EU banks urged to accelerate ESG integration
A new EU study explores the current status of and best practices for the integration of environmental, social and governance (ESG) factors into the activities of the banking sector, including supervisory reporting. It was conducted on behalf of the European Commission by BlackRock Financial Markets Advisory.
“Findings show that ESG integration is at an early stage, and the pace of implementation needs to be accelerated in order to achieve effective ESG integration into banks’ risk management and business strategies, as well as prudential supervision,” it states. “To support this acceleration, enhancements are particularly required on ESG definitions, measurement methodologies, and associated quantitative indicators. A lack of adequate data and common standards remain key challenges to be overcome to drive ESG integration. Cross-stakeholder collaboration, as well as supervisory initiatives and guidance, will be critical in tackling this global and pervasive topic.”
The study offers detailed conclusions and recommendations for integration of ESG risks into EU prudential supervision, among the areas addressed. These include a number of insights around improved ESG risk definition and identification; governance and strategy; supervisors’ assessment of ESG risks, including their integration in scenario analysis and stress testing; and the ongoing development of ESG requirements, guidelines and engagement initiatives. As Europe continues the process of drafting shared sustainability reporting standards this is undeniably a timely discussion.