29 July 2022

BDB: EBA discussion paper on the role of environmental risk in the prudential framework

The German Banking Industry Committee (GBIC) provided comments on the European Banking Authority’s discussion paper on the role of environmental risk in the prudential framework. In particular, the GBIC advocates for a risk-based approach.

General comments
The financial industry has a very important role in the transition of industry and society
towards sustainability goals. Critical to success is the commitment of banks to actively
encourage clients to make the transition and to provide the needed financing, the scale of
which is substantial. With regard to prudential regulation it is key that banks manage the risks
related to that transition pathway properly.

We expressly support a number of basic ideas in the discussion paper.
◼ We generally support the guiding principle of following a risk-based approach to the
consideration of climate-related and environmental risks in the prudential framework.
◼ We support the view that ESG risks are not a new separate risk category but act as risk
drivers or risk factors of familiar risk categories such as credit or market risk.
◼ We support the approach of first examining more closely the extent to which existing
internal models can already, or could in future, cover ESG risks under Pillar I (or Pillar II).
This is highly important in order to avoid double counting.
◼ In addition, we share the view of the French Council Presidency1 that there is not only a lack
of consensus at international level but above all a lack of empirical data on the actual impact
of ESG risks on Pillar I requirements, and that it would therefore be premature to adjust
Pillar I rules at this stage.

We also consider it extremely important to conduct further discussion of the role of
environmental risks in the prudential framework first and foremost at Basel Committee level.
We would welcome it if the European representatives on the Basel Committee could put
forward the positions of the German Banking Industry Committee (GBIC) for consideration in
the course of further discussions. Global coordination is absolutely essential and European
lawmakers should not pre-empt the debate by introducing their own measures.

full paper

BDB

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