ESG – Capital Requirements Regulation (CRR) concretized by EU/2022/2453
Since 31.12.2022, credit institutions have to publish information on ESG risks in the CRR disclosure report in accordance with Article 449a CRR (EU/2019/876). However, disclosure obligations and ESG data collection requirements are gradually increasing in the coming years, which is described in more detail in the following article.
Hendrik Fischer, Principal Conusltant in Regulation & Analytics
Art. 449a CRR in conjunction with Implementing Regulation EU/2022/2453
Disclosure of ESG risks under Pillar 3 is mandatory for large credit institutions (according to Art. 449a EU/2019/976) that have issued securities on a regulated market of a member state. These must report a qualitative section within the framework of three templates every six months from December 31, 2022, with a focus on explaining business strategy and processes as well as corporate governance and risk management. In addition, there is a quantitative part consisting of ten templates. The reporting obligation begins at the specified time with the three qualitative and five quantitative templates and will be successively expanded over time to include further information within the templates and additional templates.
Scope of regulation
Quantitative templates 1 through 4 address transition risk. For example, Template 1, which is already required to be reported for the most part, discloses information on risk exposures to nonfinancial corporations operating in carbon-intensive sectors and on the quality of these risk exposures (FinRep levels). In particular, the GHG emissions to be reported for stages 1 to 3 represent a challenge.
Template 2, on the other hand, deals with the transition risk of loans secured by real estate. These are broken down by the energy efficiency of the security provided. New at this point are the energy efficiency values to be provided at the properties, which are to be disclosed as part of the disclosure if necessary. have to be newly collected and transported over the delivery route.
Template 3 compares the banking portfolio for selected sectors and metrics against the International Energy Agency Net Zero Emissions by 2050 Scenario (NZE2050) benchmark. In addition to incorporating the benchmark, you need to choose appropriate metrics for yourself and define 3-year goals.
Template 4 provides a separate breakdown of banks’ risk exposures to the world’s 20 most carbon-intensive companies. To do this, these must first be identified within the bank via all possible subsidiaries.
Template 5 addresses banks’ risk exposures affected by climate change through physical risk. As in the previous templates, this is broken down by sectors affected by climate change in the rows and by residual maturities, as well as chronic and acute risk affected risk positions in the columns. In particular, the information to be reported on whether an exposure is affected by acute or chronic climate risk will likely need to be re-collected.
Templates 6-8 represent the greatest connection to the EU taxonomy. There, information on the GAR is to be reported (in templates 1 and 4, they only play a minor role as attributes in below items). The structure of the templates is essentially based on the NFRD in conjunction with the Delegated Regulation EU/2021/2178 with the associated restrictions described specifications, which were elaborated in the previous article.
- Template 9 plays a special role with the Banking Book Taxonomy Alignment Ratio (BTAR) to be reported. This was introduced to compensate for structural weaknesses of the GAR and thus also indirectly refers to the EU taxonomy, in which explicitly all those risk positions are to be reported that are not part of the disclosure within the NFRD but meet the requirements of the GAR outside the counterparty.
Template 10 also gives institutions the opportunity to disclose other products that do not fall under the taxonomy but still help mitigate climate change.
The data requirements listed above already suggest that the new information is not a matter of simple attributes. In addition to new data sources that need to be collected, entire processes sometimes need to be redefined.
In addition, it is to be expected that the previous breakdown of the templates according to the two already known environmental goals of climate protection and adaptation to climate change will be expanded in perspective to include the remaining environmental goals and that this will once again give rise to new data requirements.
The first announcement has already been made, but it is important not to rest on our laurels, but to focus now on the requirements that lie ahead.
We at ADWEKO and Regulartech-IT-Audit-Consult are happy to support you in the further implementation as well as in the determination of the concrete needs and efforts.