The European Savings and Retail Banking Group (ESBG) submitted its response to the consultation launched by the European Banking Authority (EBA). ESBG insists on the need for consitency with CSRD and CSDDD, the addressees of this guideline should also be consistent with those of CSRD and CSDDD to avoid confusion and overlapping reporting requirements.

Proportionality is also key as ESBG believes that the specific situation of the financial institutions, such as size, complexity, and risk content, should be the key factor. Flexibility within the framework should also be allowed, notably regarding data processing.

Consistency is key First, is it paramount to ensure consistency with CSRD and CSDDD regarding transition plans. This clarification is necessary to avoid confusion and overlapping reporting requirements. In this regard, ESBG would like the confirmation that, if no guidance is provided, it is assumed that some discretion is left to banks. Additionally, due to the transitional period until CSRD and CSDDD requirements come into force for different institutions, the guidelines should include a consistent transitional scenario that allows institutions to use qualitative tools instead of quantitative tools. Proportionality must be implemented Then, ESBG stresses that proportionality is an important principle that should be applied throughout the guideline. A proportional design of the requirements should include fewer methods and allow for qualitative procedures.

The specific situation of the respective institution, such as size, complexity, and risk content, should always be the decisive factor. It is important to strike a balance between adequacy and practicability regarding data Moreover, ESBG appreciates the EBA’s strategy of prioritising (publicly) available data and concentrating on customers who are subject to reporting requirements. The data requirements should align with the data to be disclosed under CSRD. That being said, in ESBG members’ experience, there is still a lack of ESG-data. Where counterparties do provide such data, comparisons and risk model design is complicated as a result of the lack of a uniform reporting standard. It is also worth noting that it has been observed that smaller institutions find the data collection requirements to be too onerous, as evidenced by the current scoring methodology.

Flexibility should remain a key objective ESBG believes that minimum standards can be useful for ESG risk management, especially for environmental and social issues subject to international conventions, regulations, or best practices. However, the use of minimum standards should not be seen as a one-size-fits-all solution for ESG risk management, and institutions should also consider the specific context and circumstances of each exposure. The use of minimum standards should not lead to an exclusionary or punitive approach towards counterparties that do not meet the minimum standards but rather a constructive and supportive approach that encourages improvement and progress on ESG issues.

Finally, institutions should be granted more flexibility in defining their ESG risk appetite, taking into account factors such as business model, size, and portfolio structure. Enough time for implementing the guideline will also be needed The proposed timeline is quite ambitious and unrealistic, given the complexity and novelty of ESG risk management and the challenges. Institutions should be granted an additional transition period for fully meeting the Guidelines’ requirements to allow for a phased and gradual implementation of the ESG risk management framework.