Clifford Chance Financial Markets Toolkit’s Post

🚨 New Paper alert. I recently posted a working paper: "Banks and ESG." It examines #ESG issues in banking and recent legal developments that will have implications for how banks approach ESG. It also proposes a more--ahem--sustainable legal framework for incorporating ESG considerations into banking. Please check it out! Comments are always welcome. https://lnkd.in/eg5R3bAv

In the latest edition of European Regulatory Radar, we look at what the year ahead might bring on the regulatory front. Read our sector-specific insights and takeaways from cross-cutting themes including ESG, the UK-Swiss Mutual Recognition Agreement or ECB supervisory priorities 2024-2026 here:

🧩 What makes the Green Asset Ratio (GAR) so challenging for banks? While the GAR is a powerful tool for assessing a bank's alignment with sustainability goals, its implementation comes with challenges, including demanding data collection, complex templates, and difficulties in comparing GARs across banks. ⬇️ Here is an overview of the key challenges and considerations banks face when measuring their GAR 🔍 For more details, check out our article on the EU Taxonomy for banks: https://lnkd.in/eCqpiye4 #ESG #compliance #EUtaxonomy #greenassetratio

🌱 Our latest report provides an in-depth analysis of Q4 2023 disclosures from 39 European banks, including 6 Dutch banks. This reporting period introduced the Green Asset Ratio template into the Pillar 3, which has been added to the benchmark. 🌺 The Q4 analysis also features a qualitative review of ESG disclosures from a selected group of banks. 🔔 You can now access our latest publication and blog on the Q4 2023 disclosures. Please reach out it you would like a presentation on the report made specific to your organisation. Shirley van Dorst Shenyu Mo Yana Beun Eric de Weerdt Bronwen Riezebos

Securitization of carbon emissions: -last year, banks offloaded around $200 bn in exposures from their balance sheets; -the synthetic risk transfer market has been existing for a while and growing; -but a new experimental and controversial type of securitization involving carbon emissions is being pitched; -this instrument would allow banks to cut and transfer their financed emissions; -limits: there are currently no specific methodology for securitization of carbon emissions nor rules to assign monetary values to such risk; -criticisms: engineering repackage with no real impacts to reduce emissions in absolute terms; -potential benefits: banks get capital relief, freeing them up to do more business. -the demand for such instrument needs to be assessed in parallel with expected tougher capital rules and regulatory developments -f.e EBA is currently revising Pillar 1, the framework that sets industry-wide capital requirements, to integrate ESG factors source Bloomberg:https://lnkd.in/eRrSPPmK #securitization #carbon #emissions #risk #esg

🔔📊  New Policy Brief: Finance Watch’s Recommendations for EU Banks’ Prudential Transition Plans The European Banking Authority (EBA) upcoming guidelines on “prudential transition plans” for EU banks have the potential to significantly enhance how banks manage #TransitionRisk. Europe can’t waste this unique opportunity to improve the resilience of the financial sector and provide the visibility that an #OrderlyTransition of financial markets requires. In this new policy brief, Finance Watch’s Vincent Vandeloise outlines key recommendations to ensure that the upcoming #EBA requirements bring legal certainty, comparability, and credibility to transition planning. Among these recommendations: ✅ Managing "Deviation Risk": Banks must account for the financial risk of deviating from a Paris-compatible climate trajectory. Even if not required to implement them, banks should design CSDDD-based transition plans so as to understand and manage the financial consequences of this deviation. ✅ Holistic Integration into Risk Management & Governance: Transition plans must be embedded into banks' governance structures, remuneration policies (which also requires a review of the EBA guidelines on sound remuneration policies), and risk management processes, including capital and liquidity assessments. ✅ Extended time Horizons & a coherent approach to climate scenarios: Transition risk management should shift from relying on historical data to using assessments based on harmonised, forward-looking scenarios. The time horizon for transition risk management should be shifted to 2050 to provide for a coherent view of the transition in line with global climate commitments. ✅ Clarifying Engagement Practices: Shareholder engagement and covenants should only be considered effective risk mitigation tools if they are tied to clear, time-bound objectives and include escalation processes, with divestment as a potential outcome for non-compliance. ✅ Addressing Supervisory Gaps & Overlaps: Legislators should clarify the supervision and enforcement of transition plan requirements and ensure consistent interpretation of transition plan requirements in different supervisory frameworks (CSDDD, CSRD, and prudential rules) across Member States to avoid fragmentation. 🔗 Read the policy brief here: https://lnkd.in/ea6MjRSZ #PrudentialTransitionPlans #DeviationRisk #SafeTransition #BankingRules #PrudentialRegulation #CRD6 #TransitionRisk #ClimateRisk #TransitionPlan #TransitionPlans #CSDDD #FinancialStability #SustainableFinance #ClimateCovenants

🇪🇺 As the full implementation of the #EBA Pillar 3 #ESG regulations takes hold across the EU, the way banks are required to disclose their climate footprint is set to change significantly. These mandatory disclosures are a key component of the wider European regulatory framework on sustainability reporting, designed in this context to ensure greater transparency around how financial institutions handle the increasing risks tied to climate change. In a new series of articles, I explore what these new regulations mean for banks and their climate data strategies. While many institutions have already made large strides in gathering and reporting climate-related information, the breadth and complexity of the new requirements—spanning transition and physical risks, as well as specific metrics such as the Green Asset Ratio—will quickly reveal the scale of the data challenges banks face in meeting them. One of the biggest hurdles is a lack of consistent, high-quality counterparty-level data on climate risk exposure This is where the role of robust data solutions becomes crucial. In the series, I take a closer look at what banks need to disclose against the Pillar 3 requirements, ensuring they not only meet their obligations, but also position themselves to lead the translation of climate-related risk into opportunity. In the first article in this three-part series, Asset Impact takes a first look at the EBA Pillar 3 templates and the steps banks can take to overcome the data challenges inherent in completing them. 👉 Read the article here: https://lnkd.in/eXWf9B7m

Out now: the latest Finance Watch policy brief about how to create safe and credible transition plans for EU banks. The recommandations elaborate on: 👉 how prudential transition plans can leverage transition plan requirements in CSRD and CSDDD 👉 how prudential transition plans can be integrated into the existing prudential framework of CRD 👉 elements proposed by the Network for Greening the Financial System (NGFS) to ensure credible transition planning Access the full policy brief here:

Banks are under more scrutiny than most sectors on ESG issues. From regulatory compliance to climate risk and beyond, Kevin Gould highlights how internal auditors can lead the charge in ensuring sustainable practices. With heightened risks and stakeholder demands, it’s essential to embed ESG in audit plans to truly drive value. Check out the article for a closer look! #ESG #Banking #InternalAudit #Sustainability

Prudential transition planning is a topic which no bank, no supervisor and no regulator can escape from in the near future - in Europe, Switzerland or elsewhere. #TransitionRisk.