New EBA rules on ESG: simplifications for banks

The EBA has adopted a proportionate approach for disclosures ESG, based on the type, size and complexity of the financial institution. This means that large banks will be subject to a full set of information, while other listed institutions and large subsidiaries will have to provide a simplified set of information. Small, non-complex institutions (SNCIs) will only be required to disclose an essential set of information. For example, large institutions will have to make semi-annual reports on climate transition risk, while NCIs will have more streamlined annual disclosure requirements.

The EBA's new proposals align with the EU banking package (CRR3), published in 2024, which extends the scope of ESG risk disclosures to all institutions from 2025. This includes the separate disclosure of physical environmental and transition risks as well as social and governance risks. In addition, banks will have to disclose their total exposure to fossil fuel entities and how they integrate identified ESG risks into their business strategy, processes and risk management.

A key element of the new disclosures is the introduction of the Green Asset Ratio (GAR), which represents the share of assets aligned with sustainable assets according to the EU Taxonomy. The EBA proposes that large banks disclose the GAR, ensuring full alignment with the EU Taxonomy regulation. This indicator will help show how institutions are incorporating sustainability considerations into their risk management, business models and strategy, and on their path towards the goals of the Paris Agreement.

In order to reduce the reporting burden, the EBA has designed a proportionate approach to ESG disclosures, with simplified disclosures for banks other than large ones, in particular for small or unlisted banks. For example, SNCIs will be required to disclose key information on an annual basis, with less onerous requirements than for large institutions. This measure aims to facilitate compliance of small banks, while ensuring the ttransparency and comparabilityof ESG information.

The EBA's new rules require banks to integrate ESG risks into theirbusiness strategy and risk management processes. This includes the need to disclose how institutions identify and manage ESG risks, as well as how these risks affect their governance and risk management. Banks will also need to consider the impact of ESG risks on their solvency in the short, medium and long term, and develop detailed transition plans to address the risks arising from the transition to a low-carbon economy.

This article was realised in the framework of the project "Biodiversity services EU expansion" (CUP: E43D22000480009) in the framework of the Lombardy Region's call for tenders "PR FESR 2021-2027 - LINEA INTERNAZIONALIZZAZIONE 21-27", aimed at supporting the internationalisation of Italian companies. 3Bee is the naturetech company that develops innovative technologies for monitoring, protecting and regenerating biodiversity, supporting companies in defining customised climate strategies based on the analysis of their impacts and dependencies on nature. With an established portfolio in Italy, Germany and France and prominent partnerships, 3Bee continues its expansion into international markets to create real impact through technology.