The European Banking Authority (‘EBA’) clarifies compatibility between ESG features and regulatory eligibility criteria amid growing issuance of ESG-related instruments to finance and capitalize green portfolios. The EBA considers:
- Interaction between instruments issued with ESG features and Bank Recovery and Resolution Directive (‘BRRD’) requirements Capital Requirements Regulation (‘CRR’) eligibility criteria.
- Differences of clauses based on a larger set of regulatory ESG transactions in comparison to the Total Loss-Absorbing Capacity (‘TLAC’) and Minimum Requirements for Own Funds and Eligible Liabilities (‘MREL’) monitoring frameworks.
- Consistency with EU-level mandates including the EU Green Bond Standard (‘EU GBS’)
- Differentiate loss absorbency, status of the notes/subordination, event of default, early redemption or acceleration rights between bonds used ESG financing, e.g. senior debt and covered bonds.
- Risk of predefined sustainability features or ESG objectives impacting the eligibility criteria of the instrument, in particular, regarding:
- Permanence (early redemption or other incentive to redeem, e.g. step-up or fee linked to specific ESG targets),
- Loss absorption (write-down or conversion, acceleration rights, possibility of bail-in etc.),
- Flexibility of payments.
Sectors: Cross cutting, Finance
Country / Region: EuropeTags: absorption, Banks, bonds, citizens, economic capital, ecosystem-based adaptation, funds, green bonds, incentives, Industry Regulators, Institutional Investors, mandates, monitoring, National Regulators, SMARTER, Supranational Regulators, sustainability
In 5 user collections: Green Home Investment Platform – Industry Regulators , Green Home Investment Platform – National Regulators , Green Home Investment Platform – Supranational Regulators , Green Home Investment Platform – Institutional Investors , Green Home Investment Platform – Banks
Knowledge Object: Web Resource
Author: European Banking Authority