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EBA published a report on integrating ESG risks into investment firm supervision

In its report of 24 October 2022, the European Banking Authority (EBA) examines how ESG risks can be incorporated into the supervision of investment firms. It provides a first step in examining how ESG factors and risks can be incorporated into investment firm’s supervisory review and evaluation process (SREP).

According to this report, the supervisory process of investment firms should cover ESG risk in addition to the key elements of the SREP: 

  • business model,
  • internal governance and risk management,
  • risks to capital and capital adequacy and
  • liquidity risks and liquidity adequacy.

Proportionality is an important component due to the fact that ESG effects may impact investment firms' risk profile. For that reason, investment firms should integrate ESG risk management not just according to their business model, size and internal organization but also based on the materiality of their ESG exposure.

The EBA acknowledges the limitations of data and methodologies in assessing ESG risks and recommends that supervisory processes integrate ESG aspects gradually. Investment firms should prioritize recognizing and incorporating ESG risks into their strategies, governance arrangements, and internal processes and later incorporate them into capital and liquidity risk assessments.

Nevertheless, competent authorities are expected to monitor and encourage further development of data and methodologies that will allow investment firms to measure and manage ESG risks more accurately.

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RBI Regulatory Advisory

Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria  | Tel: +43 1 71707 - 5923