ESAs publish joint report on SFDR PAI disclosures
On 30 October, the three European Supervisory Authorities (ESMA, EBA and EIOPA) published a joint report on Principal Adverse Impact (PAI) disclosures under the SFDR. This third annual report on PAI notes progress on several issues, including improvements in the accessibility of PAI disclosures for retail investors, and the level and quality of information disclosed. However, the level of compliance with SFDR provisions (both Level I and Level II) remains insufficient, indicating that additional efforts are required. The report also offers recommendations for national authorities on convergent supervision and the review of the SFDR.
ESMA updates sustainable finance timeline
On 30 October, ESMA published an updated implementation timeline until 2029 for the Sustainable Finance legislative framework. It covers the SFDR, the Taxonomy Regulation, the CSRD, the Benchmark Regulation and the European Green Bonds Regulation.
ESAs publish final report on ESAP rules
On 29 October, the ESAs published the final report on draft implementing technical standards (ITS) regarding tasks of the collection bodies and functionalities of the European Single Access Point (ESAP). The ITS on the tasks of collection bodies specify detailed requirements such as the timing and format for information submission, validation checks and metadata inclusions. The ITS on the ESAP functionalities outline the requirements for making information easily accessible to users, such as categorising reporting entities by industry and size, determining identifiers, and specifying the type of information to be made available. These ITS represent the first milestone towards establishing a fully operational ESAP.
AFM publishes report on ESG data risk management by asset managers
On 28 October, AFM published a report on ESG data risk management by asset managers. The report relates to UCITS Directive, AIFMD and MIFID II requirements for integrating sustainability risks into risk management processes and the consideration thereof in investment policies. Key observations include: (i) governance structures for managing ESG data risks differ among asset managers; (ii) many asset managers use third-party data providers for most of their ESG data needs; (iii) clear definitions of ‘data’ risk help asset managers identify and manage this risk; (iv) asset managers have both proactive and reactive policies and control processes to ensure ESG data quality. The observations assist asset managers in establishing processes, systems and internal controls for managing ESG data risk.
ESMA publishes enforcement priorities for 2024 annual financial reports
On 24 October, ESMA published its European Common Enforcement Priorities (ECEP) for the 2024 annual financial reports of issuers listed on EEA regulated markets. Regarding sustainability statements, the priorities include (i) materiality considerations in ESRS reporting; (ii) the scope and structure of the sustainability statement; and (iii) disclosures relating to Article 8 Taxonomy Regulation, with several format and substance recommendations.
EP adopts corrigendum to proposed ESG rating agencies regulation
On 22 October, the EP adopted a corrigendum to the proposed regulation on ESG credit rating agencies. The initial proposal was approved at first reading on 24 April 2024, but translation issues necessitated a corrigendum procedure. The Council is now expected to accept it, after which it will be published in the Official Journal.
UNEP FI publishes guidance on nature target setting
On 21 October, the United Nations Environmental Programme Financial Initiative (UNEP FI) released new Principles for Responsible Banking (PRB) sector action guidance for nature. This document translates the PRB Nature Target Setting Guidance into sector-specific actions for the agricultural, forestry and mining sectors. It outlines priority actions on risk management, client relationships, and the acceleration of a nature-positive future in relation to six key commodities: bauxite, copper, cattle, wood, soy and palm oil.
New carbon footprint data on Dutch institutional investors
On 10 October, the Dutch central bank (DNB) published an article on CO2 emissions relating to the investments of Dutch insurance companies and pension funds. It provides data on direct investments in listed equity and corporate bonds and indirect investments via investment funds, offering a more comprehensive carbon footprint picture. The relative emissions related to economic output for 2020-2021 are lower when indirect investments are included, but absolute emissions are higher due to the inclusion of investment funds.
ESMA publishes TRV Risk Analysis on portfolio exposures to physical climate risks
On 9 October, the European Securities and Markets Authority (ESMA) published an article based on an analysis of EU investment fund portfolio holdings, showing how two different assessment methodologies and data sources reveal insights into physical climate risk exposures. The results emphasise the need to evaluate climate risks at the individual hazard level due to their differing characteristics. Despite their differences, both approaches show that water-related risks are the most prominent for EU funds, with northern European funds more exposed to flood risks. ESMA will include some of these indicators into its ongoing risk assessments.
UNEP FI publishes Responsible Banking Blueprint
On 8 October, the UNEP FI released a Responsible Banking Blueprint outlining a strategic roadmap for action on themes including climate, nature and biodiversity, healthy and inclusive economies, and human rights. This blueprint aims to inspire banks in their transformation journeys by prioritising (i) strategy, (ii) policies & processes, portfolio composition and financial flows, client engagement, and advocacy & partnerships, (iii) targets, (iv) target implementation, and (v) disclosure. These elements serve as building blocks for integration across thematic areas, with leading practices combining efforts across different thematic areas.
ESAs released joint working programme 2025
On 7 October, the joint committee of the European Supervisory Authorities (ESAs) published their working programme for 2025. The press release highlights a particular focus on ongoing collaboration to address cross-sectoral risks, promote sustainability within the EU financial system, and enhance digital resilience. The ESAs will continue their role under the Sustainable Finance Disclosure Regulation (SFDR), drafting additional Q&As on sustainability disclosures and publishing a report on the reporting of Principal Adverse Impacts (PAIs) under Article 18. They may also develop new technical standards for ESG rating disclosures.
EBA publishes work programme for 2025
On 2 October, the European Banking Authority (EBA) published its work programme for 2025. Key priorities include the work on prudential treatment of exposures to ESG by building an ESG risk monitoring framework and working on methodology for its stress tests.
NZBA publishes 2024 progress report
On 1 October, the Net-Zero Banking Alliance (NZBA) published its 2024 progress report, providing an overview of overview of the NZBA member banks’ efforts towards reaching net zero by 2050. The report consolidates information received from 122 member banks until the end of May 2024, focusing on target setting and transition planning. The NZBA states that banks are working to understand and finance the transition to net zero. According to the report, nearly two-thirds of the 91 banks required to publish transition plans by May 2024 have done so, with an additional 25% planning to release their transition plans by the end of 2024. However, setting decarbonisation targets remains a complex task due to data quality issues relating to clients’ greenhouse gas emissions and ambiguous decarbonisation pathways. The report concludes with a call-to-action for policymakers, urging them to remove barriers to bankability, improve access to data, level the playing field, and incentivise investment.
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October 2024
UNEP FI and Finance for Biodiversity Foundation publish discussion paper on the concept of ‘nature positive’
On 25 September, the UNEP Finance Initiative and the Finance for Biodiversity Foundation published a discussion paper titled ‘Finance for Nature Positive: Building a Working Model’. It provides a working model for feedback that aims to operationalise the definitions and the guide practices in the private financial sector to contribute to the implementation of the Global Biodiversity Framework (GBF). The paper underscores the financial sector’s role in transformative actions and the importance of sustainable taxonomies, measurable outcomes, and traceable financial flows to advance GBF goals.EIOPA proposes PEPP reform to tackle Europe’s pension gap and aid in digital and green transitions
On 11 September, the European Insurance and Occupational Pensions Authority (EIOPA) released a staff paper on the future of the Pan-European Pension Product (PEPP). Introduced in 2022, the PEPP aimed to offer a straightforward, transparent, cost-efficient and portable retirement savings option for European citizens to supplement their state pensions. However, its uptake has been limited, due to various supply, demand, and structural factors, necessitating a re-assessment. This staff paper takes stock of why PEPP has not lived up to its potential and proposes enhancements that could revitalise supplementary pensions across the EU.Keynote speech of Frank Elderson's on nature related risks for central banks, supervisors and financial institutions
On 6 September, Frank Elderson, a member of executive board of the ECB, delivered a keynote speech on the economic and financial sector risks posed by nature degradation. He outlines the growing trend of nature-related litigation, noting that litigants are bringing court cases to address the biodiversity crisis, protect carbon sinks, limit deforestation and ocean habitat loss, and prevent ecosystem degradation, building on past successes. He then discusses how nature-related risk should be considered in the context of the mandates of central banks and supervisors. He concludes by emphasising that “Time is running out to prepare for the materialisation of nature-related risks”, and “we need to be ready for the impact of these risks, just like we are for climate-related risks – or indeed for any other risk driver.” -
September 2024
AFM publishes guidance on additional mortgage credit aimed at specific sustainability measures
On 29 August, the Financial Markets Authority (AFM) issued guidance (in Dutch) on providing advice or customised services to obtain additional mortgage credit for specific sustainability measures. The AFM clarifies that comprehensive advice is not always necessary. Often, tailored services/advice will suffice. Advisers can use information collected during the initial mortgage application process. Additionally, the AFM provides guidelines on key topics advisers should address in the application process.DNB publishes working paper on understanding financial risk repercussions of nature degradation
On 27 August, the Nederlandsche Bank (DNB) released a working paper presenting a new framework for integrating dependence on nature (ecosystem services) and the extent of nature degradation into credit risk loss estimations for banks. The framework advances the field of nature-related financial risks by proposing a capital-based sensitivity indicator to nature degradation, thereby moving from an ‘exposure’ to a ‘financial risk’ approach. The formulated ecosystem service degradation sensitivity indicator (EDSI) demonstrates how much a bank's available capital buffer - above its minimum requirements - is lost due to a nature shock. The findings suggest that incorporating nature degradation into financial risk estimates adds an important – and currently missing – layer of risk while providing further differentiation in capital impacts across banks and countries. While this paper uses hypothetical nature shocks to generate current comparative sensitivity indicators, once calibrated for different ecosystem services, the framework can be used to stress-test various aspects of financial institutions' solvency position.ESMA publishes translations of its Guidelines on funds’ names
On 21 August, the European Securities and Markets Authority (ESMA) released translations of its Guidelines on funds' names using ESG or sustainability-related terms in all official EU languages. The guidelines will come into effect three months after publication, i.e., on 21 November 2024. Funds existing before the application date will have a transitional period of six months following that date, i.e., until 21 May 2025. New funds established on or after the application date must comply with the guidelines immediately.ECB study on how banks are pricing climate risk in their lending practices
On 6 August, the European Central Bank (ECB) published a working paper combining euro-area credit register data with carbon emission information to explore the intersection of finance and climate change. The study reveals that banks are factoring climate risk into their lending decisions. Firms with higher carbon emissions face higher interest rates, while those committed to reducing emissions benefit from lower rates. In line with the risk-taking channel of monetary policy, tighter policies prompt banks to raise both credit risk premia and carbon emission premia, while reducing loans more significantly for high- emission firms compared to low-emission ones. While restrictive monetary policies raise borrowing costs and curtail lending across all firms, their contractionary impact is less severe on companies with low emissions or those committed to decarbonisation. -
August 2024
ESAs publish updated version of SFDR Q&As
On 25 July, the European Supervisory Authorities (ESAs) published an updated version of the consolidated Q&As on the Sustainable Finance Disclosure Regulation (SFDR) and the accompanying Commission Delegated Regulation. Notable clarifications include: (i) the calculation of principal adverse impact indicators should be conducted on a pass/fail basis; (ii) the methodology for calculating and disclosing what proportion of sustainable investment qualifies as environmentally sustainable; and (iii) when making a sustainable investment in another financial product, financial market participants must examine underlying investments.ESMA publishes opinion on Sustainable Finance Framework
On 24 July, ESMA published an opinion outlining a holistic long term vision for securities market regulators that considers both the overall architecture of the Sustainable Finance Framework and its various interlinkages. ESMA believes that this framework has the potential to evolve, facilitating investor access to sustainable investments and supporting effective functioning of the sustainable investment value chain. In this context, ESMA offers several key recommendations to the European Commission. These encompass recommendations on consumer and industry testing, the EU Taxonomy as a central element of the framework, effective transition support, adapting transparency requirements, implementing a product categorisation system, ESG data quality and the conduct of actors in the sustainable investment value chain.UNEP FI provides guidance to help banks operationalise links between a circular economy and sustainability impact
On 18 July, the UN Environment Programme Finance Initiative (UNEP FI) published two reports: Leveraging the Nexus between Circularity and Sustainability Impact and Circular Solutions to Achieve Climate Targets. The first report outlines how the circular economy can enable responsible banking practices by connecting circularity with environmental and social impact considerations. The second report looks at circular solutions for achieving climate targets, offering banks practical insights into integrating circularity in their climate transition plans. This includes increasing financing for such solutions, as well as advocating for and partnering with policymakers to enhance circularity. Two sectoral supplements published alongside the reports guide banks in developing sector-specific financing strategies that promote circular economy principles in the building & construction and the textile sector - two high-impact sectors with significant circularity potential.FSB publishes stocktake on nature-related risks
On 18 July, Financial Stability Board (FSB) published a stocktake of member financial authorities’ initiatives related to the identification and assessment of nature-related financial risks. The report reveals that financial authorities are at different stages of evaluating biodiversity loss and nature-related risks as financial risks. Financial authorities that are analysing these risks categorise them into physical and transition risks, similar to climate-related financial risk analysis. Furthermore, there is a consensus on the need for a holistic approach that considers the interdependencies between climate- and nature-related financial risks. The report underscores the necessity for more expertise within supervisory bodies, central banks, and the private sector to address nature-related risks effectively, highlighting ongoing capacity-building initiatives worldwide.NGFS publishes two reports on nature-related risks
On 2 July, NGFS published its framework for nature-related financial risks and a report on nature-related litigation. The framework introduces minor revisions to its September 2023 beta version, focusing on alignment with other recently implemented frameworks. By taking an integrated approach, the framework acknowledges the strong interconnectivity between climate-related and broader nature-related financial risks. Illustrative cases related to forest and freshwater ecosystems demonstrate how central banks and financial supervisors can operationalise the framework. The litigation report highlights emerging trends. It states that nature-related legal actions are likely to increase and urges central banks, supervisors, and financial institutions to closely monitor developments in this field of litigation. -
July 2024
EFRAG publishes paper on interplay between connectivity and boundaries of annual report sections
On 28 June, the European Financial Reporting Advisory Group (EFRAG) published the paper ‘Connectivity considerations and boundaries of different annual report sections’. The paper outlines the conceptual foundations, categories and benefits of connectivity, which is a relatively new and multi-dimensional concept that has only recently been introduced into the mandatory sustainability reporting requirements. It also analyses reporting boundaries and identifies several grey areas regarding the location of information. These grey areas include the disclosure of climate-related commitments, unrecognised intangible assets, and synergies from M&A transactions. EFRAG suggests steps to enhance connectivity and reduce the expectation gaps around reporting boundaries. A short version is also available.ICMA publishes guidance on sustainable bonds
On 25 June, the International Capital Market Association (ICMA) published guidance for green enabling projects and guidelines for Sustainability-Linked Loan financing Bonds (SLLB). The guidance supports the Green, Social, Sustainability, and Sustainability-Linked Bond Principles. Furthermore, ICMA published (i) an update of the SLLB and a new SLB disclosure data checklist, (ii) an expansion of the SLB KPIs Registry related to environmental themes and additional KPIs for sovereign issuers, and (iii) a new annex of the Impact Reporting Handbook covering environmental and social risks.TNFD and EFRAG publish correspondence mapping for ESRS and TNFD reporting
On 20 June, the Taskforce on Nature-related Financial Disclosures (TNFD) and EFRAG have jointly published a correspondence mapping for the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD) and the TNFD’s recommended disclosures. The mapping is intended to help companies understand the commonalities between the two reporting frameworks for nature-related information and to encourage them to complement their mandatory ESRS reporting with voluntary TNFD reporting.NGFS publishes second edition of its guide on climate-related disclosure for central banks
On 19 June, the Network for Greening the Financial System (NGFS) published an updated guide on climate-related disclosure for central banks, calling on central banks to lead by example by disclosing their climate-related risks and opportunities. The updated guide is organised around four thematic areas: governance, strategy, risk management, and metrics and targets. Disclosure recommendations within these categories are grouped according to their level of detail, and a distinction is made between foundational (‘baseline’) and complementary (‘building block’) recommendations, acknowledging that there is no one-size-fits-all solution.ESAs propose improvements to SFDR
On 18 June, the European Supervisory Authorities (ESAs) published a joint opinion on the assessment of the Sustainable Finance Disclosure Regulation (SFDR), calling for a coherent sustainable finance framework that addresses both the green transition and enhanced consumer protection. In formulating this opinion, the ESAs drew on lessons learnt from the functioning of the SFDR. The proposal outlines a framework for the introduction of simple and clear categories for financial products. The proposed simplifications include the introduction of two voluntary product categories: ‘sustainable’ and ‘transition’. These categories are intended to ensure that consumers can understand the purpose of the products. The rules for the categories should be clearly defined and include objective criteria to reduce the risk of greenwashing. Other key elements of the proposal are the adoption of an indicator similar to the PRIIPs KID risk indicator, a tailored approach to documentation based on the principle that differentiation does not inherently restrict standardisation, and the application of disclosure requirements to all products. This opinion could prove valuable to the EC as it evaluates and improves the SFDR.Christine Lagarde delivers speech on ECB’s role in the face of climate and environmental risks
On 7 June, ECB President Christine Lagarde delivered a speech at the Maurice Allais Foundation in which she emphasised the particular challenge that climate and nature risks pose to central banks. She highlighted the important role that central banks can play, particularly in the fight against climate change. She outlined this role as threefold. First, the ECB must analyse how climate change affects the economy, the financial system, and its own activities; second, it must advise on the implications of climate change for monetary policy; third, it must act to mitigate the effects of climate change. Subsequently, the results of this analysis may influence the ECB’s internal thinking and guide its approach to policymaking (e.g., in relation to carbon pricing, climate disclosure, the completion of the EU’s Capital Markets Union).ESAs publish final reports on greenwashing
On 4 June, the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA) (together the ESAs) separately released their final reports on greenwashing in the financial sector. The reports adopt a coordinated approach to addressing greenwashing risks, outlining each ESA's current supervisory response to greenwashing risks and reiterating the common high-level understanding of greenwashing. In addition, each report outlines a forward-looking approach to gradually enhance sustainability-related supervision in the future.Council adopts amendments to CRR and CRD
On 30 May, the Council adopted the new banking package (CRR III and CRD VI), amending the Capital Requirement Regulation (CRR) and the Capital Requirements Directive (CRD). The new regulatory framework introduces enhanced requirements for management bodies of banks. It contains significant changes, including (i) the introduction of new definitions such as ‘ESG risks’ and different types of these risks (environmental, transitional and physical), ‘ESG factors’ and ‘fossil fuel sector entity’, (ii) amendments to the infrastructure supporting factor, (iii) requirements relating to transition plans, (iv) disclosure requirements, (v) amendments to the SREP process, and (vi) provisions for carbon trading under the alternative standardised approach. Member states will have 18 months to implement CRD VI in national legislation, while CRR III will (mostly) apply from 1 January 2025. The EBA has also published draft Regulatory Technical Standards on the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc under Article 325az(8)(a) of the CRR.SBTi publishes updated near-term criteria for financial institutions
On 28 May, the Science Based Target initiative (SBTi) released an updated version of its Financial Institution's Near-Term Criteria, which enables financial institutions to set ambitious near-term emission reduction targets. The changes include an increase in ambition from 2.0°C to 1.5°C, the introduction of fossil fuel finance criteria and general improvements for usability and clarity. A more detailed and longer list of revisions can be found in the main changes document. The new criteria will take effect on 30 November 2024. Financial institutions submitting targets before this date can choose to voluntarily adopt the new criteria or use the previous version.ESMA publishes report on marketing disclosure requirements under MiFID II
On 27 May, ESMA published a combined report on its 2023 Common Supervisory Action (CSA) and the accompanying Mystery Shopping Exercise (MSE) on marketing disclosure rules under MiFID II. Overall, the report deemed that firms are compliant and have adequate procedures in place to observe the requirements under MiFID II. However, the ESMA identified a need for greater transparency and accuracy in sustainability claims made in marketing communications. It is crucial that potential investors have a clear understanding of which instruments meet their ESG investment criteria when making their investment decisions. In order to mitigate greenwashing risks, it is necessary to involve control functions and senior management in internal procedures relating to the development, design and oversight of marketing communications where sustainability-related claims are made. -
June 2024
NZBA publishes supporting notes to the Guidelines for Climate Target Setting
In May, the Net-Zero Banking Alliance (NZBA) published supporting notes to clarify several aspects of the Guidelines for Climate Target Setting for Banks (version 2) which were adopted by NZBA members in March 2024. The supporting notes address, among other things, variations in methodological and technical approaches to setting climate targets. They also clarify considerations regarding the materiality of different emission types and sources, outline different scenario types that banks may encounter, define the scope of financial activities and sectors that should be included in target setting processes, and provide reporting expectations.ESMA publishes position paper on EU capital markets
On 22 May, the European Securities and Markets Authority (ESMA) published a position paper entitled ‘Building more effective and attractive capital markets in the EU’. The paper sets out 20 recommendations to strengthen EU capital markets and met the needs of European citizens and businesses. ESMA's recommendations for a well-functioning capital market focus on three dimensions: citizens, businesses and the EU regulatory and supervisory framework. One of the recommendations is to promote EU capital markets as a hub for green finance, which should include efforts to simplify sustainability disclosures, including through the use of sustainability labels and categories where appropriate.NGFS publishes report on sustainable and responsible investment in central bank portfolio management
On 16 May, the Network for Greening the Financial System (NGFS) published a report with ten non-binding recommendations on sustainable and responsible investment (SRI) in central bank portfolio management. These recommendations outline how central banks can further integrate sustainability considerations into their investment practices without losing sight of the effectiveness of their approach. The first four recommendations focus on integrating sustainability considerations into governance. Recommendations five and six relate to the assessment of exposure to sustainability factors. Recommendations seven and eight deal with the implementation of SRI policies, and recommendations nine and ten with reporting practices and the evaluation process.ESMA guidelines on fund names using ESG or sustainability terms
On 14 May, the ESMA published guidelines outlining the circumstances under which fund names using ESG or sustainability-related terms may be considered unfair, unclear, or misleading. The guidelines also clarify what investors may expect in terms of policies, practices and features of funds that meet sustainability standards. The guidelines will apply to UCITS and AIFs, EuVECA, EuSEF, and ELTIF, and money market funds. The guidelines will apply three months after their publication on the ESMA website, and immediately for newly created funds.AFM publishes two reports on SFDR compliance
On 14 May, the Dutch Authority for Financial Markets (AFM) published two reports assessing financial institutions’ adherence to the SFDR and their incorporation of sustainability considerations into product oversight and governance (POG) procedures and suitability assessments. The first report covers the use of templates in line with the Level 1 SFDR-requirements. The AFM expects all financial institutions to comply with these SFDR provisions. Insufficient compliance efforts will be addressed through regulatory action. In addition, further granularity is required in both the use and completion of these templates. The second report focuses on the POG and suitability standards within investment firms. While steps have been taken to integrate sustainability into policies and products, there is still room for enhancement, particularly in explaining sustainability preferences in a way that is understandable for clients. Investment firms are encouraged not only to incorporate sustainability considerations into their POG policies, but also to review their product offerings accordingly to avoid potential mismatches. Both reports offer guidance and illustrative examples.ECB blog by Frank Elderson: "2024 is a crucial year for banks to make decisive progress in becoming more resilient to C&E risks"
On 8 May, the ECB published a blog post by its board member Frank Elderson. The blog outlines good and ‘bad’ practices in banks' materiality assessments and identifying climate-related risks. It also discusses the way forward for the ECB's expectations on the management of climate and environmental (C&E) risks. "By the end of this year, we expect all banks under our supervision to be fully aligned with all our supervisory expectations on the sound management of C&E risks", says Elderson. -
May 2024
ECB updates climate-related indicators
On 18 April, the European Central Bank (ECB) updated its climate-related indicators, providing systemic insights, both into how financial markets are tackling the green transition and how financial institutions may be affected by climate change. The modifications relate to green bonds and banks' credit portfolios. For green bonds, the indicator now distinguishes between self-declared sustainable bonds and those that have undergone a second external assessment in order to provide more information to investors. For banks' loan portfolios, the updated version allows the data to be analysed as a consistent time series. In addition to these changes, the ECB has introduced the Collateral Adjusted Exposure at Risk (CEAR) indicator, which aims to quantify potential losses in financial terms and to allow comparison across different exposures. The ECB published also a paper about climate-related indicators, outlining the methodology, underlying data, and findings in three areas: sustainable finance, carbon emissions, and physical risk, respectively.NZAOA releases new edition of Target-Setting Protocol
On 18 April, the Net-Zero Asset Owner Alliance (NZAOA) published the fourth edition of its Target-Setting Protocol, accompanied by a background document. The Protocol now covers all private asset classes, and the majority of all major asset classes. It requires members to set targets for the period 2025-2030 aiming for a 40-60% reduction by 2030 compared to 2019 on a comply-or-explain basis. The NZAOA also launched a pilot project to assess the climate impact of sovereign debt using the ASCOR database.NGFS publishes transition plan package
On 17 April, the Network for Greening the Financial System (NGFS) published the report 'Connecting transition plans: financial and non-financial firms'. The report explores the relationship between financial institutions and the transition plans of their clients and counterparties. It is published alongside two other reports: Tailoring transition plans: considerations for EMDEs and Credible transition plans: the micro-prudential perspective. The reports provide complementary perspectives on related topics and help to establish further foundational understanding of the relevance of transition planning and plans for micro-prudential authorities.BCBS publishes discussion paper on climate scenario analysis and risk management
On 16 April, the Basel Committee on Banking Supervision (BCBS) published a discussion paper on how climate scenario analysis (CSA) can be used in practice to strengthen the management and supervision of climate-related financial risks. In 2022, the BCBS published the Principles for the effective management and supervision of climate-related financial risks to encourage banks and supervisors to use CSA to assess the resilience of business models and strategies to a range of climate-related pathways and determine the impact on their overall risk profile. However, differences in the scope, features and approaches of CSA exercises across jurisdictions and banks limit the harmonisation of supervisory expectations and the comparability of results. The BCSB is therefore seeking stakeholder feedback, which may lead to complementary work to strengthen bank regulation, supervision and practices worldwide with a view to enhancing financial stability. Feedback can be submitted until 15 July.UNEP FI launches resources to support banks with CSRD implementation
On 4 April, the United Nations Environment Programme Finance Initiative (UNEP FI) released a UNEP FI - PRB / ESRS Interoperability Package. It aims to assist banks in leveraging the alignment between the Corporate Sustainability Reporting Directive (CSRD) and the Principles for Responsible Banking (PRB) by using the UNEP FI Holistic Impact Methodology. The package includes a user guide, topic and data point mappings, and a conversion tool to extract relevant data points from the UNEP FI Portfolio Impact Analysis Tool for Banks (Version 3) for CSRD reporting.EIOPA launches consultation on natural catastrophe risk reassessments under Solvency II
On 3 April, the European Insurance and Occupational Pensions Authority (EIOPA) launched a consultation on the reassessment of natural catastrophe risks in the standard formula under Solvency II, as to better capture the risks posed by certain perils. New risk factors have been proposed for 25 perils/regions across five perils (flood, hail, earthquake, windstorm, subsidence). Additionally, EIOPA has proposed to extend the standard formula to countries with natural catastrophe risks not previously covered, such as flood exposure in the Netherlands. EIOPA is also monitoring emerging perils (beyond the five included in the standard formula) across Europe that could have a significant impact on the region’s insurance sector, including wildfire, coastal flooding, and drought. The consultation period ends on 20 June.ESMA consults on possible changes to the regulatory framework for credit rating agencies
On 2 April, the European Securities and Markets Authority (ESMA) launched a consultation on proposed amendments to Commission Delegated Regulation (EU) No 447/2012 and to Annex I of the Credit Rating Agencies Regulation (CRAR). The proposals aim to ensure a better incorporation of ESG factors into credit rating methodologies and subsequent disclosure to the public, and to enhance transparency and credibility of the credit rating process. In particular, they aim to (i) ensure that the relevance of ESG factors within credit rating methodologies is systematically documented; (ii) enhance disclosure on the relevance of ESG factors in credit ratings and rating outlooks; and (iii) provide a more robust and transparent credit rating process through the consistent application of credit rating methodologies. The consultation closes on 21 June. -
April 2024
ESMA launches consultation on rules for 'external reviewers' of EU green bonds
On 26 March, the European Securities and Markets Authority (ESMA) launched a consultation on Draft Regulatory Technical Standards (RTS) relating to the registration and supervision of external reviewers under the EU Green Bond Regulation (EuGB). ESMA's proposals aim to clarify the criteria used for assessing an application for registration by an external reviewer, to standardise registration requirements and to contribute to the development of a level playing field through lower entry costs for applicants. ESMA will consider the feedback received in this consultation and will submit the draft RTS to the EC by 21 December 2024.ECB publishes study ‘Business as usual: bank climate commitments, lending, and engagement’
On 22 March, the European Central Bank (ECB) published a study on the impact of voluntary climate commitments by banks on their lending activity and on the climate impact of borrowing firms. Overall, the results cast doubt on the efficacy of voluntary climate commitments for reducing financed emissions, whether through divestment or engagement. Making a commitment leads to an increase in a lender's ESG rating. Lenders reduce credit in sectors they have identified as high priority for decarbonisation. However, climate-aligned banks do not change their lending or loan pricing differentially compared to banks without climate commitments, suggesting that they are not actively divesting. Climate-aligned lenders do not divest more than 2.6% from firms in targeted sectors. Corporate borrowers are no more likely to set climate targets after their lender sets a climate target, casting doubt on active engagement by lenders.EIOPA publishes factsheet on taxonomy alignment of occupational pension funds' investments
On 14 March, the European Insurance and Occupational Pensions Authority (EIOPA) published a factsheet summarising the sustainable characteristics of investments made by occupational pension funds based in the European Economic Area (EEA). The factsheet shows that 4.5% of the investments issued by EEA-based funds were aligned with the EU Taxonomy, with a further 26.1% eligible for alignment with sustainable criteria. A breakdown shows that 9% of corporate bonds were Taxonomy-aligned (42% eligible) and 1% of equities were Taxonomy-aligned (15% eligible).NZBA publishes second version of the Guidelines for Climate Target Setting for Banks
On 13 March, the members of the UN-convened Net-Zero Banking Alliance (NZBA) adopted a new version of the Guidelines for Climate Target Setting for Banks. The guidelines demonstrate a continued commitment to achieving net-zero by 2050 or sooner, and to setting intermediate 2030 targets that are consistent with the latest science, using low or no overshoot 1,5 degrees scenarios, and covering all or a substantial majority of nine carbon-intensive sectors. For the first time, the scope of the targets will be extended beyond lending and investment activities to include banks' capital markets activities.ECB publishes study ‘Greening the economy: how public-guaranteed loans influence firm-level resource allocation’
On 13 March, the ECB published a study on the reasons why banks' continue to support fossil fuel-based firms. It examines the role of public guaranteed loans (PGLs) in redirecting resources towards greener economic activities, thereby facilitating the climate transition process. The study has three main findings: (i) European banks perceive lending to green companies as riskier than to their brown counterparts (green transition risk); (ii) European banks have strategically leveraged PGLs to channel resources towards environmentally sustainable activities during the COVID-19 pandemic, thereby increasing the proportion of green loans in their portfolios and partially shifting the inherent ‘green transition risk’ to European governments and citizens; and (iii) a preference by banks for awarding PGLs to financially robust green firms rather than less profitable, highly indebted green firms, which could pose significant challenges for green businesses in need of financial support during the COVID-19 crisis.DNB publishes analysis of financial institutions' climate plans
On 8 March, De Nederlandsche Bank (DNB) published a report analysing the climate action plans of around 50 banks, insurers, pension funds and asset managers. The analysis shows that financial institutions have developed strategies to achieve their (self-imposed) climate targets. However, these strategies often lack specificity and a clear link to the targets. The institutions also provide little insight into which functions within the organisation are responsible for implementing the plans. DNB emphasises the importance of actually implementing the action plans in order to avoid reputational risks, and the importance of a common reporting format and a digital environment for storing and monitoring the plans.EIOPA publishes paper on demand-side aspects of the protection gap
On 29 February, EIOPA published a revised version of its paper on addressing natural catastrophe protection gaps. The paper examines the underlying causes of the protection gaps from a demand-side perspective and identifies options to address mainly the demand factors. Some of the main ‘solutions’ mentioned to limit the gaps are: (i) increasing risk awareness and coverage, for example through digital tools that can more easily present the risks to which consumers are exposed; (ii) improving consumer understanding and product comparability; (iii) streamlining the consumer journey during the purchasing process; and (iv) reducing insurance premiums by requiring risk mitigation measures to limit insurers’ exposure to risk and incentivising consumers to purchase natural catastrophe coverage. -
March 2024
AFM: Major listed companies are on the right track with transparency on 2030 climate targets, road to 2050 remains vague
On 7 February, the Dutch Authority for the Financial Markets (AFM) published the report Transparent net zero targets require courage, which shows that large public interest entities (PIEs) are moving in the right direction towards substantiating their climate targets up to 2030 in their annual reports. Around half of the companies analysed disclose the scope of emission data and targets, as well as how this data is generated, in a clear and transparent manner. However, the path to 2025 remains blurred and can be improved. For example, the reliability of sustainability information tends to fall short of financial information, which is partly due to limited access to data and uncertainties about the data, particularly for scope 3. In-depth interviews show that relevant internal knowledge on net-zero targets is not always included in management reports. The AFM expects transparent disclosure on uncertainties and challenges, requiring courage on the part of companies. The AFM will provide recommendations, good practices and self-assessments to support such disclosures.AFM survey: around half of retail investors pay attention to sustainability
On 6 February, the AFM published the results of its research under 711 retail investors (Consumentenmonitor Beleggers). The results show that around half of private investors sometimes or (almost) always consider the sustainability of their investments. Retail investors mainly look at the name of the investment product. However, another AFM survey shows that the name of a product or fund is often not a reliable indicator of its sustainability content. The regulator also stated that it plans to investigate how market participants communicate about sustainability and whether investment firms integrate sustainability as required.ESMA publishes first TRV Risk Monitor
On 31 January, ESMA published its first Report on Trends, Risks and Vulnerabilities 2024, outlining the key risk drivers currently facing financial markets. While overall markets have remained ‘remarkably resilient’ in the second half of 2023, ESMA notes that, after several years of uninterrupted growth, the uptake of ESG investing and the growth of ESG markets have leveled off in recent quarters. This is evidenced by (i) slower growth in the ESG bond market; (ii) accelerating outflows from SFDR Article 8 funds; and (iii) for the first time, net outflows from Article 9 funds. The report also highlights the improved availability of ESG data and the decline in the price of EU and UK emission allowances.ECB expands work on climate change
On 30 January, the European Central Bank (ECB) published its climate and nature plan for 2024 and 2025, demonstrating its increased focus on climate change. Three focus areas will guide the ECB’s work on climate and nature in 2024 and 2025: (i) navigating the transition to a green economy; (ii) addressing the increasing physical impacts of climate change; and (iii) advancing work on nature loss and degradation. The work planned in these focus areas will complement the ECB's current climate-related activities in its ongoing tasks, including monetary policy and banking supervision.