EBA report on data availability and feasibility of a common methodology for ESG exposures

The European Banking Authority (EBA) has published a report on the data availability and feasibility of a common methodology for ESG exposures. In accordance with the mandate under Article 501c(1) of Regulation 575/2013 (CRR), this report aims to assess the availability and accessibility of data related to environmental, social and governance (ESG) risks, as well as the feasibility of introducing a standardised methodology for identifying and qualifying banking book credit exposures to ESG risks.

The EBA explores institutions' existing practices and identifies the current challenges in standardising the identification and classification of exposures to ESG risks, building on observations related to data quality and collection, assessment methodologies and available regulatory guidance. The overview of current practices is complemented by an analysis of specific elements covered by the mandate, including sustainability disclosure reporting frameworks, supervisory stress testing and ESG scores in the credit risk ratings of external credit assessment institutions.

The EBA concludes that significant data gaps remain for social and governance risks. The EBA is of the view that the potential building blocks are not yet sufficiently developed to be a basis for developing a robust, standardised methodology for the identification and qualification of ESG risks at this stage, especially in the context of their impact on credit risk. However, the situation significantly differs depending on the type of exposures and risks considered and a sequenced approach would most likely be necessary if introducing a standardised methodology for the identification and qualification of ESG risks. Introducing a standardised methodology to identify and qualify exposures seems to be the most feasible currently for the climate-related transition risk for non-financial corporates (NFCs).

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