Climate Change Data

Environmental Metrics

ESG Focus Areas

• Sustainability

Governance Achievements

• Reviewed 2017 guidelines on MiFID II product governance requirements, incorporating recent regulatory and supervisory developments related to sustainability.

Climate Goals & Targets

Environmental Challenges

• Lack of data/unreliability of data makes it difficult for distributors and manufacturers to specify sustainability-related objectives of financial instruments.
• Misaligned timing of different pieces of the EU's sustainable finance framework.
• Complexity of the legal framework on sustainable finance.

Mitigation Strategies

• Provided flexibility for firms to account for data challenges when applying sustainability-related product governance requirements.
• Set the application date of the product governance guidelines to be reasonably aligned with that of the suitability guidelines.
• Provided clarifications and illustrative examples to address complexity.

Supply Chain Management

Climate-Related Risks & Opportunities

Reporting Standards

Frameworks Used: MiFID II, SFDR, Taxonomy Regulation

Environmental Metrics

ESG Focus Areas

• Environment
• Social and employee issues
• Human rights
• Bribery and corruption
• Governance

Climate Goals & Targets

Environmental Challenges

• Lack of comparable, meaningful, and reliable information from counterparties.
• Limited reliability and comparability of banks’ ESG disclosures.
• Uncertainty and complexity when deciding what non-financial information to report, and how and where to report such information.
• Pressure to respond to additional demands for non-financial information from sustainability rating agencies, data providers, and civil society.
• Difficulty in getting the information needed from business partners, including suppliers, to meet disclosure requirements.

Mitigation Strategies

• Promote comparable, reliable, and relevant disclosure.
• Develop consistent and clear non-financial reporting standards with a binding nature and broader scope of application.
• Broaden the scope of application of the NFRD to include all large companies established in the EU (listed or not listed) and all large companies listed in the EU.
• Develop simplified and proportionate standards for SMEs.

Supply Chain Management

Climate-Related Risks & Opportunities

Reporting Standards

Frameworks Used: Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD), UN Guiding Principles Reporting Framework, Commission non-binding guidelines, supplement on climate change reporting

Environmental Metrics

ESG Focus Areas

• Environmental
• Social
• Governance

Climate Goals & Targets

Environmental Challenges

• Uncertainty about the timing and effect of economic policies and regulatory interventions.
• Insufficient data (inconsistency and lack of data to identify and measure ESG risks).
• Methodological constraints (most risk management models are based on historical data, which often do not reflect ESG factors).
• Time-horizon mismatch (between traditional management tools and the timeframe for the materialisation of ESG risks).
• Multi-point impact of ESG risks on institutions.
• Non-linearity (most ESG risks, especially climate risk, are non-linear).

Mitigation Strategies

• Developing common definitions of ESG factors and risks.
• Developing appropriate qualitative and quantitative criteria for assessing ESG risks.
• Developing arrangements, processes, mechanisms, and strategies for institutions to identify, assess, and manage ESG risks.
• Developing analysis methods and tools to assess the impact of ESG risks on lending and financial intermediation activities.

Climate-Related Risks & Opportunities

Physical Risks

• Extreme weather events
• Flooding
• Droughts
• Wildfires
• Biodiversity loss

Transition Risks

• Regulatory changes
• Technological advances
• Shifts in market sentiment
• Changes in consumer preferences

Reporting Standards

Frameworks Used: UN PRI, UNEP FI Principles for Responsible Banking, GRI, Equator Principles, Natural Capital Protocol, EU Taxonomy Regulation, SFDR

Certifications: ISO 14064-1:2018, ISO 14001, Other ISO standards

UN Sustainable Development Goals

• SDG 6 (Clean Water and Sanitation)
• SDG 7 (Affordable and Clean Energy)
• SDG 11 (Sustainable Cities and Communities)
• SDG 13 (Climate Action)

Sustainable Products & Innovation

• Green bonds
• Green loans
• Energy-efficient mortgages

Environmental Metrics

ESG Focus Areas

• Social Sustainability
• Governance

Social Achievements

• Suggested a structure for a social taxonomy, including vertical and horizontal dimensions.

Governance Achievements

• Proposed criteria for good sustainable corporate governance and transparent tax planning.

Climate Goals & Targets

Environmental Challenges

• Concerns about EU competence in social matters, variations in national regulations, potential for increased reporting burden on companies, especially SMEs.
• Difficulty in defining activities as socially sustainable or harmful due to contextual factors.
• Lack of standardized social indicators.

Mitigation Strategies

• Proposed basing the social taxonomy on basic social rights laid out in international human rights instruments and ILO core labor norms.
• Suggested a two-dimensional structure (vertical and horizontal) to address various social aspects.
• Recommended adapting reporting requirements to SMEs and using a mix of qualitative and quantitative metrics.

Supply Chain Management

Responsible Procurement

• Due diligence processes to respect human rights throughout the value chain.

Climate-Related Risks & Opportunities

Reporting Standards

Frameworks Used: UN Guiding Principles on Business and Human Rights, OECD Guidelines for Multinational Enterprises, ILO Declaration on Fundamental Principles and Rights at Work, European Pillar of Social Rights, European Social Charter, SDGs

UN Sustainable Development Goals

• Goal 1
• Goal 2
• Goal 3
• Goal 4
• Goal 8
• Goal 9
• Goal 10
• Goal 16

The proposed social taxonomy aims to align with the SDGs by promoting adequate living standards, decent work, consumer protection, and inclusive communities.