The EIMF Live Online Learning Experience

Participants will receive access to the recorded sessions of the course.

EIMF subject-matter experts deliver engaging and interactive courses across a broad spectrum of areas, that can be enjoyed in the comfort of your own chosen environment. Read more

Course Overview

The EU Supervisory authorities concur that the Environmental, Social and Governance (ESG) risks to financial institutions can be defined as risks that stem from the current or prospective impacts of ESG factors on their counterparties or invested assets, i.e. the risks arising from the core activities of institutions. ESG risks materialise through the traditional categories of financial risks (credit risk, market risk, operational and reputational risks, liquidity and funding risks).

The ultimate objectives driving the European Commission’s 2018 Action Plan initiative to involve the financial services industry in its quest to decarbonise the EU economy and launch ambitious efforts to limit the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above these levels, are in:

• reorienting capital flows towards sustainable investment in order to achieve sustainable and inclusive growth
• managing financial risks stemming from climate change, resource depletion, environmental degradation and social issues
• fostering transparency and long-termism in financial and economic activity.

The EU legislative direction in managing ESG-related financial risks has focused on directives, regulations and guidelines on minimum standards and reference methodologies for the identification, measurement, management and monitoring of Environmental, Social and Governance (ESG) risks by financial institutions.

The EU initiatives contributing to the development of a more enabling ESG data framework and more consistent ESG disclosure framework has been extensive since 2018: The EU laws cover ESG risks disclosure requirements under the Capital Requirement Regulation (CRR) (accompanied by the EBA Pillar 3 disclosure requirements on ESG risks, transition risks and physical risks), the EU taxonomy regime, the Sustainable Finance Disclosure Regulation (SFDR), 23 , the European Single Access Point (ESAP) for financial and non-financial information, the review of the Non-Financial Reporting Directive (NFRD)24 and proposal for a Corporate Sustainability Reporting Directive (CSRD) 25

About the course

ESG risks, in particular environmental risks through transition and physical risk drivers, pose challenges to the safety and soundness of financial institutions and may affect all traditional categories of financial risks to which they are exposed.

To ensure the resilience of the business model and risk profile of institutions in the short, medium and long term, the guidelines, and potentially, new regulatory technical standards, are being developed which set out the requirements for the internal processes and ESG risks management arrangements that institutions should have in place.

Financial Institutions, based on regular and comprehensive materiality assessments of ESG risks, will be required to ensure that they are able to properly identify and measure ESG risks through sound data processes and a combination of methodologies, including exposure-based, portfolio-based and scenario-based methodologies. They will also have to integrate ESG risks in their regular risk management framework by considering their role as potential drivers of all traditional categories of financial risks, including credit, market, operational, reputational, liquidity, business model, and concentration risks.

Finally, financial Institutions should have a robust and sound approach to managing and mitigating ESG risks over the short, medium and long term, including a time horizon of at least 10 years, and should apply a range of risk management tools including engagement with counterparties.

This will imply that banks, fund managers, insurance undertakings et al, will need to embed ESG risks in their regular processes including risk appetite, internal controls and ICAAP.

This course will cover the critical minimum standards and reference methodologies for the identification, measurement, management and monitoring of Environmental, Social and Governance (ESG) risks by financial institution