EBA Launches Public Consultation on Draft Technical Standards on Pillar 3 Disclosures of ESG Risks

The European Banking Authority (‘EBA’) has proposed a Green Asset Ratio (‘GAR’) as a Pillar 3 Disclosure on ESG Risk under Article 449a of the Capital Requirements Regulation (‘CRR’). The quantitative disclosure on climate-change related transition and physical risks would provide understanding how climate change may exacerbate other risks within the balance sheets of financial institutions, how institutions are mitigating such risks and proportion of exposures financing the taxonomy-aligned activities such as those consistent with Paris agreement goals. The ratio along with related tools and disclosures would provide understanding of how financial institutions are embedding sustainability considerations in their risk management, business models, strategy and their pathway towards the Paris agreement goals. The EBA has developed the technical consultation paper building on the Financial Stability Board Task Force on Climate-related Financial Disclosures (FSB-TCFD) recommendations, the Commission’s non-binding guidelines on climate-change reporting, and on the EU Taxonomy. The disclosure requirements are expected to be applicable from June 2022 on an annual basis during the first year and biannually thereinafter. The comment period for this consultation ends on June 01, 2021.