excessive and
could lead to different outcomes in different institutions.
Consideration of The evaluation of a counterparty's social and governance risks should extend Institutions should assess financial risks Section 4.2.3
social and beyond merely checking its compliance with international standards. It taking into account adherence to social and clarified
governance risk should also encompass an assessment of the effectiveness of the strategies governance standards.
Para. 33 implemented by the counterparty to mitigate these risks.

Question 9: Portfolio alignment methodologies

EBA should work with other EU supervisory authorities, as well as non- The EBA will issue Guidelines on climate No change.
financial authorities, to establish a set of scenarios for common use, as well scenario analysis. See also below on the
Alignment with as encourage further cross-institutional work on the sufficiently granular choice of scenarios.
other European regional and sectoral pathways.
regulatory Connect the sectoral portfolio alignment guidelines to the PiT distance to the The Guidelines have been kept high-level; the
initiatives IEA NZ 2050 scenario disclosed in the Pillar 3 ESG Templates. Profit from (mis)alignment may be expressed in terms of
NACE code-level information, to connect the misalignment of exposures to point in time distance in percentage points.
these sectors, depending on the level of alignment (or non-alignment) of the
relevant exposures to the EU taxonomy.
Transition risk Alignment only means a lower risk if the economy gradually transforms Banks should assess ESG risks based on a No change
towards CO2 neutrality. If this does not happen and the world remains in a range of scenarios. The Guidelines include
hot house world scenario, sustainable exposures could even be riskier. portfolio alignment methods as one of the
The financial impacts analysis should take into account both Net Zero tools banks should use to assess climate
scenarios and "most probable" scenarios that Banks seek as appropriate in transition risks, and will be complemented by

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order to perform sensitivity analysis related to the impacts stemming from Guidelines on climate scenario analysis
setting Net Zero target strategies when the economy is not moving towards considering a wider range of scenarios.
a Net Zero direction.
General Will penalties and/or remediation measures/actions be imposed when the The Guidelines do not address supervisory No change
Consequences of portfolio's gap from these objectives is significant? In a perspective of measures but explain how institutions should
misalignment aligning portfolios with the climate target, the regulator could clearly define consider insights from alignment
the criteria that banks must consider in the loan origination process. assessments.
Para. 34 EBA should dismiss portfolio-based methodologies and rather use asset-level It has been clarified that the section deals Section 4.2.3
assessment. To some extent sectoral-based metrics could be considered, with sector-based methods, portfolio-based clarified
Focus should be leveraging notably on existing transition scenario trajectories and sectoral and portfolio alignment methods. In
on sector-level. objectives. Portfolio-level metrics could encourage to finance climate- particular alignment assessments should be
neutral sectors instead of facilitating the transition. conducted on a sectoral basis.
Either make explicit that portfolio-based methodologies must include sector-
based methodologies, or add a fourth level with sector-based
methodologies.
Para. 34 Absent firm-level net-zero requirements (EU Climate Law holds for Member The Guidelines do not prescribe an alignment Section 4.2.3
Bank’s discretion States), why should be banks required to factor climate-related portfolio strategy. Institutions should decide which clarified
in ESG risk alignment into their risk management practice? Firms may choose to shift strategy they pursue. Portfolio alignment
management is the composition of their portfolio away from certain exposures/sectors to assessments should be taken into account in
not prescribing reduce transition risk, but they may equally decide to adopt other risk this process given insights provided into
portfolio management strategies that allow them to retain their existing portfolio exposure to climate transition risks.
alignment balance (e.g. through other hedging strategies).
Para. 34 We recommend specifying that while the banks may choose appropriate Focus of the section is not on implied Section 4.2.3
Science-based methodologies, these should be science-based. Caution regarding implied temperature alignment at the institution’s clarified
methodologies temperature alignment methodologies from third-party vendors, which level but on assessment at the sector level,
should follow appropriate data and model risk management processes. including through reference to science-based
scenarios.
Consideration of EBA should instruct institutions to have internal procedures in place to assess Procedures should be proportionate to ESG No change
off-balance their off-balance sheet exposures and, in particular capital market activities. risks associated with different activities.
sheet exposures
Para. 35 Supplement the climate portfolio alignment methodologies with the energy Such metric has been added in section 5.7, Section 5.7
supply-banking ratio (ESBR). ESBR compares the underwriting activity of see below on monitoring indicators. amended

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Energy supply- banks in two sectors: low-carbon and fossil-fuel energy. It can be used to
banking ratio monitor the alignment of a bank with an investment trajectory that meets
the Paris Agreement.
Para. 35a Alignment with GHG emissions only could make financial institutions The Guidelines do not require exit or de- Section 4.2.3
Reference to encounter more difficulty in supporting net-zero transition of hard-to-abate financing; alignment assessments can be clarified
GHG-emissions sectors (triggering financial institutions' divestment), which could hinder the used as starting point to focus engagement
only real economy from achieving decarbonisation. on certain counterparties.
Para. 35a The reference to the 1990 baseline is not workable for banks (e.g., did the The reference to 1990 should be understood Section 4.2.3
1990 base year current group structure exist already in 1990). We also would like to flag that in the context of the EU objective to reduce clarified
not feasible under the EBA ST "fit for 55" exercise, banks were asked to work on a 2022 emissions at the jurisdiction’s level. It does
baseline. EBA should provide more flexibility. The priority for institutions not apply to 1990 banks portfolios but to
should be to develop a methodology of portfolio alignment in relation to the decarbonisation pathways at EU level.
wider EU target, in order to identify the gap between this target and
institutions’ own portfolios and manage the risk arising from any gaps.
Para. 35a - It should be clarified that alignment gaps can be leading directly to financial Alignment assessments support climate Section 4.2.3
Financial risks risks for the bank. transition risks and related financial risks clarified.
assessments.
Para. 35a Including S&G could provide more holistic view of sustainability. It is considered preferable to give institutions No change
Support for S&G For social and governance matters the portfolio based methodology can flexibility to develop their methodologies on
matters point to social and governance related metrics of SFDR Principal Adverse S and G risks.
Indicators as relevant portfolio level indices.
Please provide more guidance on how to apply the portfolio-based
methodology to social and governance risks.
Para. 35b - scope Clarify whether paragraph 35b only relates to transition risk (i.e. in relation Portfolio alignment assessments are relevant Section 4.2.3
of paragraph to 35a) and excludes physical risk. for climate transition risk. clarified
Para. 36 1. Remove list, as there is a risk of diverting resources from strategic indus- The list of sectors against which portfolio Section 4.2.3
List of sectors; trial sectors such as automotive, aviation, and maritime transport, which alignment assessments should be performed amended
range of are also essential in terms of defence from a geopolitical perspective. has been amended to more clearly refer to
comments 2. Take a more neutral approach – i.e. they should not define the sectors to institutions’ portfolios characteristics and
which these methodologies apply, nor the scope within each sector. In- materiality assessment. Institutions that
stead this should depend on institutions’ materiality risk assessment. disclose alignment metrics under Pillar 3

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3. Need for a common understanding of the sectors which are potentially should take into account the minimum list of
subject to higher transition risks. sectors included under Pillar 3 requirements.
4. Explain why only the limited list is included.
5. Add sectors (e.g., fossil fuel production; also extended to the entire value
chain (upstream, transformation, storage, refining, processing and distri-
bution)).
6. Align with NZBA sectors.
7. List is not consistent with sectors referred to in para. 72b.
Large institutions Explain what is meant by “large institutions”. The CRR definition applies. No change
Para. 36 Support IEA approach. Where IEA sets targets in terms of absolute and Up-to-date scenarios are required. See also Section 4.2.3
Notes on IEA intensity, both should be considered. below regarding IEA. amended
methods Clarify that the latest updated scenario should be used to prevent the use of
outdated scenarios
Para. 36 1. Allow other scenarios than IEA, like NGFS, NZBA, GFANZ, IPCC sce- The Guidelines have been amended to keep Section 4.2.3
Use of other narios. the reference to IEA but as an example amended
scenarios than 2. IEA scenarios have limitations (e.g., not specific enough and do not among a range of scenario providers. Key
IEA (flexibility) take into account national/regional specificities, account for sectors selection criteria (science-based, consistent
that are dependent on energy only). No scenarios available for the with policy objective etc) are outlined in the
agricultural sector nor forestry, nor does it consider land subsequent Guidelines and institutions should document
nature-based carbon sequestration. More sectoral pathways should their methodological choices.
be considered. Also, creates oligopoly situation and undue costs of
smaller banks.
3. EBA should provide guidance on how institutions can account for dif-
ferences between sectors, countries, and regions (to tackle critique
on IEA scenario). Articulate whether regional scenarios could be con-
sidered to distinguish between exposures in (a) emerging markets
and developing economies and (b) exposures in developed coun-
tries.
4. Align with GFANZ's best practices on measuring portfolio alignment,
and providing principles-based guidance, such as the Portfolio Align-
ment Tool key design judgements.

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5. The EBA should encourage European banks to voluntarily uptake

Mortgage Portfolio Standard (given that mortgage portfolios are a
material source of climate risk) as part of their strategies to decar-
bonise their assets and to manage and act upon their ESG risks, and
rely on the NZBA portfolio-level tools. European banks would then
develop emissions metrics using on PCAF to quantify financed emis-
sions, and finally set targets through SBTi.
6. Instead of using the IEA scenario as a baseline, use the Paris Agree-
ment scenario. This is not only in line with the 1,5-degree goal but
also reflects an internationally signed and acknowledged framework.
Para. 36 Explain/define 'representative samples of exposures' for SNCIs. The Guidelines have added an obligation for Section 4.2.3
Representative banks to document and justify their amended
samples of Require that institutions explain how it manages to identify representative methodological choices including for SNCIs
exposures for sample of exposures in their portfolios, as this determines the quality of the the identification of representative
SNCI generalization of the results. exposures.
Para. 36 Require institutions to highlight how they use counterparty-level data to Counterparty-level data is an input to Section 4.2.3
Explain use of perform portfolio analysis. Require the banks to explain when an aligned portfolio analysis. Alignment analysis can amended
counterparty- portfolio includes counterparties with high misalignment and that could lead also be performed at counterparty level.
level data to high-risk exposures for the bank, for example in terms of strategic or
reputation risk of the bank.
Para. 37 Provide detailed information on specific scenarios and methodologies, See above regarding the choice of scenarios No change
More specifically on regional characteristics (sectoral/jurisdictional). Ensure the and key criteria.
information methodology is acknowledged globally (not European).
requested on Lacking a credible approach/metrics to analyse portfolio misalignment with The Guidelines specify main features of
methods. climate objectives as a source of transition risk, EBA should provide more methods but leave a degree of flexibility to
guidance on the possible approaches for comparability. banks to develop their own tools.
Para. 37 nature- Provide further guidance on how portfolio-based methodologies can be The requirement on nature has been Section 4.2.3
related risks applied to ESG risks, including nature, from both a financial and impact- clarified, still with flexibility left to clarified.
related perspective. institutions to develop their own tools.
Para. 37 The explicit mentioning of heatmaps raises questions, as floods seem to Heatmaps are a relevant tool and can be No change
Use of heatmaps generate the most material damage in the EU. applied to a range of E (including floods), S
and G factors.

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Heatmaps for S&G will require more time in order to be able to identify
relevant topics, exposures and metrics.
Para. 38a 1. Support. The Guidelines do not require specific tools Section 4.2.3
Methods to 2. Provide additional guidance, e.g. indicators such as deforested hec- but institutions can consider the tools amended
identify natural tares or utilising tools like ENCORE (Exploring Natural Capital Oppor- mentioned in the comments as well as
capital tunities, Risks, and Exposure) to assess the impact of environmental potential other tools and data bases.
dependencies degradation on financial portfolios. Impacts on nature has been added with a
3. Tools mentioned are Impact Analysis tool (UNEP FI), the Biodiversity view to assessing potential related financial
Risk Filer (WWF) and the Water Risk Filer (WWF). risks.
4. Para. 38a should mention also "impacts" on nature and not only "de-
pendencies" to better represent the environmental risks stemming
from the portfolio exposures.
Para. 38 Para. 38 is impact materiality. But either (i) the institution has made Adverse impacts may result in financial No change
Requirement commitments and full transparency must be provided on the method and effects.
goes beyond scope of these commitments, or (ii) it has not made a commitment and the
mandate; impact guidelines must not create a framework and an obligation to make a
materiality commitment.
Para. 38b 1. Support. The requirement has been maintained as it No change
Remove SDG or 2. Remove reference to SDG goals; positive impact goes beyond risk only applies to large institutions and can
concerns related perspective. The EU and member states utilize the SDGs as a frame- inform the assessment of risks linked to a
work for setting political goals in legislation. Therefore, alignment range of ESG factors, taking into account data
analyses implicitly cover the SDGs. requested or made available under other
3. The CSRD sufficiently addresses how companies position themselves regulations such as CSRD and SFDR.
in relation to the SDGs.
4. The requirement is deemed restrictive and not consistent across the
document.
5. Caution that in some business activities, conflicts between the SDG
goals arise.
6. Why would EBA refer to SDGs when we have principal adverse im-
pacts within SFDR? Couldn't the Regulatory Technical Standards be
used for this?

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GL on scenario In relation to the future Guidelines on scenario analysis, it would be helpful The EBA will issue a consultation in Q1 2025 No change
analysis for the EBA to provide additional detail on the anticipated timelines and and final Guidelines by end-2025.
scope.

Question 10: ESG risk management principles

(par. 40) ESG as We welcome the recognition that ESG risks are not an independent risk type, The definition of ESG risks provided in CRR No change
driver of but transversal in the sense that they influence traditional risk types. applies throughout the Guidelines.
traditional risk Depending on the paragraph ESG seems to be a separate risk instead of a
categories driver of traditional risks.
(par. 42 intro) We encourage the EBA to consider a longer time horizon than 10 years See above on time horizons and below on Section 5.1
time horizons of because: need to capture the longer-term physical effects of climate change; plans. clarified
10 years - too the (NGFS) scenarios tend to be longer term; transition plans are aiming for
short net zero emissions by 2050; many net-zero commitment and climate pledges
aiming for 2050.
(par. 42 intro) The 10-year time horizon implies enormous challenges given the lack of The section has clarified that banks should Section 5.1
time horizon of available data, as well as the uncertainties inherent to the transition. take into account the principles applied to clarified
10 years - too Institutions should therefore be granted enough flexibility to set their own the level of granularity and quantification
long time horizons and interim milestones under the Guidelines. tools outlined in paragraph 19.

A time horizon of 10 years or longer is feasible and adequate for many Challenges for long time horizons exist but
institutions. However, promotional banks and guarantee institutions various including long time horizons need to
members pursue business models and funding mandates that are be integrated into comprehensive and
characterised by shorter terms and observation periods. This also applies to forward-looking risk management
the period typically considered in the risk management process for material approaches for ESG risks, as also required by
risks. We therefore propose that the wording here be adapted to a long time CRD, which also specified the minimum 10
horizon so that a suitable definition can be made for the institutions on the years period.
basis of the business model and the respective funding mandate.
(par. 42 intro) The principles seem consistent to us and the "minimum" range of tools for The comment has been noted. No change
support managing and monitoring ESG risks seems sufficient to us.
(par. 42 intro) We have found the requirements outlined in para. 42 to be somewhat The requirement for institutions to No change
too prescriptive restrictive. It should be at the discretion of the institutions which measures determine which combination of tools they

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they take to measure and mitigate risks. In the latter case, "bearing a risk" will apply, considering a range of tools
may also be a possible option that is not even considered by the EBA here. specified by the Guidelines, is not considered
Regionally anchored institutions or institutions with a sector specialization overly prescriptive. Banks may decide to
are inherently less diversified but have specialist knowledge. With regard to apply some tools to a higher/lesser extent,
the tools to be considered (para. 42), we request that the wording "at least" ensuring consistency with their risk appetite.
be deleted and the measures mentioned be cited as examples, not intended
to be mandatory.
(par. 42 intro) In par 42d, the term “ESG-relevant criteria” is not precise enough. It should The term has been changed to ESG-risk Section 5.1.
language be replaced by the term “ESG risk-relevant criteria”. relevant criteria. amended
(par. 42 intro) The engagement policy should not be a binding tool in its scope The banks should consider engaging Section 5.1
Proportionality (counterparty and services concerned) and in the elements to be included counterparties for sound risk management amended
therein as it relates to the customer and trust relationship between the and transition planning. See also clarification
customer and the bank. We therefore recommend that the guidelines on the scope below.
present this topic as a tool that the institution can consider in a proportionate
manner.
(par. 42a) Need of EBA guidelines on institutions’ engagement with counterparties: for The EBA is not mandated to issue other, new No change
Engagement the paragraph 42 a), we strongly recommend EBA to develop such guidelines, Guidelines on engagement. However,
activities – as a follow up of these guidelines (ie in the course of 2025). Indeed, the points requirements for engagement policies as well
suggestion to (a) to (d) are not detailed enough and will very likely be difficult to implement as for the assessment of counterparties’ ESG
create dedicated and to monitor. For example, it is not specified at all what the “soundness” risks have been included in these final
EBA GL on this of counterparties’ transition plans should mean (ii) and how they should be Guidelines on ESG risk management.
point, more assessed by institutions. For this critical issue of transition plan assessment,
guidance needed EBA should build on the ATP-COL global multi-stakeholder initiative, led by
the World Benchmarking Alliance. What engagement means exactly should
be specified by EBA.
(par. 42a We support the recognition of the role that engagement should play as a tool The final Guidelines have incorporated in this Section 5.1
Engagement to mitigate ESG risks. However, EBA should clarify the expected measures to section the requirements on engagement amended.
activities as risk encourage counterparties to mitigate and disclose ESG risks. Institutions that were originally part of section 6, and
mitigation tool – indeed cannot consider having mitigated their ESG risks if engagement does which include aspects relating to
need to be not result in mitigating actions at the level of the counterparty or in the counterparty-specific actions, including exit
effective and integration of the actual risk. Engagement activities should therefore be as a last resort. Escalation procedures should
credible linked to clear time-bound objectives, an escalation process and a

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divestment strategy for off-track counterparties or counterparties with no be specified in the engagement policies (see
sound and credible transition plans. below).
(par. 42a) The lever with the counterparts highly depends on the type of services banks These elements would be considered by Section 5.1
Engagement provide and the depth of their customer relationship. banks in their engagement policies. amended
activities –
influence, We fully share the EBA view on the importance of engagement policy to The Guidelines refer to engagement as a
feasibility/ ensure consistency with banks’ climate commitments. However, we are means to gather relevant information in the
flexibility, wondering whether these guidelines are an appropriate place to stipulate data processes section. In addition,
proportionality, engagement policies. The first objective of the engagement policy is to engagement as a tool in the risk management
potential clashes collect relevant data which is consistent with the need of data quality. and transition planning toolbox is considered
Beyond that, the need for banks to strive towards improving the relevant also from a prudential perspective.
counterparts’ ESG profile (and relative metrics) should be left as a tool that
banks may consider managing their ESG risks or the implementation of their
transition plans, instead of being required in these guidelines.

We would like to highlight that there does not appear to be any The Guidelines have clarified that banks
proportionality around the proposed requirement for institutions to engage should determine the scope of
counterparties, as specified in para 42(a). counterparties with whom to engage.
(par. 42a(i, ii)) Need for specification: We call on EBA to provide more granular definitions The final Guidelines require banks to Section 5.1
Which on the terms most important and most critical counterparties, large determine the scope of counterparties with amended.
counterparties counterparties and large corporate counterparties. whom to engage, taking into account their
to engage with – materiality assessment and risk
more precision We note that the Draft Guidelines include various qualifiers to describe the measurement methodologies to support
needed scope of counterparties that should be covered by engagement activities. A their prioritisation choices.
balance needs to be struck between encouraging institutions to meaningfully
engage with counterparties who are most relevant to the management and
mitigation of ESG risks, and avoiding creating an overburdening obligation to
demonstrate engagement with every possible counterparty. A key learning
in relation to striking this balance was that prioritisation of stakeholders is
vital. However, the group of relevant or priority counterparties can vary
widely across financial institutions, depending e.g. on the business model of
the firm, the sectors it provides financing to, or the geographic location of

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the counterparties. In addition, it may make sense for an institution to evolve

its stakeholder prioritisation over time. Importantly, the size of a
counterparty may not necessarily be a reliable proxy of whether engagement
with that counterparty should be prioritised, as size may not be a good
indicator of the extent of that counterparties’ relevance to the ESG-risk
exposure of the financial institution and/or the success of its transition plan.
In some cases, the financial exposure to a given counterparty may be more
relevant.
(par. 42a(i)) In the identification of priority counterparties where engagement should be See answer provided above. Section 5.1
Which carried, we also recommend EBA clarifying the factors of criticality. The size amended
counterparties of the exposures, but also the sector, the availability of transition plans, the
to engage with – location and the deviation from initial transition targets are factors that
materiality should be considered.
criteria and
definition of We would also emphasise that the scope of counterparty engagement
criticality should be linked to institutions materiality assessment, rather than solely
size. That is the prerequisite to ensure efficient allocation of resources.
(par. 42a(i)) We also contend that engagement strategies should also include SMEs. Non- SMEs may be included in the scope of Section 5.1
Which large corporates will play an important role in the transition to a low-carbon counterparties to engage with, depending on amended
counterparties economy, and institutions, through relationship managers, could contribute institutions’ nature of activities. See
to engage with – to this role. This would also prevent the generation of a portfolio-level clarification on scope below.
inclusion of blindspot, where small ESG-related risks could, in the aggregate, become
SMEs needed material to institutions.
(par. 42a(ii)) Role We support these ESG risk management principles, in particular paragraph No response needed. No change
of banks in 42 on the need to consider a range of risk management and mitigation tools,
assessing clients including engagement with counterparties on their transition plans to
transition plans improve their ESG risk profile.
(par. 42a(ii)) Role Additional guidance on how this assessment should be performed must be Risk assessment methods are specified under No change
of banks in provided, including on sectoral pathways to which corporate transition 4.2, however do not remove banks’
assessing clients pathways could be compared. We believe it should be the responsibility of responsibility to assess the risk profile and
transition plans – public institutions to put in place effective measures to assess and monitor creditworthiness of their counterparties, by
the credibility and soundness of the counterparties’ transition plans. taking into account ESG risks and risk

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methodological mitigating factors such as transition plans of

advice wanted We would appreciate any proposals on the methodology for evaluating counterparties.
clients transition plan, particularly regarding the feasibility of the plans.
(par. 42a(ii)) Role It should be clarified that banks cannot be made responsible for the The Guidelines do not refer to credibility but No change
of banks in assessment of the credibility of clients’ transition plans. Even with a limit to to transition plan of counterparties as
assessing clients large counterparties, assessing the credibility of transition plans could in potential risk mitigation factors. Assurance
transition plans – practice be a huge challenge for banks, especially without clear benchmarks provided by auditors in the CSRD/ESRS
need to rely on and further guidance as to the depth of the assessments and a clear link to context do not relieve banks’ responsibility
auditors, cannot materiality of risks. In any case such requirement would go beyond what for assessing the risk profile of their clients.
be responsible should be the responsibilities of banks. The expectations should therefore be
clarified, including on the role of auditors in the assessment of clients
transition plans. While banks should be in the position to understand clients
plans, they should be able to rely on the auditors assessment of the
robustness, soundness and credibility of these plans. We should be able to
presume that plans published under CSRD are credible, reliable, robust, and
sound. Moreover, it should be noticed that if this process is to be made by
every bank, it can come with different outcomes.
(par. 42a(iii)) - Need for specification: provide further guidance on how to assess processes, Requirements on the management of Section 5.1 and
greenwashing and define escalation mechanisms where greenwashing risk is not mitigated. greenwashing risk have been removed from section 5.6
risk We have concerns about the evaluation of the processes of borrowers to this section and consolidated in section 5.6. amended
identify and mitigate greenwashing risks. The requirement seems to go far in
terms of banks’ interference in clients’ management. Banks should not be
made responsible for the review of the risk of greenwashing of their
counterparties (even the larger ones). From a proportionality point of view,
at least LSIs and SNCIs should be excluded from the analysis of greenwashing
risks.
(par. 42a(iv)) Paragraph 42 a) iv. should also mention explicitly here the use of an See above on integration of requirements Section 5.1
Engagement escalation process as part of the engagement process, including the potential originally part of section 6, and below on amended
activities – recourse by the bank to coalitions with other financial actors where relevant. engagement policies including escalation
encourage to This escalation process is key for the bank to make the most of its procedures to be specified under plans.
mitigate risks engagement with the counterparty in a context of risk management.

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In addition, we recommend a new point (vi) on divestment when needed as

a last resort strategy, if the escalation process is deemed to fail. As a matter
of fact, EBA mentions “last resort cessation of the relationship when
continuation is considered incompatible with the institution’s planning and
risk appetite”, in Pararaph 103.
(par. 42b) more The EBA could consider establishing more granular guidance on the The granularity of the Guidelines has been No change
guidance operationalization of these management principles, such as methodologies considered sufficient.
for adjusting financial terms based on ESG risk assessments.
(par. 42b) At present, institutions may face challenges in empirically detecting the The EBA acknowledges that there are No change.
Engagement impact of ESG issues on the PD or calculating the ESG-sensitivity of the risk challenges but institutions should develop
activities - premium. This information is crucial for adjusting financial terms. their practices to assess the impact of ESG
adjusting While adjusted pricing policy may result from the credit rating of the risks on financial risk types.
financial terms counterparts it should not been seen as an automatic tool to use to manage The Guidelines require banks to consider
and/or pricing - ESG risks. Indeed, such a tool, if required by regulation, could result in level adjustments in their pricing policies, where
challenging playing field issue where other banks will offer better prices. relevant and in line with their risk appetite.
This could create important level playing field issues, resulting in EU banks
becoming less competitive than non-EU banks, which do not face such
requirements. It may also disincentivize institutions from providing transition
finance. Also, in the case of syndicated loans where several banks are
involved, it may be complex to unilaterally change financial terms and
conditions.
(par. 42c) Risk We also ask for clarification that a limit is not set or derived solely on the The final Guidelines have been adjusted by Section 5.1
management/mi basis of ESG aspects. Various risk drivers are responsible for this as part of clarifying that ESG risks should be considered amended
tigation - Risk risk management. This one-sided presentation of the limit (purely on the when setting limits.
limits basis of ESG criteria) would not be consistent and should not be understood
as integration into the existing methods and procedures.
To avoid misunderstandings, we request the following rewording:
“considering ESG for the purpose of setting global, regional and / or sectoral
limits, ...”.
(par. 42c and e) The EBA should acknowledge the role of sectoral policies and especially fossil Sectoral policies have been added more Section 4 and
Risk mitigation fuel sectoral policies and other restrictions in ESG risk mitigation: Today, clearly in the range of tools. In addition, fossil section 5.1
tools – role of many financial institutions already consider this, notably by adopting sectoral fuel sector entities are mentioned in the amended

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sectoral and policies that restrict their support to some activities and objectives to materiality assessment procedures, which
restriction increase support to higher ESG-ranked activities or companies. In this regard, should support the engagement policies and
policies sectoral policies that apply to the fossil fuel sector are the most widespread other risk management processes.
and can especially contribute to proper risk management, but other ESG
sectoral restrictions have been used (for example on tobacco).
(par. 42d) Risk It is our belief that the information provided in para. 42 d), such as 'by Yes, ‘e.g. in terms of economic sector or No change
management/ economic sector or geographical area,' is intended as an illustrative example geographical area’ is an example of possible
mitigation- and should not be regarded as a mandatory criterion. The example could be application. As in the rest of the section, the
diversification removed as the bank establishes its own standards for diversification, requirement is to consider this tool as part of
considering various factors. Although ESG criteria are significant, they are of a risk management approach.
secondary importance in this context.
We do not agree with the request for banks to diversify their lending and Diversification can support institutions in
investment portfolios based on ESG-relevant criteria. EBA should not request managing ESG risks, without any
banks to have a certain percentage of exposures towards green investments requirement set in the Guidelines on the
as a risk mitigation tool but must allow banks to assign investments towards volumes of green exposures.
sustainable activities based on their overall commitments and investors’
appetite. Banks should focus on the quality of their exposures, and not on
the volumes of green exposures.

Question 11: section 5.2 – ESG risks in strategies and business models

General The provisions should be reinforced, via among others divestment from most Banks remain responsible for setting No change
environmentally harmful sectors or development of clear strategies to particular strategies. See also list of risk
finance and push the transition. management tools.
General To ease the integration of ESG risks in institutions’ business model and See answers on section 6 below, also as Annex added
strategic planning, EBA should provide a template or framework to regards the addition of an annex to the
operationalize the guidelines more effectively. Guidelines.
Para 43 Some flexibility should be given to institutions to run their business model The section is not considered overly No change
and strategy, to define their risk appetite and to include ESG risks in their prescriptive.
already existing framework (with no need for additional tools for strategic
analysis or specific metrics), as long as they can demonstrate they have put

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in place a governance and a sound risk management framework. The

provisions are considered too prescriptive.
Para 43 Particular flexibility should be given to SNCIs (recommending only a See answers provided on proportionality No change
qualitative analysis of strategy and risk appetite as part of the materiality above.
assessment, with no need of transition planning) and to entities with a ‘social
economy function’ (recognizing their mission, being social economy goals
aligned with ESG factors per se).
Para 43 In institutions’ business and risk strategies, also possible risk arbitrage at This aspect is covered under section 6. No change
various horizon levels should be considered, as well as the need to ensure
that short, medium and long-term objectives and targets interact and are
well articulated.
Para 43(a) Further guidance is needed regarding how business environment might Institutions should assess how ESG risks can No change
affect ESG risks. affect the business environment.
Para 43(d) EBA should reinforce provisions on KPIs, e.g. by making it clear that they Targets are key to support strategies and No change
should be accompanied by a risk/profitability analysis, rely on specific their implementation should be monitored.
business and market assumptions and/or calibrated based on Paris More details are provided under section 6.
Agreement and the 1.5°C target, and by recommending the disclosure of KPIs
and amendments thereof over time.
Other respondents disagree on mandatory KPIs.
Para 44 Considering the different level of details for ‘E’ risks, the EBA should clarify if No change – the section refers to ESG, in Section 5.2
the provisions are applicable to all ESG risks, eventually complementing the particular E. See also above on C, E, S, G. clarified.
wording thereof.
The EBA should clarify the scope of stress tests (EBA or other stress tests? SIs It has been clarified that institutions should
or also SNCIs taking a proportionality principle into account?) take into account their internal stress tests.
Paras 43, 44(a) The EBA should clarify the terms ‘ESG factors’ and ‘ESG perspective’, The Guidelines refer to the ESG risk Section 5.2
and 45 suggesting that they should be accompanied by the term ‘risk’, and the para perspective. clarified
44(a) should be deleted.

Question 12: Section 5.3 – ESG risks in risk appetite

(par. 48) Paragraph 48 refers to an escalation process set out in section 5.8 but it looks Escalation has been mentioned more Section 5.7
“escalation” like it is set out instead in section 6.5 paragraph 103. explicitly in paragraph 80 in section 5.7. amended

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Connection and Risk appetite is a framework for dialogue between strategy and risk The Guidelines have added that the Section 5.3
need for considerations. It would be useful to take advantage of this framework to integration of ESG risks in the risk appetite clarified
consistency ensure overall consistency with any climate commitments made by the bank, should be consistent with the institution’s
between risk the transition plan and its sector-specific dimensions on objectives strategic objectives and commitments and
appetite and (decarbonization, financing). with the plans and targets specified under
strategic All this should feed into the risk appetite and credit limits that the institution section 6.
business model must set itself, if we assume that the prudential transition plan must
objectives contribute to (or not detract from) the climate transition plan.
(general) Given the unprecedented urgency of the state of climate change and nature The Guidelines specify risk management No change
planetary loss, we recommend EBA to express more prescriptive recommendations on arrangements from a microprudential
boundaries what level of ESG risk appetite might be considered excessive or dangerous. perspective.
In this, we suggest referring to the planetary boundaries.
(general) insights Additionally, the EBA could provide guidance on integrating ESG risks into Inputs from stress testing should inform No change
from stress stress testing frameworks, further informing risk appetite decisions with business strategies under 5.2 hence risk
testing forward-looking insights. appetite.
(general) ESG as It is not clear why ESG should play a separate role as a risk driver when ESG risks need to be defined and addressed No change
stand- alone vs. determining risk appetite compared to traditional risks. Ultimately, it in risk appetite in order to manage their
driver of materializes in the known risk types for which risk limits and risk capital are impacts as they materialise in traditional risk
traditional risk set or allocated. types. This is in line with BCBS principles and
categories The separate consideration of ESG as a risk driver when defining the bank’s CRD6 which refers to “risk appetite in terms
risk appetite is questionable, as it affects the traditional risks. of ESG risks”.
(par. 46) no Paragraph 46 outlines that the risk appetite should specify the type and The Guidelines require banks to determine No change
appetite extent of ESG risks institutions are willing to assume. This should be further KRIs such as limits, thresholds or exclusions.
(exclusion) nuanced indicating that this should include no appetite / exclusion areas, e.g
knowingly lending to companies that will use the money to violate human
rights.
(par. 46, 47) To ensure proportionality, the granularity of the requirements should be The final Guidelines have clarified that Section 5.3
proportionality, adjusted. Institutions should be granted more flexibility in defining their ESG institutions should determine their KRIs amended
flexibility, too risk appetite, taking into account factors such as business model, size, and based on their business model and have
much granularity portfolio structure. For example, it may be considered excessively granular added a reference to risk limits set at a lower
required in the for large institutions with a diversified business model to provide a higher level within institutions, so that ESG risks are
level of detail than at the country level. As with other sections of this both captured at the highest level with

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current consultation paper, we kindly request that this be limited to key assets, selected key indicators and at lower levels
paragraph material products, and services. with potential additional indicators and
We believe that the significance of identifying the type and degree of ESG limits, consistent with the overall risk
risks at the granularity of the proposed guidance is minimal. appetite.
It is difficult to have too many metrics in the RAS, only the most appropriate
ones should be selected. In addition to being technically difficult to construct,
such a level of granularity would make it difficult to understand and link with
capital allocation.
(par. 47) further We suggest that further guidance should be provided with regard to the term ESG-related KRIs should translate the risk No change
guidance on ESG "ESG-related key risk indicators", i.e. in particular with regard to the appetite into concrete indicators, in line with
KRIs catalogue of criteria, the framework and scope of this requirement. the risk appetite function and design.
(par. 47) Institutions should be allowed to justify removing KRI from the minimum set The final Guidelines have clarified that banks Section 5.3
minimum set of of KRIs to be used for defining the ESG risk appetite, e.g. in case of lacking should determine which KRIs they include in clarified
KRIs is too large data availability or alternative and comparable steering measure already in the risk appetite, by considering metrics
place. under 5.7.
(par. 47) In paragraph 47, the term “ESG considerations” gives rise to The final Guidelines use the term ESG risks Section 5.3
language misunderstandings and should be replaced by “ESG risk considerations”. considerations. clarified
(par. 46, 47) In the proposed guidelines we do not see a clear differentiation between the The final Guidelines have clarified that Section 5.3
need to Risk Appetite Framework (RAF) and the general limit/threshold framework institutions should determine their KRIs amended
distinguish that an entity can have at a lower management level. It is important to make based on their business model and have
between top- this differentiation, to avoid hampering the correct functioning of the risk added a reference to risk limits set at a lower
level RAF and appetite framework. The RAF is a formally defined process, with a strict level within institutions, so that ESG risks are
lower-level limits governance model. It is approved by the Board of Directors, and it is based both captured at the highest level with
framework on internal metrics. The risks included in the risk appetite framework must selected key indicators and at lower levels
be quantitatively targeted, measurable, and monitored within a specific with potential additional indicators and
timeframe (monthly, quarterly). Moreover, they must be carefully selected limits, consistent with the overall risk
as the most relevant within their risk category, as we are the top appetite.
management level. Any other limit/threshold system should be left for lower
management levels.
(par. 48) For large institutions, metrics and targets must be set at consolidated level The final Guidelines have been adjusted to Section 5.3
cascading not and it would not be feasible to run different sets of metrics at group level and require that institutions should ensure that amended
feasible, and all relevant group entities and business lines

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could lead to at more granular levels. This could create adverse effects and would certainly and units bearing risk properly understand
outsized focus be too difficult to monitor. and implement the institution’s risk appetite.
on ESG inside Also it seems important to keep in mind that adding too many metrics, Risk limits set at different levels within
RAF targets and limits on ESG considerations may create dangerous unbalanced institutions should be consistent with the
effects on the full edifice of the Risk appetite framework compared to other overall risk appetite in terms of ESG risk.
risks. As such, we recommend starting with basic ones and to incorporate
gradually as ESG factors become material new ones.
In any case, banks should give enough flexibility to choose relevant metrics
with targets and limits/ with a focus on the most material risks to its business
model.
The consideration of ESG risks in risk appetite should be aligned with the
entities' management that already considers the embedding of such risks
considering their geographical footprint, business diversification, among
other factors. Banks should not be required to change their management
processes due to the requirement to conduct a cascade down approach. Risk
appetite should be monitored in those risks deemed material according to
entities' own models and internal procedures (e. g., at client level, portfolio
level).
Rather than cascading, a combination of origination policies and close
monitoring could prove much more efficient and would avoid potential
adverse effects.

Question 13: Section 5.4 – ESG risks in internal culture, capabilities and controls

(section 5.4 in Strongly support the inclusion of the proposed guidance on culture, No response needed. No change
general) capabilities and controls within the scope of the EBA Draft GL. These all play
supportive; tone a critical role in ensuring that companies are able to respond effectively to
from the top is ESG risks, including by developing and implementing robust and credible
key transition plans. Key strength: integrating ESG risks into existing governance
systems (including the 3 LODs) as opposed to proposing separate, ESG-
specific structures. Aligned with bringing robust management of ESG risks
into standard business practice, and importance of "tone from the top" (Par.

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50) which in our experience with leading companies (mature TPs) is flagged
as a key success factor in securing organisational support for integrating
climate transition planning into business strategy.
Alignment with Recommend to align section 5.4 on internal culture, capabilities and control This section is consistent with ESRS and with No change
CSRD/ESRS with the European Sustainability Reporting Standards (ESRS) and particularly EBA Guidelines on internal governance but
the ESRS G1-1 on Corporate culture and business conduct policy. focused on ESG risk management for banks.
(section 5.4. in The EBA GL on Internal Governance provide sufficient framework for the The explicit incorporation of ESG risks into No change
general) too implementation of an appropriate risk culture and the concept of the 3 LODs. the overall risk culture and three lines of
prescriptive / The explanations in section 5.4. are redundant with the mentioned GL and defence model is deemed an important part
redundant, contrary to considering ESG as driver of existing risk categories. of sound risk management of ESG risks. The
suggestion to Banks' internal governance and control guidelines already include specific Guidelines specify what arrangements
delete the whole instructions that affect the whole entity and should suffice. Separate policies should be in place for ESG risks, ensuring
section 5.4 and governance for ESG purposes should not be required. Banks should be consistency with internal governance
granted the flexibility choosing the way they organize suiting their own Guidelines. This also reflects the BCBS
circumstances and preferences, taking into consideration ESG factors when principles for climate risk management.
appropriate and integrate ESG into their existing processes. Standalone
processes and controls to manage ESG risk factors should not be required.
Section 5.4 is too restrictive of the organizational freedom of institutions with
regard to ESG topics. We are in favour of deleting this section.
(par. 49) fit and Agree on importance of training management on ESG given the novelty of These notions are in the CRD6 and will be No change
proper - goes these risks but it should not be a determinant factor in considering a member further integrated in the Fit and proper EBA
too far of the management bodies as unsuitable. Guidelines.
Suitability assessments for managers and key function holders should not be
used as a tool to choose decision-makers in institutions according to their
overall ESG political preferences.
(par. 49); banks There may be scope for institutions to further develop relationships with Although this is a possibility, banks are No change
to engage with universities, cities and city science offices to strengthen their internal culture, responsible for deciding how specifically they
city experts & capabilities and control capacities – for understanding and interpreting will increase their capabilities.
universities scientifically verified ESG risks which are particular to environmental and
social investments in regions, cities and urban environments.
(par. 49) The recommendation for adequate training of the banks' management body The Guidelines have added that training Section 5.4
expected ESG and staff on ESG risks should be clarified. Expertise on climate & ESG risks is policies should be kept up to date and be amended

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skills require nascent and evolving, with a range of available approaches. EBA with other informed by scientific and regulatory
regularly relevant authorities should provide banks with regularly updated guidance - developments.
updated seek to clarify the types of training, knowledge, experience and expected Requirements for the management body will
guidance; GL skills on ESG and climate-related risks that are appropriate for different staff be further specified by the update to the fit
should specify categories, and that are necessary to ensure collective suitability of the and proper EBA Guidelines.
more detailed bank's management bodies.
requirements for The GL should specify more detailed requirements for ESG training programs,
ESG trainings including core topics to be covered and recommended training frequencies.
(par. 49) EBA should define clear minimum requirements for the evaluation of It is considered that the Guidelines reach a No change
qualifications counterparties’ ESG risk mitigation actions and particularly the qualifications sufficient level of granularity on those points.
of responsible staff to ensure that the latter follow a high standard.
(par. 49 and 50) In pars. 49-50 the term "ESG factors and risks" is misunderstandable and Terminology has been adapted to refer to Section 5.4
language on ESG should be replaced by "ESG risk factors". In paragraph 53 (d), the terms "ESG ESG factors and ESG risks. However, with amended
features" and "ESG aspects" should be replaced by "ESG risk features" and regard to products it is considered more
"ESG risk aspects", respectively, for clarity. It should not be a goal to impose appropriate to refer to ESG features or ESG
bank supervisors' ESG policies and societal norms when it comes to the aspects.
availability and pricing of financial services for individuals or corporates.
(par. 49 / 50) KPIs should be integrated into performance evaluation and remuneration The integration of ESG risks into Section 6
ESG KPIs should frameworks. remuneration policies is covered by the EBA amended
feed into Remuneration schemes must be consistent with the institution's prudential Guidelines on remuneration policies which
performance plan and formulated strategies, ensuring alignment with broader business will be further specified to reflect CRD6
evaluation and objectives and risk management priorities. amendments. Section 6 also includes a
remuneration Remuneration schemes are key to ensure integration of ESG factors and risks reference to remuneration.
in the bank's internal organization. EBA should recommend that banks adapt
remuneration schemes to incentivize the staff in implementing the bank's
prudential transition plan.
(par. 51) Role of A specific technicity might be required (especially on climate/biodiversity Banks are responsible to decide how they will No change
external parties topics) so financial institutions might leverage on external parties providing ensure sufficient capabilities to manage ESG
vs. 3 LODs, and specific technical inputs and this could be explicated in the GL as this does risks. Regarding external parties, the existing
role of internal not fit per se in the 3 LODs. framework and requirements for outsourcing
teams with arrangements apply.
counterparty

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ESG risk Most financial institutions now have dedicated sustainable investment Dedicated teams can support the
expertise teams. In many institutions, these teams play active roles at multiple stages management of ESG risks within institutions,
of the risk lifecycle: they may participate in counterparty risk assessments, provided that this is appropriately reflected
assist in drafting and disseminating ESG elements in credit policies and and feeds into regular risk management
procedures, or provide training to staff across the 1st, 2nd or 3rd LOD. They are policies and practices.
a key organizational element to foster an "ESG-aware" culture. EBA GL should
require large institutions to maintain a dedicated counterparty ESG risks as
departments as owners of counterparty-related ESG processes.
(par. 52) 1st LOD The draft places the approval process of new products within the first line of The approval process of new products has Section 5.4
and product defense, which is in contradiction with the traditional role and been removed from the 1st LOD paragraph. amended
approval responsibilities of the 2nd line compliance function.
(par. 52) 1 LOD - Regarding risk assessments which should be carried out by the 1st LOD The depth of assessment is not specified by No change
ESG risk (although ESG risk assessments should be conducted at different stages of the paragraph and can be adjusted provided
considerations in the client relationship), ESG risk observance should not be as comprehensive that it ensures prudent assessment of ESG
client in e.g. credit review process as is at client's onboarding. Exception to this risks.
onboarding should be clients from sectors under alignment objectives who need a more
robust and continuous monitoring.
(par. 52) Proposal to a add the underlined words: The first line of defense should be “investment processes” and “knowledge” Section 5.4
Suggestion of responsible for undertaking ESG risks assessments based on applicable have been added. The explicit mentioning of amended
additional sustainability requirements and commitments, taking into account sustainability requirements and
wording to materiality and proportionality considerations, during the client onboarding, commitments is not considered necessary
enrich credit application and credit review processes, during investing processes, and does not represent all the aspects that
description of 1 and in ongoing monitoring and engagement with clients as well as in new should be taken into account.
LOD role product or business approval processes. Staff in the first line of defense should
have adequate knowledge, awareness and understanding of sustainability
requirements and commitments to be able identify potential ESG risks.
Rationale: The quality of 1st LOD work depends on their knowledge of
applicable sustainability requirements and this should be explicit. Not just for
lending but also investment. Staff, namely managers in the 1st LOD on all
levels have key role and responsibility in this respect.

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(par. 53b) 2nd Given the diverse nature of ESG-related goals (e.g., objectives, commitments, The Guidelines have added claims and/or Section 5.4
LOD – targets), we suggest including a more detailed definition of "sustainability commitments. This may take different forms amended
“sustainability commitments". e.g. see EBA report on greenwashing.
commitments”
(par. 53b) 2nd Given that within standard corporate governance the compliance function The Guidelines have been further aligned Section 5.4
LOD – does not usually bear the ultimate responsibility of the firm's adherence to with the Guidelines on internal governance amended
Compliance laws and regulations, we suggest aligning this with paragraph 209 of EBA GL and include language as suggested in the
function on internal governance (EBA/GL/2021/05), with paragraph 47 of EBA GL on comment.
responsibilities the role of the AML/CFT Compliance Officer (EBA/GL/2022/05) and with
need aligning Expectation 5.5 of ECB Guide on C&E risks (2020) and thereby adopt a
with various formulation similar to the ones mentioned, such as: "the compliance function
existing EBA GLs should advise the management body on measures to be taken to ensure
and ECB Guide compliance with" applicable rules and regulations.
(par. 53b) Proposal to add the underlined words: The compliance function should The Guidelines have been further aligned Section 5.4
Description of 2 oversee how the first line of defense ensures adherence to applicable ESG with the Guidelines on internal governance amended
LOD compliance risks rules and regulations and should, in relation to the sustainability and include wording as suggested in the
function, explicit commitments made by the institution and the respective policies set, provide comment, however without referring to the
mention of the advice on reputational and conduct risks associated with the implementation legal function which is not subject to
legal function or failure to implement such commitments. The legal function should provide particular requirements under EBA
and nuancing advice on legal risks, including litigation risk associated with the Guidelines on internal governance nor BCBS
the split of implementation or failure to implement sustainability commitments. principles on climate risk management. It is
responsibility Rationale: As per dedicated EBA GL, the compliance function is a level 2 however expected that all relevant functions
inside function and their main role is to oversee/to monitor the relevant 1st LOD, contribute to the management of risks,
operational risks e.g. commercial units, as they are the owners of the risks. With respect to including ESG risks, in line with sound
the advisory role of compliance function, wording should be precise to governance arrangements.
include only reputational and conduct risks, as part of compliance risks and
not the whole range of operational risks, since different functions cover
different types of operational risks. Legal risk, including litigation risk, is
traditionally covered by legal function and this should be reflected also in this
EBA GL.

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(par. 53b) 2nd Ensuring adherence or providing advice regarding ESG risk rules or See answers provided above. The compliance Section 5.4
LOD – sustainability commitments does not have to be a sole responsibility of the function does not have to be the sole amended
Compliance compliance function. Assignment of the responsibilities can vary among responsible for the aspects mentioned.
function – not institutions for different reasons.
solely The compliance function is usually not the sole function responsible for
responsible for advising on measures to be taken to ensure compliance with the entirety of
ensuring rules, regulations and regulatory requirements - with prudential regulations
adherence to in particular typically falling outside of its perimeter. We would like the EBA
ESG to provide further detail on the "applicable ESG risks rules and regulations"
commitments, to clarify Compliance responsibilities.
and not at all The role of Compliance as regards "sustainability commitments made by the
responsible for institution" is not central. There are several sustainability/ESG related
some of them commitments which do not come under Compliance's scope nor require
specific actions by Compliance, although Compliance has a coordination role
regarding reputation risk.
(par. 53b) 2nd It should also be noted that as a matter of principle, each Function is All relevant functions should provide advice Section 5.4
LOD – responsible for risks within its perimeter, including ESG risk factors. in their respective field of expertise. The amended.
Compliance Consequently, operational risk comes under RISK's scope, the same way legal Guidelines focus on the 3 LODs, specified
function – not risk is under the responsibility of Legal as a second line of defence (LoD2). As under BCBS principles and EBA Guidelines on
responsible for formulated, the draft GL do not reflect these organizational principles. internal governance. The operational risk has
some of the risk We suggest that EBA comment on the envisioned role of 1st LoD in this been removed from the paragraph on the
types listed here, context. compliance function.
notably Moreover, the EBA should further specify the role of Compliance in providing
operational and "advice on operational risks", as some of the risks listed ("legal, reputational
legal risk – role and conduct") might fall outside of the scope of Compliance responsibilities,
of Legal function depending on individual institutional setups.
needs to be In relation to [the Compliance function providing advice on operational risks
explicit here ("legal, reputational and conduct risks") associated with sustainability
commitments, we recommend aligning with the EBA GL on internal
governance and allow for all relevant functions to provide advice in their
respective field of expertise.

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Role of Paragraph 53c accurately summarizes the role of Compliance as regards, for No response needed. No change
compliance for instance, new products with ESG features.
products
Role of other Agree with the role assigned to either the compliance or the risk See above – legal function should be involved No change
non-financial management units as shapers of the business units decisions, during the in its area of expertise but the Guidelines
risks specialists design and approval process of new products with ESG features or for focus on the risk management and
such as Legal significant changes to existing products to embed ESG aspects; but we compliance function.
recommend to also include the rest of the non-financial risk specialists in this
role, for example, the legal unit.
(par. 54) 3rd LOD Challenging specific metrics and calculations to establish the pathways goes The Guidelines do not mention challenging No change
beyond the Internal Audit Function’s usual remit. They are built by LoD1 and specific metrics and calculations but
reviewed by LoD2, and IAF should not be mandated to build specific reviewing quality and effectiveness of the
capabilities for this. Once the data is built by LoD1 and LoD2, IAF must inspect ESG risks governance framework.
to ensure that the data has been managed with integrity, and that the
transition plans include the different aspects demanded by the regulation,
but nothing further.

Question 14: Section 5.5 - ESG risks in ICAAP and ILAAP

(par. 55) ESG as The ICAAP is a global process that goes hand in hand with other internal ESG risks are defined in CRR; they materialise Section 5.5
standalone processes. While we agree relevant ESG risk drivers should be incorporated through the traditional categories of financial clarified
drivers or not into the process, these risk drivers should be indistinguishable from the rest risks. The Guidelines have clarified that
of the risks, meaning that the ICAAP should take into account all relevant risk material ESG risks and their impacts on
drivers in the same manner. financial risk types should be captured in the
We support the approach to avoid a separate ESG ICAAP but rather include ICAAP.
the ESG dimension within the existing ICAAP. This is consistent also with the
overall approach that sees ESG risks affecting the traditional risk categories.
Non-inclusion It is unclear what would be expected in the case where an institution sees Institutions should provide sufficient No change
justification that ESG risks do not affect the ICAAP (e.g. would a qualitative description as information to understand their analysis of
to why that is not the case be required?). the capital implications of ESG risks.

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Economic and To the best of our knowledge, the EBA has not used the terms “economic” These terms have been removed from the Section 5.5
regulatory and “regulatory” perspectives in its previous supervisory publications. A clear final Guidelines. amended
perspectives definition of these two terms is therefore necessary.
(par. 55) too The climate risk dimension is fully integrated in our bank’s ICAAP. However, It is recognised that banks’ practices are No change
early for E, S and the EBA should take a sequential perspective and start incorporating more advanced on climate-related risks.
G environmental-related risk factors and not rush into including social and However, as explained in the Guidelines,
governance until we have enough data to ensure we do it in a sound manner. tools and practices should be developed for
other types of E risks and approaches to S and
The BCBS Climate Principles, which are more narrowly scoped in terms of risk G should be gradually enhanced. CRD6 in
focus than the draft GL, recognize that "climate-related financial risks will article 73 (ICAAP) refers to ESG risks. The
probably be incorporated into banks' internal capital and liquidity adequacy section notes that banks should take into
assessments iteratively and progressively, as the methodologies and data account the levels of availability and maturity
used to analyse these risks continue to mature over time and analytical gaps of quantification methodologies for different
are addressed." This consideration should also be applied by the EBA in terms risks.
of recognizing that the ability of banks to capture climate-related risk drivers
in the ICAAP exceeds that of broader E/S/G risk drivers.
(par. 55) The banking industry is at an early stage in terms of understanding the Given the characteristics of ESG risks as Section 5.5
Concerns on transmission channels to liquidity risks. The lack of information is a significant drivers of liquidity risk, the evolving market amended
ILAAP obstacle to integrate ESG risks into the ILAAP, especially S and G. practices and the regulatory framework, the
These draft recommendations are difficult to understand given the final Guidelines have separated the
EBA/REP/2023/34 report on the role of E and S risks in the prudential requirements on ICAAP and on ILAAP to focus
framework, as no changes are expected regarding LCR and NSFR. the latter on E and on appropriate time
Liquidity risk is a short-term risk, whereas climate and environmental risks horizons within the scope of ILAAP coverage.
are more expected to materialize over a longer-term horizon. The
disconnection between these two timeframes means that the
materialization of climate risks in the definition and management of liquidity
buffers today for banks is not expected to be material. Nevertheless, to the
extent that climate and environmental risk drivers could have consequences
on liquidity, these consequences would have to be taken into account.
(par. 55) Long Certain methodological features related to ESG risks conflict with Institutions should consider various time Section 5.5
time horizon vs. ICAAP/ILAAP internal features and need to be further elaborated on before horizons for the assessment of ESG risks. In amended
being requested. The forward-looking nature of ESG risks requires the use of addition, CRD article 73 requires banks to

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ICAAP purposes long-term science-based scenarios that cannot serve as a basis for financial take into account the short, medium and long
(usually 3 years) projections, because science-based ESG scenarios do not easily translate into terms for the coverage of ESG risks. The EBA
financial risks scenarios. This requires a complete overhaul of current market recognises however that quantifying long-
practices in terms of scenarios and forecasts. Requesting an immediate term potential risks and building capital
inclusion of all ESG factors from longer term non-financial scenarios in planning for long time horizons raises
financial forecasts of the ICAAP comes at the risk of basing analysis on challenges. The Guidelines clarify that when
forward-looking elements, whose impact on financial risks has not yet been institutions take into account the short term,
evidenced. medium term and long term for the coverage
We assume that the risk observation horizon in the ICAAP remains of ESG risks, longer time horizons should be
unchanged in both the normative and economic perspectives. Additionally, used as a source of information to ensure
we assume that no multi-year risk-bearing capacity calculation is required sufficient understanding of potential
beyond the normative perspective period. The most frequent time horizon implications of ESG risks for capital planning.
in the ICAAP is 3 years. A multi-year calculation going beyond this should not The time horizons considered for the
be mandatory. The longer-term time horizon of 10 years would serve to determination of adequate internal capital to
inform the normative and economic perspective with regard to possible ESG cover ESG risks should be consistent with
risk factors. Disagree with backing medium and long-term risks, which are time horizons used as part of the institutions’
not reliably quantifiable, with internal capital - this would be neither overall and regular ICAAP.
appropriate nor sensible.
The time horizons considered for internal capital are fundamentally different
from the time horizons considered for ESG purposes. For ICAAP, institutions
make forecasts based on methodologies, historical data and plausible
scenarios that cannot easily translate into longer term horizons. These
forecasts influence business planning and practical decision-making, which
can hardly be the case of 25-year projections. Hence, time horizons that go
beyond 10 years should only be informative and not serve as a base to the
normative and internal allocation of capital. Capital should remain within the
current prudential practises, and not cover hypothetical medium to long
term ESG factors that will evolve in time, not necessarily translate into
financial risks and be mitigated in time.
(par. 56) Limits It seems difficult to have specific limits/triggers regarding ESG impacts on an Institutions should describe limits set for No change
indicator like the CET1 ratio or the ICAAP. material ESG risks.

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(par. 57) gradual Integration of ESG risks (to be checked on correct understanding) in ICAAP It has been clarified that banks should use Section 5.5
application? and ILAAP should only come after making progress on common insights gained from risk assessment clarified
understanding and reliability of data as a first step for a dedicated treatment methods to support the (binding) integration
of related exposures. A gradual and methodological approach is preferable of material ESG risks in ICAAP.
over setting (fixed) parameters and metrics.
(par. 57) ref. to We request clarification with regard to the reference in paragraph 57 to Insights gained through risk assessment No change
Section 4.2 section 4.2 that the reference is not intended to apply the longer-term methods should be considered. See also
alignment method in the ICAAP. above on long-term time horizons.
(par. 57) Are institutions free in terms of methodologies to use for the evaluation of Institutions should develop their methods No change
methodologies internal capital relative to their ESG risks/factors? and consider insights from methods required
and data Historical data is insufficient and there is no globally unified measurement under 4.2, and document their analysis.
method, so it is difficult to take into account ESG risks.
(par. 57) pool of Other approaches may exist such as to identify and measure internal capital The term ‘portfolio’ applies in this context to No change
exposures need for pool of exposures homogenous in terms of ESG risks rather than any group of exposures selected according to
individual exposures. some criteria.
(par. 55 – 57) In line with the ECB Guide to ICAAP, the ICAAP is an internal process, and it EBA Guidelines specify new CRD6 No change
too prescriptive remains the responsibility of individual institutions to implement it in a requirements and will be subject to comply
and too broad vs proportionate and credible manner. For now only risks arising from ESG or explain processes for all EU competent
current bank consideration for part of the banking book are taken into consideration by authorities.
approaches & banks in the ICAAP, if they are material. The assessment is based on climate
ECB expectations scenarios. Internal methodologies will be capturing counterparties transition
plans as they become available. We recommend aligning this section with
ECB expectations on this part and what was done on materiality assessment
by banks.
(par. 57) ref. to Supervisory scenario setting does not align with the internal character of The Guidelines do not set a particular No change
Section 4.2 on ICAAP, and we propose to refrain from it. The required mandatory inclusion scenario, but a forward-looking view of
scenario-based of E risk elements seems to have a permanent character, which does not capital adequacy considering potential future
methodologies correspond to the internal character of ICAAP stress tests under the E risks is needed for sound risk management.
normative perspective, which should address a financial institution’s key
vulnerabilities also taking into account the scenario horizon of (at least) 3
years.

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(par. 57) capital Agree with integration of ESG risks and transition plans in ICAAP and ILAAP. Supervision including Pillar 2 capital No change
needs - Space for However it seems that such integration will only require capital add-ons but requirements is out of scope of these
capital relief not capital relief. In the particular case of environmental risks, transition to a Guidelines. Banks should assess ESG risks
needed net zero economy should be capital neutral. It is true that there will be implications for their solvency.
winners (banks that orderly transition to net zero) and losers (banks that
delay transition relative to peers). We believe credible transition plans
should drive Pillar 2 capital relief while lagging plans should attract capital
add-ons.
(par. 58) We have planned to integrate considerations related to climate risks into the Climate risks are part of E risks. The adverse No change
supportive of scenarios used for provisioning and capital planning. We have also scenario should include E risks elements but
scenario analysis implemented climate-related stress scenarios for specific risk analysis (e.g. not necessarily be primarily driven by E risks.
for climate but stress on cost-of-risk). But we do not plan to have capital planning scenarios
not for (other) driven primarily by environmental risks. We consider it excessive to impose
environmental such specific stress scenarios for capital planning in the ICAAP.
risks
(par. 58) more Request for more granular guidance on modelling and quantifying the The Guidelines do not specify stress testing No change
granular impacts of ESG risks within ICAAP and ILAAP frameworks, including examples requirements as this is, and will further be,
guidance of adverse scenarios and stress testing methodologies also to covered by dedicated EBA Guidelines.
interpret/understand reverse stress testing regarding ESG.
(par. 58) too Recognize the relevance of scenario analysis as a forward-looking tool to Climate risks are part of E risks, see also No change
early for full assess the possible impacts of climate-related risk drivers in the future, given above on C, E, S and G.
incorporation of the long-term nature of climate change. But it is premature for banks to fully
E scenarios integrate E risk related scenarios alongside the wider economic scenarios
used for capital planning and projections, due to data and conceptual
limitations.

Question 15: Section 5.6 – ESG risks in credit risk policies and procedures

Challenges for There are insufficient definitions concerning the social sphere to allow for an See above on C, E, S, G. Quantitative credit No change
social risks assessment of the adverse impact of such risks on an entity’s credit profile. risk metrics are required for E risks only in the
It is deemed challenging to determine materiality associated with social risks Guidelines.

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and establish appropriate quantitative criteria and methods for evaluating

the impact on credit risk.
Credit risk – Quantitative credit risk metrics regarding environmental risks have not yet The Guidelines require to include No change
quantitative been established and it is unclear what is specifically intended. Further quantitative metrics in credit risk
methods guidance should be provided regarding the requirement to develop and policies/procedures to support the
implement quantitative credit risk metrics, such as a catalogue of criteria as management of E risks. Institutions should
well as a description of the framework and scope of this requirement. set their metrics and can consider the metrics
provided in 5.7.
Credit risk – In addition to quantitative credit risk metrics, the use of qualitative methods It has been clarified that institutions should Section 5.6.1
(permanent) use should be explicitly considered. The credit ratings established today consider implement a combination of qualitative and clarified
of qualitative both, quantitative and qualitative aspects, including ESG risks. Some quantitative approaches.
measures institutions may initially have to use qualitative methods if quantitative
methods are not yet appropriate. Further, for certain areas and for certain
institutions, the use of qualitative methods should be permanently available.
Insufficiency, Especially in context of the application of quantitative credit risk metrics, the See above on data. Section 4.2
incompleteness insufficiency, incompleteness, and incomparability of ESG data has to be amended
and considered.
incomparability ESG factors can drive credit policies in terms of portfolio segmentation, credit
of ESG data allocation, target selection. The analysis of ESG risks could improve the ability
to perform an efficient and effective creditworthiness assessment with a
material impact on at least the probability of default and the loss given
default, if (and when) the underlined data is of appropriate quality. The most
important barrier that can slower this process is represented by metrics and
dataset. A lack of data is especially relevant for smaller institutions.
ESG risk The section on credit risk policies and procedures could be more specific on See above on the exposure-based method Section 4
mitigation the question of ESG risk mitigation measures. In particular an analysis of and risk mitigating factors including amended
measures companies' transition plans in high-stake sectors would seem to be a priority. transition plan.
Integration of Credit granting policies should be aligned to the alignment trajectories that Banks should ensure consistency between Sections 5.1 and
ESG risks in loan some banks have publicly committed to follow. their strategy, risk appetite and risk section 6
origination and As part of credit policies, banks should clarify their procedures on management policies (see section 6). amended
monitoring counterparty and projects that persistently refuse or fail to implement a
processes credible transition plan. Credit policy on large corporate counterparties

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should include a conditionality of credit to the counterparties’ credible plan. Engagement with counterparties is covered
Such a policy should also include an escalation process. under sections 5.1 and 6.4.
Credit risk Banks should monitor physical and transition risks in segments of portfolios A reference to the materiality assessment Section 5.6.1
metrics that are deemed to be material according to banks materiality assessment has been included. amended.
methodology.
As opposed to regulatory requirements for pricing strategies and pricing As already laid out in the EBA GL on loan No change
decisions, a set of pricing best practices should be included. ESG-linked origination, the pricing structure of a loan
features in lending are not intended to compensate institutions for taking on product should reflect the inherent risk
ESG risks. Rather, the ESG adjusted interest rates and fees serve as an profile of its counterparty, considering all
‘incentive’ for the borrowers to meet specified ESG targets and, by this, aspects including also ESG factors. Best
mitigate their transition risks. practices cannot be included.
Proposed The EBA should encourage financial institutions to voluntarily adopt Guidelines set requirements for banks. No change
methodologies Mortgage Portfolio Standards (‘MPS’).
For the purpose of valuing collateral the IVSC International Valuation Specific details on the valuation of collateral
Standards could be referred to as they are applied globally. are out of scope.

Question 16: Section 5.7 – ESG risks in policies and procedures for other risk types

General Article 4.1 point 52d of the CRR provides that environmental, social and The Guidelines specify how ESG risks as No change
comments governance risk materialise indirectly through the traditional categories of defined by the CRR should be taken into
financial risks. Therefore, when it comes to para 63 and 66 of the draft ESG account in policies for management of
Guidelines, the EBA should stick to the CRR 3 and not go beyond its mandate. different risk types.
Market risk In relation to market risk, it is difficult to identify ex ante which part is due to Challenges are understood but banks should No change
ESG as it is already embedded in the price of the products. develop their approaches and
Further a waiver should be allowed for some of the charges suggested by the understanding.
report, such as adding a RRAO charge in FRTB-SA or asking for an RNIME in Pillar 1 requirements are out of scope of
FRTB-IMA for explicitly ESG-linked derivatives, should the bank demonstrate these Guidelines.
to the satisfaction of competent authorities that the possible losses Forward-looking analyses are key and
associated to them are already covered in the prudential framework. mentioned in paragraph 67.
Stress test metrics are considered to be most suited indicators to account for
derivatives.

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Operational risk It is required to indicate whether the ESG factor flagging is required for each The E flag is required when it is a driver of the Section 5.6.4
operational loss event. Further, it needs to be clarified whether the mapping loss event. Reference to Article 324 of CRR amended
should follow the 7 operational risk categories according to Basel has been included regarding the different
methodology or operational risk factors (people, processes, systems, regulatory operational risk event types.
external events).
Paragraph 63 could provide illustrative examples of potential future impacts ESG risks can impact operational risks
from ESG-risks that could have an impact on operational risk as well as other through various channels such as physical risk
non-financial risks such as litigation and reputational risks. drivers or litigation risk.
Operational risk While the internal taxonomies already have a natural disaster label it is The identification and labelling should be Section 5.6.4
losses – extremely difficult to differentiate between natural disasters that are directly done consistently with the risk taxonomy and amended
identification caused by environmental factors and those which are not (and driven by methodology to classify loss events specified
and labelling cyclical factors). Further guidance is needed on how to identify and label by the dedicated RTS on this issue. Reference
operational losses related to the environmental risks given the indirect to RTS pursuant to Article 317(9) of CRR
nature of ESG drivers. added.
Operational risk Specifically in relation to the references to reputational risk in paragraphs 53 To clarify this issue the reputational risk is Section 5.6
– and 63 of the draft Guidelines, the current drafting seems to include covered under a separate paragraph in the amended.
Reputational risk reputational risk as a component of operational risk, however that is final Guidelines.
misaligned with the EU CRR3 definition of operational risk (which excludes
reputational risk). We would suggest deleting these references to
reputational risk in the final Guidelines for avoidance of confusion.
Reputational risk An explicit reference should be made, that a core aspect of reputational / Discrepancy between plans and actions can No change
related to litigation risk is the discrepancy between banks transition plan and actions. lead to reputational and greenwashing risks
transition plan To address the reputational risk associated with banks failing to comply with as covered in the Guidelines.
their sustainability commitments or transitions plans, it is recommended that The EBA notes that external dependencies
the EBA specifies that these plans are dependent on the EU’s and Member and assumptions should be explained by
States’ commitments to achieve climate neutrality, as outlined in the EU institutions when disclosing plans and
Climate Law. Further, reputational risks are not considered significant for LSIs targets.
in particular. Banks should not be held solely responsible in the event that
the EU or member states fail to meet or change their targets.
Para 67 Para 67 should move away from provisions for yearly risk provisioning and Changes to RWAs are out of scope of these Section 5.6.4
focus more on a dedicated RWA approach. Additionally, given that historical Guidelines. The relevance of forward-looking amended
litigation experiences are not fully public due to the confidentiality of some

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agreements, it is crucial to specify that any model incorporating historical analyses is however mentioned in paragraph
data might inherently underestimate this specific ESG risk. Therefore, a 67.
dedicated RWA for each transaction above a very substantial amount
(limited to a few transactions) could be more than sufficient to manage this
liability risk effectively.
Regarding conduct, reputation, and litigation risk in para 67, we encourage
more focus on human rights, discrimination and other social controversies Violations of human and social rights have
which are known and tracked for corporate counterparties. been added to illustrate potential ESG-
related controversies.
Greenwashing Para 67 refers to the ESAs high-level understanding of greenwashing Reference has been kept as it provides a Section 5.6.4
(EBA/REP/2023/16). This is not a legal definition and should hence not be reference point to understand greenwashing amended.
referenced in the EBA GL. The broad understanding of greenwashing reduces in the financial sector. Clear, fair and non-
the legal certainty and therefore risks hampering financial institutions misleading transition finance efforts should
transition finance efforts. not be penalised.
Clarification is needed if it is necessary to have a separate specific process to ESG risks including risks stemming from
identify, prevent and manage litigation or reputation risks resulting from greenwashing should be captured by regular
greenwashing or perceived greenwashing practices, or can it be catered for risk management processes.
by regular internal processes and standard risk assessments.
Paragraph 67 should be amended to consider situations where reputational Institutions should consider various risk
risk can also arise through NOT lending to or NOT investing in businesses, channels but this specific addition is not
because ESG-related controversies can and will go both ways, as experience considered necessary.
shows.
Clarification on whether banks should expect the final guidelines to be Reference to the final report has been
amended in accordance with the final report on Greenwashing, including included. Institutions can consult the report
concrete examples of greenwashing across investment value chain the including for examples.
financial institutions should build on.
Concentration The requirements included in the draft Guidelines on concentration risks A reference to risk mitigating factors, which Section 5.6.5
risk could have adverse impacts on the financing of the transition as they would can include counterparties’ transition slightly
not consider counterparties transition strategies and pathways. strategies, has been included. amended

Banks remain responsible to set their risk

appetite for ESG-related concentration risks.

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The approach to concentration risk should remain flexible to allow banks to

use their own methodologies and define and measure ESG concentration risk
according to their own methodologies, risk appetite and business models. The Guidelines require to manage ESG-
related concentration risk understood as
It is very difficult to carefully define concentration risk in the context of ESG risks posed by concentrations of exposures or
risk factors; there is not currently a well-established definition in the EU or collaterals in single counterparties,
globally. Thresholds for what constitutes a high degree of concentration interdependent counterparties or in some
would likely be needed, including analysis of an appropriate way to define industries, economic sectors, or geographic
and calibrate such thresholds. Given that the risk assessment process is regions which may present a higher degree of
multidimensional, it is also necessary to avoid unintended consequences vulnerability to ESG risks; however, for the
associated with reliance on certain characteristics (e.g. some of the proposed purpose of the guidelines, thresholds for
metrics in the draft GL, such as GHG emissions) which could indicate that what constitutes high concentration risk
certain sectors or geographies are more or less risky in a way that is too should be determined by institutions in
crude. accordance with their risk appetite.

Supervisors should not demand institutions attributing concentration risk Assessing concentration risk on a sectoral
where a sector may or might be prone to ESG risk factors. This is too basis does not force institutions to adopt any
subjective and could be influenced by political opinion, thereby masking the particular risk mitigating action. Institutions
real risk drivers that would require the institutions’ attention. Sentence 2 of should decide how to best manage ESG-
this paragraph the words ‘may be’ should be replaced by ‘demonstrably are’ related concentration risks considering
(data-driven approach). Sentence 3 should be deleted, because it is not section 5.1, which refers to engagement with
helpful for describing the process of how existing concentration risk (as counterparties as one possible tool.
opposed to assumedly problematic sectors) can be determined.

An approach of looking purely at industry concentration goes against banks’

efforts to engage with clients to assess the consistency of the clients'
transition plans with the institutions transition planning. In addition, this
contradicts paragraph of the section 6.5 of the Guidelines. Besides,
concentration risk is already part of banks' risk management frameworks,
including sector and geographical concentration, and it is also addressed in
the Pillar 2 framework.

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Question 17: Section 5.8 – monitoring of ESG risks

General ESG factors are already incorporated in other existing and publicly available Paragraph 78 provides that banks may No change
reports, so there should not be any additional requirement to produce a integrate ESG risks into regular risk reports or
standalone report. develop new dashboards.
General Indicators should not be considered mandatory in the final guidelines, but The EBA is mandated to specify standards, Section 5.7
sufficient flexibility should be given to banks in the identification of the most criteria and methods for the monitoring of amended
appropriate metrics. ESG risks. However, the full list of indicators
is only mandatory for large banks while
others should monitor a range, that they will
select.
General The focus is only on climate and considerations on other "E" risks and/or "S" It is recognised that progress on metrics is Section 5.7
and "G" should be included. most advanced on climate. However, the amended
section clarifies that large institutions should
monitor metrics related to nature and
biodiversity-related risks.
General The EBA should clarify that ESG risk monitoring also fully covers off balance It has been clarified that banks should have Section 5.7
sheet activities and that facilitated emissions should be monitored. an institution wide view of ESG risks, clarified
adequately covering the nature, size and
complexity of their activities.
General The EBA should consider encouraging the development of industry-wide The EBA considers that thresholds should be No change
benchmarks or thresholds for ESG risk indicators, facilitating peer set by banks. Benchmarks can usefully be
comparisons and transparency. developed by the industry. The EBA is also
developing a risk monitoring framework.
General The EBA should clarify the expected frequency of monitoring activity. Guidelines provide that institutions should No change
Given that some risks, could materialise over varying or yet unknown time monitor ESG risks on a continuous basis and
horizons and especially climate-related impacts could worsen over time, implement frequent monitoring of
institutions should be encouraged to take a long-term consideration of ESG- counterparties and portfolios materially
related financial risks and a proactive dynamic risk management approach. exposed to ESG risks.
Level of The monitoring of metrics should be limited at the group level and such The Guidelines apply in line with the level of No change
application indicators and thresholds should be set at a sector or portfolio level rather application specified under article 109 of
than at individual client or entity level. CRD.

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Proportionality The reference to the reporting requirement for SNCIs is unclear and the The Guidelines have clarified that SNCIs and Section 5.7
limited availability of ESG related data (in particular from SMEs) needs to be other non-large banks may monitor only a clarified
taken into better account. subset of indicators.
The granular and frequent monitoring of counterparties cannot be
implemented for institutions that have a short-term lending business model
or for leasing companies.
Para 72 (a) The lack of data for historical losses should be considered. This metric covers ESG risks hence also Wording
Historical losses should be monitored with specific indicators per type of ESG physical risks. Data for historical losses may clarified
risk and more focus should be put on the monitoring of the exposures to be built progressively.
physical climate risk.
Para 72 (b) The KPI does not make sense at the NACE 1 aggregation level. The amount This metric can inform institutions on Section 5.7
and share of sector-related income seems unsuitable to capture relevant ESG potential business model dependencies. amended.
risks as it is unrelated to the risks of counterparties. Reference to amount and share of exposures
Institutions should monitor also investments in fossil fuels and other high and income to fossil fuel sector entities has
impact activities, besides the amount and share of income. been included.
Para 72 (c) Risks need to be monitored at sectoral-based perimeter, to help make See portfolio alignment section. Section 5.7
connections with sectoral policies used to manage ESG risks. amended
Para 72 (d) Scope 3 emissions are deemed currently challenging to be recorded due to Data challenges are recognised but ongoing Section 5.7
limited data availability. efforts e.g. CSRD should progressively amended
Scope 3 financed emissions is a crucial metric to assess the exposure of alleviate them.
financial institutions to transition risks and suggest to make it mandatory for It is considered more appropriate to focus on
every sector and every portfolio. sectors and portfolios identified on the basis
of the materiality assessment.
A clear guidance and a consistent approach on Scope 3 emissions
methodologies are needed together with a request for qualitative The Guidelines have clarified that qualitative
information to complement the metric and interpret its evolution. information should supplement the metric to
interpret its evolution.
Para 72 (e) The EBA should better specify how to define the percentage of Such aspects should be specified under banks Section 6
counterparties with whom the institution has engaged and institutions engagement policies, see section 6. amended
should also report the objectives, the frequency and the governance behind
the engagement.

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It may be more suitable to refer to a volume measure, such as credit A metric in form of a ratio informs about the
exposure and the proposed ratio is not risk-based metric. level of progress achieved by the bank to
engage clients as part of risk management.
Para 72 (f) The GAR should not be included among the metrics to be monitored The objective of this metric is to compare Section 5.7
considering that i) it is not a risk management tool, ii) it does not reflect the Taxonomy-aligned exposures for climate amended
sustainability profile of institutions, iii) there are issues with its calculation change mitigation to carbon-intense
methodology. exposures. However, due to methodological
challenges, metrics relating to adverse
impacts on other objectives of the Taxonomy
have been removed.
The metric should be complemented with indicators showing the portion of Institutions may compute and monitor
exposures Taxonomy aligned based on the classification framework adopted additional metrics, such as based on different
(e.g. GFANZ, CBI or ACT Finance). classification frameworks adopted.
Para 72 (h) A reference to “water-stressed areas” risk among the physical risk drivers It has been added as an example of physical Section 5.7
mentioned should be added. risk drivers. amended
Para 72 Additional metrics are suggested: The EBA has considered the suggestions and Section 5.7
• that reflect stakeholders' expectations regarding financial institu- adjusted the list of metrics. In particular, the amended
tions' disclosures and their connection to real-economy transition following metrics have been added:
plans; - the energy supply banking ratio,
• related to portfolio-level dependencies on water or natural capital; - progress in the implementation of
• counterparties’ progress in doing their transition; key financing strategies, which may
• low carbon CapEx; include financial flows towards finan-
• energy supply-banking ratio (ESBR); cial assets or counterparties that
• sustainable power supply to fossil fuel financing ratio; share a common set of characteris-
• climate Value-at-Risk; tics such as their alignment status
• metrics related to physical, nature and biodiversity; relative to the applicable regulatory
• at portfolio level sustainability objectives and/or insti-
o portfolio alignment (by sector) with verified (externally) 1.5 tution’s risk appetite
degree goals; - exposures to fossil fuel sector enti-
o portfolio alignment of verified (externally) credible transi- ties and portfolio-level dependencies
tion plans; on ecosystem services.

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o proportion of “green” (with breakdown specifically to sus-

tainable power solutions) and “transition” exposure (with a
comprehensive science-based definition);
o proportion of fossil fuel (with breakdown of coal, oil, gas) ex-
posure with and without credible transition plans;
o proportion of high emitting hard-to-abate sector exposure
with and without credible transition plans (with a compre-
hensive definition).

Question 18: Key principles for plans in accordance with Article 76(2) of the CRD

CRD vs CSRD Several characteristics of comparability and interoperability between CRD The Guidelines in the background and section Background and
plans and CSRD-related requirements on plans were raised: 6 clarify that banks should ensure that their section 6
- ESRS alignment: respondents expressed a range of views e.g. closer plans address forward-looking ESG risk amended
/ looser alignment (internal procedure only) / no guidance necessary management aspects while being consistent
- CSRD is not a plan but the reporting of a plan... with other applicable requirements including
- ...leading to expected unicity of plan – one transition plan with a risk those stemming from CSRD and CSDDD. CRD
side. plans are not subject to specific disclosure
- Avoid CSRD / CRD confusion (naming, scope, ...) but may partly be covered by other
In addition, disclosure scope was mentioned: transparency requirements.
- Only banks in CSRD and CSDDD scope should be required to disclose
their CRD plans
SNCIs SNCIs are only required to comply with the corresponding reporting The Guidelines provide a 1-year phase-in for Section 6
obligations starting from the 2026 fiscal year if reporting is required for the SNCIs to give additional time to implement amended
first time. Therefore, it is recommended that any regulations for SNCIs should necessary changes, as well as several
not be provided before this deadline proportionality measures.
Level of Respondents asked for more or less prescriptiveness of the principles with See responses on level of prescriptiveness Section 6
prescriptiveness additional suggestions. and on alignment with EU objectives in amended.
Less prescriptiveness: general comments, and responses on
o More flexibility in the implementation of the plans, recognising the materiality assessment, portfolio alignment
different materiality of the risk for banks and risk management tools.

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o GLs should focus on risk management tools and not on decarbonisa- With regard to other comments:
tion, alignment or sectorial targets - exposures to fossil fuel sector enti-
o The transition plans should not have in scope the business strategy ties should be considered as part of
o Reference to EU law should not be interpreted as a requirement to materiality assessments, which form
reduce emissions by 55% by 2030 the basis for transition planning;
More prescriptiveness: - engagement including outcomes is
- On scope: more clearly referred to in the key
o fossil fuels and other harmful activities contents of plans in section 6.4;
o decarbonization strategy, targets and their quality/align- - remuneration policies are referred to
ment. in the key contents of plans, reflect-
o elements related to financial planning ing new CRD6 provisions;
o engagement activities and their consequences for compa- - the frequency of updates of plans is
nies clarified in section 6.5 and aligned
o link between plans and remuneration with updates of strategies required
o due diligence requirement for banks. by CRD;
o the importance of supply chain analysis for banks - the scope of risks captured by each
o clarify sufficient capacity and resources (para 88.) part of the plan should be specified
as per paragraph 108.
o financial materiality should be better clarified.
- On method:
o more emphasis should be given to risk acceptance and capi-
talisation of risks.
o frequency of update of the plans
o full ESG spectrum (e.g. E, S & G), their interdependencies
across relevant time horizons
o reference to the EU climate law should be clarified (e.g. 1990
baseline)
Non-EU entities Respondents asked for clarifications or raised concerns regarding the See response on level of application. The No change
inclusion of non-EU entities in the scope of the requirements given that non- Guidelines state that parent institutions
EU entities have lower data availability and face less ambitious climate should take into account ESG risks that
regulation. subsidiaries established outside of the Union
are materially exposed to when elaborating

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and implementing the consolidated plan, by

having regard to applicable local legislation
and ESG regulatory objectives.
Time horizons The feedback revolves around Define / Reduce / Extend the time horizons. See responses above on time horizons. No change

Question 19: Section 6.2 – Governance of plans required by the CRD

Allocation of Respondents raised comments regarding the following: Requirements about the supervisory and No change
responsibilities o Specify more which management body should be driving what (strat- management function of the management
egy, operational plan, ...). body as well as rules for the setting of
o Consistency oversight with the overall bank strategy. committees are specified by the EBA
o Recommend specific ESG committees within the management body. Guidelines on internal governance.
Consistency of plans with overall strategy is
required in section 6.1.
Risk appetite Specify alignment between transition targets and risk appetite. Section 6.1 and section 5.3 require alignment Section 5.3
and consistency between plans and risk amended.
appetite.
First line o Concerns expressed on over-expectation on counterparties / clients’ The 1st line of defence plays an important role Section 6.2.
transition plan review. The credibility assessment should be per- to assess the risk profile of counterparties clarified
formed externally. including given their transition strategies.
o S & G knowledge gap. Expertise and capabilities should be
developed, noting the emphasis put in the
GLs on E.
Second line The (perceived equal role) role of compliance vs. risk management in the GLs The reference to the compliance function has Section 6.2
is being challenged: been removed from this paragraph to focus amended
o Respondents suggested the removal of the reference to the compli- on the role of the risk management function.
ance function from par. 86 b) as the risk limits referred to in this par- The compliance function’s responsibilities
agraph are typically monitored by the risk management function. are specified under section 5.4.
o In alignment with paragraphs 179-187 of EBA Guidelines on internal
governance (EBA/GL/2021/05), which assign to the risk management

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function the responsibility of the risk management framework in-

cluding assessing the consistency of risk appetites and limits with the
risk strategy
Engagement Precise the expected engagement with counterparties with no transition The Guidelines require banks to determine, Section 5.1 and
with plan because of their size, location, local regulation etc. justify and document their engagement section 6.2
counterparties policies, including their scope. Transition clarified.
without plans of counterparties should be leveraged,
transition plan where available.

Question 20: Metrics and targets

Targets and The targets and metrics presented are strategic and unable to be used as risk The metrics and targets in 5.7, 6.3 or 6.4 are Section 6.3.4
Metrics – management tools. The content of the plans will be guided by public policy meant to focus on risk management aspects amended
Purposes objectives aimed at carbon neutrality. Therefore, it does not appear clear such as integration in the risk management
(Strategic versus how the targets and metrics will aid banks in the assessment of prudential framework, assessment and monitoring of
Prudential risk. exposures / emissions / portfolios alignment,
approach) To solve this problem, two options could be considered: engagement with clients etc. The choice of
- Paragraph 90 could be amended, by deleting “risk management and” specific targets is the responsibility of banks.
or replacing “with a view to mitigating risks” with “with a view to ESRS are disclosure purpose based and CRD is
achieve strategic goals”. focused on prudential / risk aspects.
- In order for plans to both serve risk management and strategic steer- See also response above on 5.7 and Annex
ing purposes, metrics and targets could be defined as per the ESRS tool for indicative ESRS references.
with potential additional datapoints to fulfil specific requirements of
the prudential risk approach.
Purposes A reference to physical risks could be added in paragraph 90 (“risks stemming
Physical risks are integral part of No change
(Physical risk) from the physical impacts of changing climate”). requirements as set in background (para. 20
– 30), in 4.1 - materiality assessment (para.
16), and metrics within 5.7 monitoring.
Targets and The guidelines should require data based on ESRS requirements. As of now, See responses above on data, time horizons Section 6.3
metrics – the metrics and targets lack consistency with CSRD. More specifically, the and metrics. The 3-years horizon reference amended
Consistency with EBA should align the target-setting horizon of prudential plans with CSRD has been removed.
CSRD (2030 and 2050 instead of a short-term 3-year horizon). Consistency with

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future sector-specific ESRS for the financial sector should also be taken into The annex provides ESRS cross-references vs.
account. each part of the 6.4 output plan.
Targets and The guidelines are not consistent enough with voluntary commitments such GLs set regulatory requirements for all Section 6.1
metrics – as NZBA, especially because paragraph 94 raises concerns on the institutions. Alignment metrics are requested amended
Consistency with methodology of alignment used (absolute vs relative emissions). and may be computed based on emissions
NZBA Moreover, it should be sufficient for CRD plans to refer to strategic climate intensity. Consistency with voluntary
targets taken as voluntary commitments. commitments is now mentioned.
Consistency with The guidelines should be more consistent with Pillar 3 reports. Some metrics and parts of plans are No change
P3 interconnected with parts of Pillar 3 and
where relevant consistency has been
ensured and references included in the
Annex. However, plans have their own,
internal risk management purpose and go
beyond Pillar 3.
Targets and This section of the guidelines could expressly recall the proportionality Proportionality is recalled within several Section 6.3 and
metrics – principle as compliance with this section would be disproportionate for small parts of the GLs and specifically in application section 6.4
Proportionality and medium-sized institutions. of the metrics in 6.3.4 and 6.4. amended
Targets – The targets should cover all activities and jurisdictions and paragraph 89 Metrics and targets – including sector No change
Extension of the should be re-written as “all activities and business lines are covered by alignment metrics – are meant to monitor
scope of targets and metrics”. Institutions should set specific sector-based targets for and address material ESG risks identified on
activities the most environmentally harmful sectors. These targets should be based on the basis of comprehensive materiality
covered the evolution of the sector in a 1.5° no/low overshoot scenario (with limited assessments.
volume of negative emissions).
Targets - Cascading down the targets at economic activities level (i.e. individual In some cases, metrics and targets can apply Section 6.4
different scales technologies) seems too detailed and associated with uncertainties to specific economic activities. clarified
regarding data quality and availability.
Metrics – The metrics should be viewed as suggestions, rather than compulsory. The The Guidelines require banks to consider the Section 6.3.4
Optional nature guidelines are too prescriptive and would benefit from more flexibility given metrics listed in 5.7 for the purpose of target amended
to institutions (to tailor targets and metrics to the specific needs of each setting. Banks should determine, taking into
institution). The guidelines should not require institutions to set targets for account their business strategies and risk
metrics that are based on specific scenarios (e.g. the IEA NZ2050). If appetite, which other risk-based and
forward-looking metrics and targets they will

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minimum requirements are kept, they should be concentrated to climate- include in their plans. Banks are responsible
related factors. for setting specific targets levels. See also
above on IEA scenario.
The question of the limits to be set was also raised, with several respondents
calling for targets and limits to be imposed only on the most relevant metrics.
Metrics – The mandatory nature of metrics is welcomed. The EBA could even take See response in row above. Section 6.3.4
Mandatory further actions for a more prescriptive approach on the format and content amended
nature of transition plans.
Metrics – The guidelines should include metrics related to nature-related risks The Guidelines require banks to take steps to Section 6.3.4
Nature-related (including by adopting a double materiality approach informed by the progressively include metrics that support amended
risks recommendations of the TNFD). risk assessment and strategic steering related
to institutions’ exposure to, and
management of, environmental risks other
than climate-related, e.g. risks stemming
from the degradation of ecosystems and
biodiversity loss.
Metrics - Banks must be transparent with the methodologies used to calculate metrics. CRD based plans are not required to be Section 5.7 and
Transparency disclosed. However, documentation of section 6.4
metrics and plans is required in section 5.7 clarified
and section 6.4.
Metrics – Point-in-time metrics might not be relevant and do not distinguish between The GLs mention that institutions should Section 5.7 and
Forward-looking investments in a high-emitting sector which are designed to decarbonise, compute, use and monitor forward-looking section 6
nature versus those which finance the status quo. The guidelines need to lay out ESG risks metrics and indicators. clarified
forward-looking metrics related to emissions such as Expected Emissions See also amendments to section 5.7 in
Reductions (EER). particular on financed emissions (cf row
The combination of both point-in-time and forward looking metrics is needed below).
in order to get a “complete picture” of expected transition and physical risks
exposures.
Metrics – Paragraph 94a) was subject to many proposals, among which: The metric related to financed emission has Section 5.7
Comments and - Consider consistency with the methodology developed under NZBA been amended. amended.
proposed (targets are expressed as intensities and not as absolute emissions Para. 94a) is now 81c) and includes:
changes – for sectors other than oil and gas under NZBA methodology)

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Financed - GHG emission intensity metrics can be misleading and should not be Financed GHG emissions by scope 1, 2 and 3
emissions required (variety of formulas for calculating relative emissions, inten- emissions in absolute value and where relevant
sity per euros is misleading, need to reduce absolute emissions) intensity relative to units of production or
- Extend emission coverage to include facilitated emissions revenues, split by sectors, using a sectoral
differentiation as granular as possible and at least
- Emissions targets to be differentiated to cover individual sectors, as-
for selected sectors determined on the basis of the
set classes, and gases, as well as aggregated across portfolios, and materiality assessment.
gases (by using the metric of CO2-equivalent). Institutions should complement this metric with
- Consider a hierarchy with i. financed GHG emissions (absolute emis- qualitative or quantitative information and
sions, in tons CO2 equivalent, and where relevant in intensity per criteria supporting the interpretation of its
unit of production, or by default, intensity of revenues, associated evolution, including any temporary increase due
with a portfolio) and ii. Current and forecasted (short, middle and to provision of transition finance to greenhouse
long-term) GHG emissions in absolute, and where relevant in inten- gas-intense counterparties, and identifying the
sity per unit of production, or, by default, in intensity such as per underlying drivers of emissions change.
million-euro revenues
- Set targets for the total emissions of the companies financed, both
at a sectoral and portfolio-wide level, without using an attribution
factor
Metrics – Paragraph 94b) was subject to some comments: Para. 94b) is now 81b) and includes: Section 5.7
Comments and - Clarify the definition of “production capacities operated by clients” Portfolio alignment metrics at sectoral level. amended
proposed - Limit portfolio alignment metrics or replace them with sectoral align- Institutions should complement this indicator with
changes – ment metrics information related to the assessment of potential
Portfolio - Take into account the fact that (mis)alignment of a counterpart to a financial risks impacts resulting from
misalignments.
alignment given sectoral pathway might not be representative of the financial
Production capacities operated by client may
risks it carries
capture physical output vs. emissions.
Metrics – Regarding 94c), respondents suggest to: Para. 94c) is now 81a) and includes: a) Section 5.7
Comments and o Add the total share of income related to business with counterpar- Amount and share of exposures to and amended
proposed ties operating in sectors that highly contribute to nature degradation income.
changes – Share o Add capex metrics for high-risk sectors, starting with coal, oil and gas A metric related to nature-related risks has
of income The metric might not allow the consideration of counterparty-specific factors been included and a reference to monitoring
(e.g. best-in-class) or the nature of exposures. exposures to fossil fuel sector entities added.

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Metrics – Regarding 94d), the following comments were made: No mention of EPC anymore in the GLs. Section 5.7
Comments and o The lack of harmonization at EU level between EPC regulations is a Changed to: amended
proposed strong limit to the use of this metric. Energy efficiency.
changes – o Banks could also assess the financed emissions of their real estate
Energy efficiency assets (in addition to energy efficiency).
of collaterals
Metrics – Paragraph 94e) could be amended to: Para. 94e) is now 81e): Section 5.7
Comments and Clarification: amended
proposed o Clarify the definitions of (positive) engagement and “percentage of - Clarification: The percentage of coun-
changes – borrowers” terparties for which an assessment of
Engagement o Show a more direct connection with counterparties’ transition plans ESG risks has been performed, also as
with (“including in relation to counterparties’ transition plans”) regards their transition strategies
counterparties Counterparties: and where available transition plans
o Reflect that engagement should be performed for companies that - There is no concept of material client
need to take further transition actions (concentration of engage- but banks should determine, justify
ment on companies that are already sustainable would not mitigate and document the scope of engage-
transition risk) ment
o Limit the metric to counterparties that have been identified as ma- - A range of counterparty-specific ac-
terial, are included in a portfolio subject to the alignment targets and tions may be taken in line with sec-
are on the top of the consideration of the level of services the bank tion 5.1, this is reflected in follow-up
is providing to this counterpart actions taken by the institution.
Metric:
o Add a metric for the engagement stage the companies are in and dis-
close the cases where engagement was unsuccessful and led to di-
vestment
o Separate the metric into 2 indicators: (i) the first focusing on moni-
toring the engagement activities of the institution, (ii) the other fo-
cusing on monitoring the performance of counterparties
Evaluate progress observed over time against individual institution’s
transition plan assessment methodologies
Metric – Paragraph 96) proposed amendment: Given the importance of both physical risks Section 5.7
Comments and and concentration risks (from a transition amended

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proposed o Regarding physical risks, institutions should perform a comprehen- and physical risks perspective), metrics
changes – sive assessment that distinguishes between chronic and acute risk related to these risks are included in 5.7.
Paragraph 96 impacts, across various climate scenarios, as well as appropriate
granularity depending on the use case.
o Regarding ESG-related concentration risk, the work done is imma-
ture (the concept has not been yet defined in the regulation), which
could justify a phased implementation
Metrics – The guidelines could impose new metrics, such as: See response above on metrics included in Section 5.7
Proposals for o Environment 5.7. amended
new metrics o Sector-specific
o Indicators related to fossil fuel (e.g. forward-looking metrics regard- The GLs in paragraph 81 listing minimum
ing the total portfolio exposure to fossil fuels, including details about metrics is completed by paragraph 104:
how this breaks down according to fossil fuel type (coal, oil, gas),
value chain exposure (upstream, midstream, and storage), as well as - Institutions should determine, taking
regional breakdowns where possible) into account their business strategies
o An indicator on the sustainable power supply to fossil fuel financing and risk appetite, which other risk-
ratio (e.g. ESBR) based and forward-looking metrics
o Indicators on sustainable exposures and carbon-intensive exposures and targets they will include in their
mentioned in Section 5.8 paragraph 72 plans with a view to monitoring and
o Proportion of high emitting hard-to-abate sector exposure with and addressing ESG risks. This includes
without credible transition plans assessing, computing and using met-
o Portfolio alignment (by sector) with verified 1.5-degree goals and rics to evaluate the financial implica-
with verified credible transition plans (verified externally) tions of transition planning for insti-
tutions’ business and risk profile
o Others
o Financial projections, including revenue, Capital Expenditures - In addition, the Annex supporting
(CAPEX) and Operational Expenditures (OPEX) tool offers several examples of addi-
o An indicator reflecting the Climate Value-at-Risk of counterparties tional metrics spanning E, S & G
under a range of climate scenarios and across multiple time-horizons
o Assessment of the emissions profile for mortgages and real estate
assets

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o Proportion of “green” exposures with breakdown specifically to sus-

tainable power solutions
o Proportion of “transition” exposures with a comprehensive science-
based definition
o An indicator related to nature-related risks
o An indicator related to the mitigation of physical risks
o An indicator that requires to show the consistency between sustain-
ability-related risk targets and impact targets

• Social & Governance

o Indicators related to remuneration (e.g. proportion of individuals
with remuneration linked to transition plan progress) or training (e.g.
percentage of staff receiving transition plan-related training)
o Indicators inspired by social and governance Principal Adverse Im-
pact indicators of SFDR as well as social and governance metrics of
CSRD ESRS

Question 21: Climate and environmental scenarios and pathways

General The requirements set in Section 6.4 might not be suitable for small and The Guidelines now provide that the Section 6.3.1
comments – medium-sized institutions. Paragraph 97 is seen as too detailed and complexity of the scenarios should be amended
Proportionality paragraph 97a should be the only paragraph formulated as binding for SNCIs. proportional to the size and complexity of
As paragraph 98 requires a significant amount of information to fulfil these institutions. Non-large institutions may rely
requirements, the EBA should consider a phased approach to on a simplified set of main parameters and
implementation. assumptions, included risks, time horizons
considered, and regional breakdown of
impacts.
General The EBA should specify that the list of scenarios mentioned is representative The Guidelines do not preclude and even ask Section 6.3.1
comments – and not mandatory. If scenarios are publicly recognized and science-based, banks to use public, science-based scenarios. amended
Binding nature banks should be given more flexibility. Scenarios may now be national on top of EU
or international. See also above on portfolio
alignment assessments.

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Type of The EBA should consider including NGFS, IPCC and the scenarios used for the See above on portfolio alignment methods. Section 6.3.1
scenarios / Fit-for-55 exercise as sources for publicly available scenarios. The guidelines The guidelines now further emphasise that amended
Suggestions for should also explicitly mention that banks are allowed to develop their own banks should understand their sensitivity to
adding new internally designed scenarios. ESG risks under different scenarios and
scenarios It could also be useful to encourage banks to also use worst-case scenarios understand how different scenarios may
and clarify the need to use among the different scenarios those with high tail affect their transition planning efforts.
risks.
The guidelines should also consider scenarios where financed NFCs won't be
able to timely achieve a transition that is fully aligned with benchmark one.
Type of Risk management and strategic steering as different use cases for climate See above on the clarification regarding Section 6.3.1
scenarios / scenarios and pathways would require banks to also consider “real-world” consideration of different scenarios. In amended
Clarifications projections of decarbonisation trajectories in addition to “normative” addition, the Guidelines provide that the
expected from pathways (such as the IEA Net zero emission scenario). geographical reference and granularity, such
the EBA Moreover, the guidelines should specify that a uniform scenario does not as in terms of regional breakdowns, of the
necessarily have to be used on a company-wide basis, as different scenarios and pathways used by institutions
jurisdictions have different transition pathways. should be relevant to their business model
and exposures.
Type of The publicly available scenarios quoted do generally not provide regional See above for: national consideration, Section 6.3.1
scenarios / breakdowns (global scenarios). Reflecting geographical aspects and geographical differences. amended
Global vs. granularity will require the consideration of additional or alternative Furthermore, para. 95 provides: addressing
regional scenarios. the specific environmental risks that may
scenarios Moreover, national authorities often publish their own scenarios, which stem from the process of adjustment
might be more tailored to portfolios with a national focus. These scenarios in towards the climate and environmental-
line with EU objectives could offer valuable data. related regulatory objectives of the
jurisdictions where they operate.
Negative The EBA should provide clear guidance specifying that the methodology must Para. 95b) refers to para. 38, which requires No change
emissions / be based on a 1.5°C scenario with no or low overshoot and with limited sectoral decarbonisation pathways to be
climate reliance of negative emissions. consistent with the applicable policy
overshoot objective, such as the EU objective to reach
net-zero GHG emissions by 2050 and to
reduce emissions by 55% by 2030 compared

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to the 1990 level, or any national objective

where applicable.
In addition, methodological choices should
be justified and documented.
Limitations in The guidelines should identify explicitly limitations in the use of [Link] scenario comes with its own limitation Section 6.3.1
the use of The economic models used for climate scenarios analysis were developed to in both design and application. Banks should amended
scenarios deal with traditional financial risks and are not suitable for climate-relatedunderstand implications of different
risks. Tipping points and feedback mechanisms are not modelled and the scenarios, as set out in these GLs and future
models ignore some severe impacts of climate change (sea-level rise, GLs on scenario analysis.
migration, etc). The risks could therefore be underestimated.
Transparency Institutions should provide transparency on the underlying model choices Disclosure is out of scope but banks should No change
and assumptions. justify and document their methodological
choices.

Question 22: Section 6.5 – transition planning

Structure & The structure of Section 6.5 should be reviewed for further clarity. In The structure of section 6 has been reviewed Section 6
relation with particular, the EBA could establish clearer links with sections 6.1 and 6.2, including to specify transition planning restructured
other sections whose themes are closely interrelated with transition planning. aspects before setting out the key contents
of plans.
Alignment of the Section 6.5 could be aligned with the GFANZ framework by grouping Section 6.4 detailing the key contents of Section 6.4
section with paragraphs 101, 102, 104 and 105 under the heading “Implementation plans now includes two parts catering for amended
GFANZ Strategy Section” and paragraph 103 as the “Engagement Strategy Section” implementation and engagement (para.
framework in order to provide a visible signal of international consistency. 109d) e)).
Engaging with The guidelines should stress the importance of engagement as the main Section 6.4 includes requirements for Section 6.4
counterparties – driver of a transition plan (as scope 3 represents most of a bank's emissions). engagement, including policies, processes amended
Clarifications It would therefore seem worthwhile clarifying some of the EBA's and outcomes. See also response on section
needed expectations, including the definition of engagement, based on time-bound 5.1.
objectives and an escalation strategy (incl. exit strategy).
Engaging with The requirements set by the EBA are too extensive (reviewing counterparties See answers provided above on Section 5.1 and
counterparties – transition plans is seen as very resource intensive, whereas banks could rely counterparties engagement. section 6
Difficulties raised on ESG scores instead for instance). amended

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counterparties Requesting transition plans for only large counterparties might generate a See answers provided above on the scope of Section 5.1 and
plans – Scope portfolio-level blind spot. Moreover, the exclusion of financial corporates in client engagement. section 6
too narrow paragraph 102 is not justified. amended
counterparties Difficulties with the engagement process were raised, including the fact that See answers provided above on the scope of Section 5.1 and
plans – Scope it is not possible to engage with all clients. One way of solving this issue would client engagement. section 6
too large be to implement a phased approach. These difficulties are further amended
exacerbated for institutions that have a short-term lending business model.
counterparties External verification of counterparties transition plans should be encouraged See answers provided above on the bank’s No change
plans – to enhance credibility. The plan should be accompanied by an annual Scope responsibility to assess the risk profile of
Verification of 1, 2 and 3 emissions inventory that is complete, accurate, transparent, counterparties.
counterparty consistent, relevant and verified by a third party. Moreover, the guidelines
actions should define the way the bank entails course corrections when the plan is
proven infeasible.
Transition Further details could be provided for certain aspects, such as clarification on Transition planning has been reviewed and Section 6
planning how to assess the implications of transition planning on the business and risk expanded. amended
processes profiles. An expected roadmap with interim
Transition planning processes could be presented more precisely, by objectives is present in 6.4
describing them as the collection of interoperable metrics from corporates
and setting interim targets.
The role of banks Even though institutions play a key role in the transition process, the role The guidelines and the range of actions listed No change
in the transition given to banks is too broad. Section 6.5 seems to suggest that the task of as potential risk management tools aim at
transition is exclusively reserved for banks. It is therefore seen as too far- supporting banks’ safety and soundness,
reaching to ask banks to consider “adjustments to the product offering, the including in the process of the transition.
agreement of an action plan and remediation measures to support an
improved transition path for the counterparty” (paragraph 103).

Question 23: Level of granularity for the plans

Areas needing On top of answers stating “more details needed” without further precision, Transition planning (now section 6.3) has Section 6
more details respondents highlighted the need for more details on transition plan been fully revamped and their output (6.4) amended
credibility. are specified with more details.

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In addition, sector (e.g. fossil fuels) commitments / action plan should be

more detailed, including carbon offsets management.
S&G would deserve more details.
Finally, inter alia, targets, governance, monitoring or materiality assessment
were cited as needing more details.
Areas too Few respondents thought the guidelines were too detailed with too many Para. 110 caters specifically for SNCIs with Section 6.4
detailed (and rules and should remain high level – need for flexibility and principles-based less requirements in the plans content (6.4). amended
why) guidelines, especially on transition plan, decarbonisation strategies, ESG risk
metrics …
The guidelines were also deemed too detailed and overwhelming for SNCIs /
LSIs.

Question 24: Common format for the plans required by the CRD

General views The answers were quite polarised with most respondents asking for a Taking into account the comments received, Annex included
common format type of template, while other respondents having a negative the EBA has decided to include a supporting
view on the proposal. tool for institutions in the Annex. This does
Many positive respondents did not elaborate except it would improve not introduce additional requirements but
interoperability with greater standardisation including proportionality for provides for each key content required by the
SNCIs. guidelines some examples, references and
Induced qualities brought by a potential template were: Comparability; potential metrics that institutions may
Efficiency / cost; Consistency; Ease of approval / review consider as they structure and formalise their
On the negative side, demand for flexibility dominates and a loose (or plans. Institutions may adapt the format of
NZBA’s) framework catering for every need is preferred. this common approach provided they ensure
There was no specific trend expressed on the structure or tool to be that all required key contents are included in
considered for the common format but some features mostly around their plans.
interoperability.
Improving Most of the ideas proposed invokes a starting or mixed format including The annex supporting tool provides Annex included
interoperability other EU requirements (at least CSRD / ESRS) to be complemented by CRD references to CSRD / ESRS to foster
plans or at least a conversion table between ESRS and EBA GL is mentioned. interconnections and consistency.
Key is to align targets, metrics, KPIs…or at least leverage same data across
frameworks.

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Some respondents recall it is the transition plan expected role to unify the
frameworks.

Question 25: Other challenges

Capital neutrality It is important to ensure that transition to a net zero economy is capital The Guidelines do not address supervisory No change
neutral. Regulators have the opportunity to deliver capital relief to those measures such as capital add-ons.
banks delivering on credible transition plans. A capital add-on only approach
for ESG risks will be a missed opportunity.
Risk The guidelines propose a combination of methodologies, including exposure- The Guidelines provide harmonised No change but
methodology based, portfolio-based, and scenario-based, to measure ESG risks. requirements on the types of methodologies, also see above
complexity Implementing and integrating these approaches might pose challenges due and main features for each type, to be used on section 4.2
to their complexity and the level of expertise required. by institutions to assess ESG risks. Given data
There should be sufficient clear instructions for banks to integrate ESG and methodological developments,
factors into credit, market, operational risk models. With many of these institutions should improve practices and
topics (outside of climate) being at early stage of development, we see a develop their own complementary methods
potential risk that individual institutions will follow fairly different routes and over time. Institutions remain responsible to
approaches. properly understand, assess and manage
Additional tools or frameworks, particularly for the complex methodologies risks they face, including ESG risks.
suggested for ESG risk assessment should be provided. Providing more
examples and use cases can certainly improve the understanding of the
document and facilitate the application of the rules by the institution.
More explicit guidance on predicting and preparing for future ESG risks,
including potential changes in technology, regulations, or industry practices
would help.

Question 26: Other comments

As the EBA has already flagged that the Guidelines will be eventually The EBA SREP Guidelines will be addressed to No change
Supervisory gold integrated into the SREP, institutions should not expect to have to meet a competent authorities and not include
plating secondary set of supervisory expectations on top of the Guidelines’ requirements for institutions.
requirements.

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As transition plans are recognised by the Guidelines as a risk management The EBA has considered several options. Section 6
Integrate tool, provisions on transition plans should be integrated into the respective Integrating requirements on plans in a amended
transition plans sections on materiality assessment, risk management, monitoring, dedicated section of the Guidelines allows to
in other sections governance, ILAAP and ICAAP - rather than being singled out in the section provide clarity on all requirements, which
6, which led to certain requirements being duplicative/overlapping. should be read in conjunction. Duplications
have been removed and cross-references
added.
Recognise The Guidelines should recognize differences in institutional setups and allow The Guidelines should be applied by banks No change
governance room for implementation in accordance with existing governance structures. regardless of their governance structure. See
structures Guidelines on internal governance.
Mutualisation of In order to avoid high reporting burden for corporates, it could be relevant The banking industry might explore such No change
banks’ data to suggest financial institutions to rely on mutualization of efforts (e.g. avenue. The Guidelines list certain data
collection mutualized questionnaire, common initiatives…)? points to consider for the assessment of ESG
risks, hence supporting harmonisation.
Engagement We recommend continuous engagement with industry stakeholders to keep The EBA engages with stakeholders and will No change
with the Guidelines relevant and practical, including by involving employees and conduct public consultations in case of future
stakeholders trade unions in the development, implementation and update process of the updates.
Guidelines.
Risk neutrality of The Public Administration (i.e. central governments, regional governments, Banks should assess ESG risks stemming from No change
public local authorities and public sector entities) should be considered ESG risk exposures towards various types of
administration neutral and therefore excluded from risk assessments for the following counterparties, taking into account specific
reasons: high availability of public funds for climate emergencies, exclusion risk mitigating factors.
of expenses for emergencies from public budget deficit, essential public
services mechanism, interventions to support public services continuity and
sustainability, exclusion from EU Taxonomy.
Regulatory risk Regulatory risk could be added in the risk descriptions, as authorities and The Guidelines require banks to take into Section 6
to banks politics increasingly seem to view the bank and finance industry as part of account regulatory developments as part of clarified
the "solution" or a part of the toolbox. This results in increased obligations risk management and transition planning.
and expectations for the industry also in non-bank regulations (e.g., the
building energy directive, potentially in the deforestation regulation, etc.).

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Real economy The real economy is still at the beginning of its transitioning process. Hence, As part of the range of considerations to
transition ESG transition also in the financial sector remains a challenge, most likely support strategy and risk management
over several years to come. This needs to be taken into consideration. decision-making, banks should consider the
real economy transition progress.
UNGPs and The UN Guiding Principles on Business and Human Rights (UNGPs) and OECD The Guidelines require banks to implement Section 4.2
OECD MNE Guidelines for Multinational Enterprises (OECD MNE Guidelines) provide a due diligence processes with a view to amended
Guidelines common reference point for responsible business conduct including as it assessing financial impacts stemming from S
relates to environment and social sustainability. All businesses, including and G factors, taking into account the
financial market participants, have a responsibility to respect human rights adherence of corporate counterparties to
and that should be implemented through a process of human rights due social and governance standards, including
diligence. The UNGPs and OECD MNE Guidelines have gained wide legitimacy the UNGPs and OECD MNE Guidelines.
and are referenced in ESG related EU regulation.

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