The European Banking Authority (EBA) has released a new report assessing the availability of ESG (Environmental, Social, and Governance) data and the feasibility of a standardized methodology for identifying credit exposures to ESG risks. While data availability has improved in recent years, significant gaps remain, posing challenges for financial institutions.
The report highlights key regulatory initiatives such as the Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS), which are expected to enhance ESG data transparency. However, banks continue to face difficulties in accessing high-quality, granular data, particularly for assessing climate risks, social factors, and governance risks.
Key Findings:
Progress in ESG Risk Assessment – Financial institutions are increasingly integrating ESG risks into their credit assessments, but methodologies vary across different asset classes.
Maturity of Transition Risk Assessment – Corporate loan portfolios show the most progress, with standardized approaches using sector classifications, GHG emissions data, and transition plans.
Challenges in Mortgage Risk Assessment – Some standardization exists, focusing on energy efficiency and property location, but gaps remain.
Limited Standardization for Other Asset Classes – ESG risk assessment for non-climate environmental, social, and governance factors remains largely qualitative and lacks a unified methodology.
Credit Risk Measurement Lagging – While climate risks are being integrated into credit risk assessments, social and governance risks are still assessed using largely subjective methods.
The EBA concludes that designing a standardized ESG risk methodology will require a phased approach, with more research needed to quantify ESG-related credit risks effectively. Regulatory efforts, combined with increased transparency from ESG rating agencies and External Credit Assessment Institutions (ECAIs), will be crucial in bridging existing data gaps.
Regulatory Mandate
This report aligns with the Capital Requirements Regulation (CRR) Article 501c(1), which tasks the EBA with evaluating ESG data reliability and assessing the feasibility of a common classification system for ESG-related credit risk exposures.
As ESG factors increasingly influence financial risk, the EBA’s findings underscore the need for improved data, methodological advancements, and regulatory clarity to ensure ESG risks are accurately reflected in credit assessments.
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