EBA report on ESG risk management and supervision
On 23 June 2021, the European Banking Authority (EBA) published a report on management and supervision of environmental, social and governance (ESG) risks for credit institutions and investment firms.
The report provides institutions with common definitions of ESG risks and their transmission channels, and equally identifies the assessment methodologies needed for effective risk management. EBA recommends the integration of ESG risks related to strategies and objectives into the overall risk management and governance structure. It also recommends extending the time horizon for strategic planning to 10 years.
The report proposes a phased approach, starting with inclusion of climate and environmental factors as well as risks in the prudential business model and internal governance analysis, while encouraging institutions and supervisors to build up data and tools to develop quantification approaches to extend the scope of prudential analysis to other items.