ESG (environmental, social, governance) factors are associated with sustainable finance.

         
          
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EBA Discussion Paper of 3 November 2020 on management and supervision of ESG risks for credit institutions and investment firms (EBA/DP/2020/03) observes that the current policy framework lacks a common definition of ESG factors and, hence, current market practices also vary across institutions.

 

Institutions have been relying on various international frameworks and standards defining ESG factors, although some of them use their own definitions.

 

Examples of ESG factors that are common across those definitions and practices for financial and non-financial firms include greenhouse gas emissions, biodiversity and water use and consumption in the area of environment; human rights, and labour and workforce considerations in the area of social; and rights and responsibilities of senior staff members and remuneration in the area of governance.

 

Taking the above into consideration, the EBA proposes the following definition for the ESG factors: 'environmental, social or governance characteristics that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual’ (p. 26).

 

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Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on the prudential requirements of investment firms and amending Regulations (EU) No 1093/2010, (EU) No 575/2013, (EU) No 600/2014 and (EU) No 806/2014 (IFR)

Article 53
Environmental, social and governance risks

From 26 December 2022, investment firms which do not meet the criteria referred to in Article 32(4) of Directive (EU) 2019/2034 shall disclose information on environmental, social and governance risks, including physical risks and transition risks, as defined in the report referred to in Article 35 of Directive (EU) 2019/2034.

The information referred to in the first paragraph shall be disclosed once in the first year and biannually thereafter.

 
Article 2(24) of SFDR provides a broad definition for the types of sustainability factors which may influence investment decision-making and impact, in this context sustainability factors refer to “environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters”.

 

SFDR defines also sustainability risks, they mean an “environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment” (Article 2(22)).

 

 

 

 

 chronicle   Regulatory chronicle

 

 

 

  

March 2021

 

Transition finance report, Platform on Sustainable Finance

 

 

 

 


IMG 0744   Documentation

 

 

 


 

 

Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (Taxonomy Regulation)

 

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (SFDR)

 

 

 

 
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