The IIF submitted a comment letter to the European Banking Authority’s (EBA) Consultation Paper on Draft Implementing Standards on prudential disclosures on ESG risks in accordance with Article 449a CRR.
The IIF commends the ambition of the EBA and other European authorities to advance the important work on sustainable finance. However, IIF members worry that the increase in domestic, regional, and global initiatives is creating a fragmented landscape. Certain ESG risks, such as climate change, are global in nature and require globally coordinated supervisory and regulatory responses. Disclosure expectations are a prime example since financial institutions’ disclosures are analyzed by a variety of global stakeholders and need to be comparable to fulfil their function of reducing information asymmetries and enhancing market discipline.
We acknowledge and value the thought leadership that the EBA has exerted in developing these proposals and fully understand that the proposed draft implementing technical standards (ITS) are a response to its mandate. However, we believe it would be beneficial for the EBA to adopt a phased approach in the implementation of its legislative mandate in order to maintain the maximum flexibility to align its requirements with global standards as they become available. By adopting such a ‘building block’ approach, the EBA would be able to better balance the need of the EU to move forward on this topic, support the work on international convergence and consider the potential future work of standard-setting bodies—which we see as essential to ensure that risks of fragmentation in disclosure requirements are contained.
The IIF also provided comments on a few of the specific suggestions. For instance, member firms think that the proposed Green Asset Ratio (GAR) will be more reflective of a bank’s business model than its exposure to ESG type risks. Member firms are concerned that the GAR will not provide an adequate picture of an institution’s actual transitional efforts and will not be useful to assess real progress towards a low-carbon economy. At the same time, however, it will require a lot of resources from institutions to provide such information.