United Nations Environment Programme Finance Initiative (UNEP FI)’s Post

▶️ A new Financial Watch report presents recommendations for the upcoming EBA requirements on “prudential” transition plans for EU banks". ▶️ Introducing the "deviation risk" principle: "The EBA acknowledged that deviating from a Paris-aligned trajectory creates per se a higher level of financial risk. With the focus of “prudential transition plans” on financial materiality, the EBA should specify the practical implications of managing the risk of deviation from the Paris Agreement objectives." ▶️ Besides measuring the "deviation risk", the report includes further recommendations like: 🔸integrating transition planning as a #riskmanagement tool 🔸changing #governance and #remuneration policies, 🔸build a coherent approach to climate scenarios, 🔸ensure consistent interpretation of several reporting guidelines, between others. #responsiblebanking #responsiblefinance

European banks are facing a historic ESG (environmental, social, and governance) crackdown, requiring them to reassess clients, especially those in high-emission sectors like oil and gas. New regulations from the European Banking Authority aim to factor climate-related risks into financial decisions, pushing banks to ensure compliance with sustainability standards. This shift could impact lending and risk evaluations, reshaping how banks do business across various industries. Will these assessments apply to you? For more, check out the original article (Ground News) https://lnkd.in/gsUXQqMx #ESG #EUtaxonomy #Sustainability

The EU's new capital requirements regulation (CRR) requires banks to report climate-related risks to their financial stability. This aims to make banks more resilient to the green transition. While the CRR doesn't directly affect risk weightings, it mandates increased disclosure of ESG risks, including exposure to fossil fuels. This could influence banks' risk management and investment decisions. However, the impact on incentivizing climate-friendly investments remains uncertain.

EU banks will need to measure their ESG risks and develop transition plans that are aligned with the bloc’s climate targets and rules, the European Banking Authority (EBA) has said. “ESG risks, in particular environmental risks through transition and physical risk drivers, pose challenges to the safety and soundness of institutions and may affect all traditional categories of financial risks to which they are exposed,” the EBA’s new guidelines state. The regulator has laid out how banks should identify and measure risks at an individual, portfolio and industry level. Special consideration should be given to exposure to the fossil fuel sector and institutions will need to collect data on how dependent banks are on fossil fuels. Financial institutions should also have a plan to manage and mitigate risks over at least 10 years. These transition plans should be “a single, comprehensive strategic planning process that covers all regulatory requirements stemming from applicable legislation” such as the corporate sustainability reporting directive and corporate sustainability due diligence directive (CSDDD). “I think what the EBA has done comes at the right time, because they indeed highlight that this is not a question of duplicating the work… or creating other requirements compared to [the] CSDDD. It’s a single plan,” said Vincent Vandeloise, a senior researcher and advocacy officer at Finance Watch. Read more: GreenCB.co/4aE3jFZ #SustainableFinance #ESGRisks #ClimateRegulation #EUFinance #TransitionPlanning

𝐍𝐚𝐭𝐮𝐫𝐞-𝐑𝐞𝐥𝐚𝐭𝐞𝐝 𝐑𝐢𝐬𝐤𝐬 𝐢𝐧 𝐁𝐚𝐧𝐤𝐢𝐧𝐠: 𝐀 𝐌𝐮𝐬𝐭-𝐑𝐞𝐚𝐝 𝐔𝐍𝐄𝐏 𝐅𝐈 𝐑𝐞𝐩𝐨𝐫𝐭 🌍 As global regulatory initiatives on nature-related risks rise, both banks and policymakers face rising challenges in keeping pace. The newly published insightful Report by United Nations Environment Programme Finance Initiative (UNEP FI) offers critical clarity in an increasingly complex global regulatory landscape, providing an up-to-date analysis on nature-related regulatory best practices and developments around the world. 📊 Why is this Report important? This is the 𝐟𝐢𝐫𝐬𝐭 𝐜𝐨𝐦𝐩𝐫𝐞𝐡𝐞𝐧𝐬𝐢𝐯𝐞 𝐠𝐥𝐨𝐛𝐚𝐥 𝐨𝐯𝐞𝐫𝐯𝐢𝐞𝐰 𝐨𝐟 𝐧𝐚𝐭𝐮𝐫𝐞-𝐫𝐞𝐥𝐚𝐭𝐞𝐝 𝐫𝐞𝐠𝐮𝐥𝐚𝐭𝐢𝐨𝐧𝐬 𝐚𝐧𝐝 𝐩𝐨𝐥𝐢𝐜𝐢𝐞𝐬 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜𝐚𝐥𝐥𝐲 𝐢𝐦𝐩𝐚𝐜𝐭𝐢𝐧𝐠 𝐭𝐡𝐞 𝐛𝐚𝐧𝐤𝐢𝐧𝐠 𝐬𝐞𝐜𝐭𝐨𝐫. It helps banks understand evolving regulatory frameworks and guides policymakers in creating coherent and effective policies. 🔍 What is inside the Report? 1️⃣ Nature & Prudential Mandates: How nature-related risks fit into banking regulations and broader policy landscapes. 2️⃣ Global regulatory landscape: A detailed analysis of initiatives in prudential regulation, taxonomies, disclosures, and due diligence across 50 jurisdictions. 3️⃣ Policy recommendations: Actionable insights for governments to develop impactful nature-related banking policies, informed by global financial regulators and institutions. 💡 State of play – The 2024 level of environmental risk integration now mirrors where climate risk integration stood in 2021‼️ While climate risks have long dominated environmental discussions, 𝐧𝐚𝐭𝐮𝐫𝐞-𝐫𝐞𝐥𝐚𝐭𝐞𝐝 𝐫𝐢𝐬𝐤𝐬—such as 𝐝𝐞𝐟𝐨𝐫𝐞𝐬𝐭𝐚𝐭𝐢𝐨𝐧 and 𝐰𝐚𝐭𝐞𝐫 𝐬𝐜𝐚𝐫𝐜𝐢𝐭𝐲—are now increasingly 𝐫𝐞𝐜𝐨𝐠𝐧𝐢𝐳𝐞𝐝 𝐚𝐬 𝐜𝐫𝐢𝐭𝐢𝐜𝐚𝐥 𝐭𝐡𝐫𝐞𝐚𝐭𝐬 𝐭𝐨 𝐠𝐥𝐨𝐛𝐚𝐥 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐬𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲. ✅ Why it is Essential: This Report is a must-read for banking leaders, regulators, policy makers and ESG professionals navigating the fast-changing sustainability landscape. 👇 Dive into the full Report and keep track of regulatory trends shaping the future of sustainable finance. 👇 #SustainableFinance #ESG #NatureFinance #BankingRegulation #ClimateRisk #FinanceForNature #GreenBanking #Sustainability #ResponsibleBanking

European banks are not as 'green' as one would think... At @ ABN AMRO Bank N.V. Financial Markets Research we just published a piece investigating the effective 'greenness' of European Banks. Based on EU's Pillar 3 requirements, financial institutions now have to report various ESG figures, among which loan exposure to sectors which contribute to or help mitigate climate change. We used this data to calculate Taxonomy alignment (TAC) and transition risk exposure (TEC). Bottom line: 'green' doesn't mean less exposure to transition risks. #finance #banking #sustainablebanking #green #esg #economics #business

OPINION | CBK’s GREEN FINANCE TAXONOMY Part 2 Players: #1 Central Bank of Kenya On 15th October,2021 The CBK through its “Guidance on Climate-Related Risk Management” issued a Guidance to the banking sector aimed at enabling banks to integrate climate-related risks into their corporate governance structures,strategic plans,risk management,and disclosure frameworks. This was aimed at addressing climate change related concerns and risks and it aims to address various climate-related financial risk drivers such as; #Physical risk-These are impacts of climate or weather related issues and long term(decades) progressive shifts of climate #Transition risk-These are financial risks which may occur during adjustment periods towards lower carbon emissions economy as a result of policy,technological or market changes #Liability risk-These are contingent liabilities which might be legal cases related to climate change such as loss and damages resulting from effects of climate change such as effects of floods,cyclones,Tsunamis etc Capital Requirements to account for Climate Risks The CBK is responsible for monetary policy & is planning to increase banks’ minimum capital requirements to cater for risks associated with climate change,cybersecurity among other factors. There is need for this based on stress test conducted by Kenya Bankers Association (KBA) last year which indicated that Kenyan banking sector is vulnerable to climate change(physical risk posing a major challenge) This could also see banks discuss in detail the proposed Climate-Adjusted Capital Requirements(CACRs) by climate advocates. CACRs advocates propose that banks should fund their loans that are high risk as a result of climate change with increasing shareholders’ capital. This would mean that depositors’ monies are safe while shareholder’s equity are exposed to risks by dividing them into (a)risk weights and (b) leverage ratios. The increase of minimum core capital debate will also see easy adoption of recommendations by Basel Committee on Banking Supervision (BCBS) which has advised banks to take “conservative approach” when assigning risk weights. CBK’s MPC is set to meet on 5th June where they’re expected to give the economic outlook through the CEO’s survey conducted every two months. #2 African Development Bank (AfDB) The African Development Bank is set to launch its AFRICAN ECONOMIC OUTLOOK 2024 template on 30th May, 2024 themed “Measuring the Green Wealth of Nations: Natural Capital and Economic Productivity in Africa” preceded by Presidential Dialogue on 29th which is set to be attended by Heads of State. AfDB has in the recent past committed to financing projects focusing on transport, water, energy and agriculture. The Development Bank also has initiatives such as Africa Climate Change Fund(ACCF) established in 2014, African Green Banks Initiative (AGBI) Other Related Players: Kenya Bankers Association Insurance Regulatory Authority Adopters: KCB & DTB

🔵 The 2025 review of the European Central Bank’s monetary strategy policy is the perfect opportunity for the #ECB to take ambitious measures that integrate learnings and challenges four years after its first “Climate Roadmap”. Why? ⤵️ As the ECB has repeated, a faster and orderly transition is essential for price and financial stability. Indeed, as climate change and nature degradation intensify, so will their impact on monetary policy and the whole financial system. Moreover, maintaining Europe’s fossil fuel dependency leaves us vulnerable to future price shocks, as experienced with the high inflation in recent years. ➡️ We have joined 40 other civil society organisations to urge the ECB Governing Council to put forward an improved Climate Roadmap when concluding this year’s strategy assessment. This new roadmap should: - introduce green lending facilities, - implement climate criteria in its collateral framework, - tilt the stock of securities in the remaining asset purchase portfolios. More details here: https://lnkd.in/eSRPk5_g Reclaim Finance - ONG Agir pour le climat ASUFIN ECCO think tank FairFin Financité New Economics Foundation Veblen Institute for Economic Reforms Sustainable Finance Observatory (formerly 2°Investing Initiative)

Initial analysis of the first reporting year under the EU Taxonomy reveals exceptionally low Green Asset Ratios (GARs) among banks. This is primarily attributable to data collection challenges and a conservative approach to disclosures adopted by banks according Environmental Finance. I would also add the problem of taxonomy assessment of "use of proceeds" instruments or real estate collateral. Banks with significant exposure to retail clients, project finance, and other instruments with defined use of proceeds face particular hurdles in applying the EU Taxonomy. For instance, assessing a mortgage portfolio of over a million loans necessitates a granular evaluation of each property's green credentials against the complex Taxonomy criteria. Given the scale of this task, many banks have opted for a conservative stance, categorizing such exposures as "not aligned," which consequently decreases overall GARs. Going forward, the development of AI-driven solutions could potentially streamline the assessment of retail and project finance portfolios against the EU Taxonomy criteria. Until such tools mature, the industry will likely continue grappling with these challenges. #GAR #EU #taxonomy #green #banking #sustainability #esgdisclosures #esgcompliance #esg #tech #AI #reporting #regtech #datashortcomings #taxonomydisclosures #greening

Incomplete or unreliable emissions data are often cited as the main challenge in calculating financed emissions. This lack of transparency hinders prudential supervisors' ability to evaluate progress toward decarbonization or improved climate risk management. "A climate risk stress conducted by the European Central Bank in 2022 found that, due to lack of quality data, over 80% of banks used proxies to estimate financed emissions, leading to high dispersion in reported data. Such estimation models provide inconsistent granularity and threaten the accuracy of resulting calculations. " Read Ingrid W.'s thoughts on how the new reporting requirements from the International Sustainability Standards Board (ISSB) will provide investors with more transparency. https://lnkd.in/eyUr6d-g Climate & Capital Media Green Central Banking S&P Global, Deutsche Bank, ING, ING Nederland International Banking Federation (IBFed), Deloitte Deloitte Digital Deloitte Sustainability European Central Bank, U.S. Securities and Exchange Commission City University of Hong Kong, #climatechange #climatechangenews #climatechangeinvestment #climate #climatenews #climateeconomy #climatebanking #climateinvesting #climatereporting #climatedata #climatereport #esg #esgdata #jobs #linkedin #linkedinnews #linkedinjobs #esgreporting #esgfinance #esgeconomy #esgdata #esgnews #esgreport #esgbanking #banking #investing #economy #investors #bank #greenbanking #greeneconomy #greenfuture #greennews #greeninvesting #cleaninvesting #data