EBA publishes binding standards for Pillar 3 disclosures on ESG risks

Posted on January 28, 2022 by Editor

The European Banking Authority (EBA) has just issued its final draft implementing technical standards (ITS) on Pillar 3 disclosures on Environmental, Social and Governance (ESG) risks. They set disclosure requirements and metrics for ESG reporting by the EU banking sector, fulfilling the mandate of the EU Capital Requirements Regulation (CRR).

Pillar 3 disclosures represent the reporting aspect of prudential rules, intended to ensure transparency and bank stability. The inclusion of ESG concerns within these rules therefore represents a significant development. “Disclosure of information on ESG risks is a vital tool to promote market discipline, allowing stakeholders to assess banks’ ESG related risks and sustainable finance strategy. The EBA ESG Pillar 3 package will help to address shortcomings of institutions’ current ESG disclosures at EU level by setting mandatory and consistent disclosure requirements, including granular templates, tables and associated instructions,” says the EBA.

Areas covered by the new rules include quantitative, comparable disclosures on institutions’ exposure to climate change-related transition and physical risks; their activities to mitigate those risks; and the proportions of exposures that are considered environmentally sustainable. They also ask how institutions are embedding ESG considerations in their governance, business model, strategy and risk management.

“In developing this framework, the EBA has built on the recommendations of existing initiatives, like those of the Task Force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board (FSB), but has gone beyond by defining binding granular templates, tables and instructions, to ensure enhanced consistency, comparability and meaningfulness of institutions’ disclosures,” states the EBA. The ESG requirements will now be integrated into “a single, comprehensive Pillar 3 framework” under the CRR. From our perspective at XBRL International, it is now more important than ever to implement structured, digital Pillar 3 reporting to maximise the utility of all this data.

Read more here.

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