“Bank transition plans should be compatible with other EU climate rules, EBA says”

EU banks will need to measure their ESG risks and develop transition plans that are aligned with the bloc’s climate targets and rules, the European Banking Authority (EBA) has said.

“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,” the EBA’s new guidelines state [BHRRC: If you face trouble accessing this EBA link from your PC, try via your phone, there seems to be a technical issue; PDF of the guidelines also available here].

The regulator has laid out how banks should identify and measure risks at an individual, portfolio and industry level. Special consideration should be given to exposure to the fossil fuel sector and institutions will need to collect data on how dependent banks are on fossil fuels.

Financial institutions should also have a plan to manage and mitigate risks over at least 10 years. These transition plans should be “a single, comprehensive strategic planning process that covers all regulatory requirements stemming from applicable legislation” such as the corporate sustainability reporting directive and corporate sustainability due diligence directive (CSDDD)…

“I think what the EBA has done comes at the right time, because they indeed highlight that this is not a question of duplicating the work… or creating other requirements compared to [the] CSDDD. It’s a single plan,” [Vincent Vandeloise, a senior researcher and advocacy officer at Finance Watch] said...

Meanwhile, the European Commission plans to release an omnibus package on 26 February to potentially cut back on sustainability reporting requirements, after EU elections swung the European parliament to the right and increased pressure to boost Europe’s economy. Numerous companies have spoken out against the omnibus package, arguing it would weaken the climate rules...