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EU Banking Regulator Asks Banks To Prepare A 10-Year Climate Plan

EU Banking Regulator Asks Banks To Prepare A 10-Year Climate Plan
The banking regulator of the European Union said on Wednesday that all banks in the bloc should develop and present publicly a 10 year plan that will provide details about how the banks plan to address environmental, social and governance (ESG) risks which can affect the bottom line of the banks.
In recent years, the European Union banks have been directing an increasing volume of their credits towards investments and projects that are climate friendly and now the banking watchdog of the bloc wants that the investors of the banks should have a reliable snapshot of the extent to which the banks are engaging in addressing climate change and improving their commitment to green credentials.
Recommendations for banks and their supervisors with respect to how to approach the ESG risks and aid the EU in meeting its goals of recuing emissions in the region by 2050   were set out in detail in a report prepared and released Wednesday by the European Banking Authority (EBA).
EBA said that in order for the banks to show the level of their resilience to different situations and scenarios, disclosure of strategic ESG objectives, and assessment of the need for developing sustainable products, it was important for the banks to develop specific and strategic plans for a period of at least ten years.
EBA said "physical" or weather related adverse incidents such as floods can be included in the climate risks which can also encompass the risks of "transition" for the banks from any sudden changes in the values of their assets because of climate change. 
The second pillar of the core banking rules were looked at and highlighted in the report, the EBA said. These core rules are essentially related to making assessments of how a lender manages its risks.
The EBA is expected to spell out the details of the recommendations later this year in the form of a new set of guidance for the third pillar that will be related to disclosures of risks. It is expected that at a later stage the EBA will also come out with recommendations related to the pillar one of the core banking rules which deals with whether actual capital requirements need changing so that the ESG risks are appropriately reflected.

Christopher J. Mitchell

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