The European Banking Authority (EBA) has published its final ‘Guidelines on the management of environmental, social and governance (ESG) risks’.
The guidelines set out requirements for regulated institutions for the identification, measurement, management, and monitoring of ESG risks, including through plans aimed at ensuring their resilience in the short, medium and long term.
The guidelines specify the content of plans to be prepared by institutions with a view to monitoring and addressing the financial risks stemming from ESG factors, including those arising from the adjustment process towards the objective of achieving climate neutrality in the EU by 2050. These plans will support the preparedness of institutions for the transition and should be consistent with transition plans prepared or disclosed by institutions under other pieces of EU legislation.
The guidelines will apply from 11 January 2026 except for small and non-complex institutions for which the guidelines will apply at the latest from 11 January 2027.
Setting out the ESG risk landscape
The guidelines describe how ESG risks are likely to develop, stating that:
- Climate change, environmental degradation, biodiversity loss, social issues and other environmental, social and governance (ESG) factors pose considerable challenges for the economy. The impact of acute and chronic physical risk events, the need to transition to a low-carbon, resource-efficient and sustainable economy, as well as other ESG challenges, are causing and will continue to cause profound economic transformations that impact the financial sector.
- Environmental risks, including climate-related risks, are expected inter alia to become even more prominent going forward through different possible combinations of transition and physical risks. These may affect all traditional categories of financial risks to which institutions are exposed. In addition, institutions’ counterparties or invested assets may be subject to the negative impact of social factors, such as breaches of human rights, demographic change, digitalisation, health or working conditions, and governance factors, such as shortcomings in executive leadership or bribery and corruption, which may in turn lead to financial risks that institutions should assess and manage.
