On February 3, 2021 the Institute of International Finance (IIF) submitted a comment letter to the European Banking Authority’s (EBA) Discussion Paper on management and supervision of ESG risks for credit institutions and investment firms.
The IIF and our global membership are committed to supporting the transition to a low carbon economy. Overall, IIF members consider the EBA’s Discussion Paper to be a detailed and well-informed assessment of the considerations and challenges associated with incorporating ESG factors into risk management, bank business models and supervision. We welcome the non-prescriptive approach taken by the EBA in the Discussion Paper.
While IIF members understand that Article 98(8) of Directive (EU) 2019/878 (CRDV) mandates the EBA to assess the potential inclusion of ESG risks, members believe an incremental approach to addressing different ESG risks is warranted. It would be valuable if the EBA could confirm in its final report that a proportionate and sequenced approach to both management and supervision of ESG risks would be the most appropriate one not only to preserve, but also to strengthen, the effectiveness of the overall prudential framework. This approach would ideally focus on climate-related risks in the first phase.
From a global perspective, it is imperative to strive for coordination and harmonization across jurisdictions to enable quicker progress and reduce market fragmentation. It would be beneficial for the global standard-setting bodies to take forward the work done to date by groups such as the NGFS to further the development of an international approach that is as harmonized as possible. we also encourage all jurisdictions and authorities – including the EBA in the EU – to work towards global coordination and take steps to reduce fragmentation where possible. The deep research already conducted for this Discussion Paper is itself a very useful input to the global discussions.
The comment letter provides feedback from IIF members on a number of other questions posed by the EBA Discussion Paper. The IIF remains committed to active participation on the development of sound industry practices and coordinated policy approaches across markets.