Recital 40

(40) To maintain adequate resilience to the negative impacts of ESG factors, institutions established in the Union need to be able to systematically identify, measure and manage ESG risks, and their supervisors should be required to assess the risks at the level of the individual institution as well as at the systemic level, giving priority to environmental factors and progressing to other sustainability factors as the methodologies and tools for the assessment evolve. Institutions should be required to assess the alignment of their portfolios with the ambition of the Union to become climate-neutral by 2050 as well as avert environmental degradation and biodiversity loss. Institutions should have the obligation to set out specific plans to address the financial risks arising, in the short, medium and long term, from ESG factors, including from transition trends in the context of the relevant regulatory objectives of the Union and Member States, for example as set out in the Paris Agreement, Regulation (EU) 2021/1119, the Fit for 55 package and the Kunming-Montreal Global Biodiversity Framework, as well as, where relevant for internationally active institutions, third-country legal and regulatory objectives. Institutions should be required to have robust governance arrangements and internal processes for the management of ESG risks and to have in place strategies approved by their management bodies that take into consideration not only the current but also the forward-looking impact of ESG factors. The collective knowledge and awareness of ESG factors by institutions’ management bodies and internal capital allocation to address ESG risks will also be key to strengthening resilience to the negative impacts of those risks. The specificities of ESG risks mean that understanding, measurements and management practices can differ significantly across institutions. To ensure convergence across the Union and a uniform understanding of ESG risks, appropriate definitions and minimum standards for the assessment of those risks should be provided for in a prudential regulatory framework. To achieve that objective, definitions should be introduced in Directive 2013/36/EU and EBA should be empowered to specify a minimum set of reference methodologies for the assessment of the impact of ESG risks on the financial stability of institutions, giving priority to the impact of environmental factors. Since the forward-looking nature of ESG risks means that scenario analysis and stress testing, together with plans for addressing those risks, are particularly informative assessment tools, EBA should be also empowered to develop uniform criteria for the content of the plans to address those risks and for the setting of scenarios and the application of stress testing methods. EBA should base its scenarios on available scientific evidence, building on the work of the Network of Central Banks and Supervisors for Greening the Financial System and the efforts by the Commission to strengthen cooperation between all relevant public authorities with a view to developing a common methodological base, as outlined in the Renewed Sustainable Finance Strategy. Environment-related risks, including climate-related risks and risks arising from environmental degradation and biodiversity loss, should take priority in light of their urgency and the particular relevance of scenario analysis and stress testing for their assessment.

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Source: EUR-Lex CELLAR · retrieved 2026-09-04 · Text as adopted (Official Journal); later amendments are not incorporated in this text.