ISDA and the Association for Financial Markets in Europe (AFME) have submitted a joint response to the European Banking Authority’s (EBA) discussion paper on environmental, social and governance (ESG) risk management and supervision.

The main focus of this discussion paper is on the risks to which institutions are exposed via the impact of ESG factors on their counterparties. The discussion paper provides details on the risks stemming from environmental factors, especially climate change, and illustrates ongoing initiatives and progress achieved on this topic over recent years. The paper also proposes to enhance the existing supervisory reviews with ESG factors and to introduce a new area of supervisory analysis and evaluation of the long-term resilience of the business model against the time horizon of the relevant public policies or broader transition trends.

This paper forms part of the EBA’s Sustainable Finance Action Plan, and will provide further insight to the final report the EBA will produce on the management and supervision of ESG risks for credit institutions and investment firms in 2021. This work will also be taken into consideration to produce a number of Capital Requirements Regulation standards and guidelines related to ESG risks.

The industry sets out its general comments as part of the consultation response.