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Energy Crisis: Opportunity or threat for the EU’s energy transition? | A data driven analytical Executive Brief
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This data driven analytical executive brief, aims at facilitating banks, their customers but also other stakeholders in setting their strategies and targets, as it explores how the EU’s energy transition could be impacted by the recent crises in the short term, through the lens of the latest trends in fossil fuel
consumption, while also examining possible alternatives in the long term.
For key findings, please download the report
For more information:
Denisa Avermaete, Senior Policy Adviser, Financing Sustainable Growth, d.avermaete@ebf.eu
Alexia Femia, Financing Sustainable Growth Adviser, a.femia@ebf.eu
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About the EBF
The European Banking Federation is the voice of the European banking sector, bringing together 32 national banking associations in Europe that together represent a significant majority of all banking assets in Europe, with 3,500 banks – large and small, wholesale and retail, local and international – while employing approximately two million people. EBF members represent banks that make available loans to the European economy in excess of €20 trillion and that reliably handle more than 400 million payment transactions per day. Launched in 1960, the EBF is committed to a single market for financial services in the European Union and to supporting policies that foster economic growth.
About Enerdata
Enerdata is an independent research company incorporated in 1991, headquartered in Grenoble, with a subsidiary in Singapore. The company specialises in the analysis and forecasting of energy and climate issues, at different geographic (world, country or region) or business / sector levels. Leveraging its globally recognized databases, business intelligence processes and prospective models, Enerdata assists companies, investors, and public authorities across the world in designing their policies, strategies, and business plans.
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]]>EBF SUSTAINABLE FINANCE ROUNDUP ARTICLE
ESG Ratings: A European approach?
By Marta Morellato, EBF Financing Sustainable Growth
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BRUSSELS, 20 June 2022
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ESG Ratings are meant to offer a snapshot evaluation of the impact of ESG (environmental, social and governance) factors on a company as well as the company’s impact on the outside world.
As ESG investing is becoming increasingly mainstream, these ratings are being widely used by a variety of stakeholders at a growing rate. In particular, there has been an increasing focus on ESG factors and their relationship with financial performance. In other words, an increasingly common question is whether and to which extent ESG factors impact an entity’s creditworthiness. On top of this, at a time when the financial industry is being called to closely assess the ESG impact of their portfolio, both on a voluntary basis and as a result of mandatory EU legislation, these ESG ratings can potentially serve as a useful tool.
While on the one side ESG ratings could contribute to filling current data gaps in the area of sustainability, the rapid development and increasing reliance on such ratings by market participants has led to the proliferation of agencies offering these products, which investors and other stakeholders rely on. What has, however, been observed is that there are significant divergences between the rankings produced by different agencies. This can be traced back to at least one underlying rationale: different rating providers use different methodological approaches when providing ESG ratings. The approaches vary across providers and different weights are attributed to the single components of the score (i.e., to the ‘E’, ‘S’, or ‘G’), leading to issues of comparability across ratings. It goes without saying that if the same methodological approach is not applied, comparing results can be quite arduous. In the process of making a portfolio selection or investment decision, increasing transparency about the underlying methodologies, data sources, and weightings ESG rating providers are using is therefore crucial.
Another relevant area of concern is ESG ratings providers’ accessibility to this expanding market. At the current state of things, ratings are mainly provided by large market players headquartered outside the EU. The combination of these two elements, raises a few issues. First, it limits access to the market by smaller providers, which face entry barriers linked to high data collection costs and brand recognition of larger providers. The exponential growth in demand for ESG data should be matched by an equal, or at least similar, expansion of the relevant market. The EU ESG regulatory landscape is growing rapidly and facilitating access to the market also to smaller ESG rating providers may be particularly beneficial to cater to regional specificities. Moreover, few providers cannot cover the totality of demand for ESG ratings, especially in Europe, where the need for readily available ESG data reflects the rapid progress of sustainability-related disclosure requirements. Not matching the growing demand with a larger market will ultimately be detrimental in terms of the quality of the ratings provided. Second, over-reliance on few non-European providers and the resulting lack of competition may lead to higher costs for European companies. It is also important to ensure that ESG ratings are reflective of the fast-changing EU ESG legislative landscape.
So, how can we ensure the most is made of this essential tool? The EU certainly needs a coordinated approach, and this could be achieved through a common methodological framework bringing transparency and greater harmonization amongst ESG ratings against a current reality of unregulated data providers operating in the EU market.
With the EU standing as a frontrunner in the field of sustainability, it is crucial that we ensure a well-functioning, reliable, and transparent system for ESG ratings, which should provide meaningful and high-quality assessments of the ESG performance of companies.
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For more information:
Marta Morellato, Financing Sustainable Growth, m.morellato@ebf.eu
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]]>FROM THE EUROPEAN BANKING FEDERATION:
EBF Response: ESMA Call for Evidence on Market Characteristics for ESG Rating Providers in the EU
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BRUSSELS, 11 March 2022 – While ESG providers remain largely unregulated, their influence is expected to grow considerably. There are a series of underlying challenges, including discrepancies in ESG measurements and ongoing data quality problems. In particular:
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- Most users have difficulty understanding the underlying methodology for a specific ESG rating as ESG rating providers consider the methodologies proprietary information
- There is little coherence between methodologies amongst ESG rating providers, resulting in significantly diverging outcomes: the same company may be considered high risk, medium risk or low risk if rated by three different agencies
- ESG ratings do not always consider the impact and focus of an organization on the environment (double materiality) – hence there continues to be a gap between some investors’ expectations (e.g., of retail investors) and real impact
- A clear framework with consistent global principles and harmonized standards for ESG rating (EFRAG, IOSCO and International Sustainability Standards Board), which is currently lacking, would make it possible to have a clear and objective evaluation of financial market participants from an ESG perspective
You can read the EBF’s integral response to ESMA’s Call For Feedback on Market Characteristics for ESG Rating Providers in the EU below.
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For more information:
Denisa Avermaete, Senior Policy Adviser, Susatinable Finance d.avermaete@ebf.eu
Alexia Femia, Policy Adviser, Sustainable Finance a.femia@ebf.eu
Marta Morellato, Financing Sustainable Growth trainee m.morellato@ebf.eu
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About the EBF:
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere
Subscribe to the EBF Weekly + FinReg Agenda
Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
Subscribe to the EBF Morning Brief
The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
The post EBF Response: ESMA Call for Evidence on Market Characteristics for ESG Rating Providers in the EU appeared first on EBF.
]]>EBF response to BCBS Consultation ‘Principles for the effective management and supervision of climate-related financial risks’
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BRUSSELS, 15 February 2022 – The EBF has responded to the BCBS Consultation on the ‘Principles for the effective management and supervision of climate-related financial risks’. Key messages from the EBF response:
- Support for the ongoing efforts of banks and regulators to ensure proper identification, understanding management, and supervision of risk stemming from climate-related factors. Management, transformation, and absorption of financial risks will be a key element in the transformation of the global economy to net zero as substantial investments e.g. in new technologies need to be financed. Where material risks exist, it must be up to the institution to cover or mitigate them in line with their own business strategy and risk appetite. The role of supervisors should be to ensure that such risks are considered by the institutions, identified, understood, and managed.
- Welcome the Basel Committee‘s focus is on the risks associated with climate change, not the banks’ action to tackle climate change. Banks’ shifting of resources towards a low-carbon economy and engagement with customers is key in financing the transition. While banks are fully aware of their responsibilities and are committed to playing their role, it is not realistic to expect financial services to make this shift in the absence of a major change in the incentives of the underlying economy. The climate objectives must be transposed in the industrial policies and relevant national legal frameworks. Banks cannot be put in the position of being the primary enforcers of climate policy, nor should the prudential framework be used as a substitute for direct mechanisms such as taxes or industrial measures.
- Balance harmonization efforts at the global level with existing methodological flexibility. We welcome harmonization efforts at the global level and believe the principles of the Basel Committee have to be respected by national/regional authorities. However, as several authorities have already issued their supervisory expectations for climate-related risk management by banks the current flexibility in terms of methodologies as well as proportionality needs to be maintained over time given the large-scale investments required for the development of methodologies and internal systems. Global harmonization and streamlining are in particular essential for reporting and disclosures requirements. Harmonization and alignment of data definitions are needed, ideally at a global level not only to address reporting burden but also to prevent market confusion to avoid multiple reporting obligations or reporting of similar but slightly different information given in response to diverging regulatory requests and definitions.
- Capital should be determined with risk-sensitive metrics but it is too early for quantitative impact on the capital . At this stage, however, the relationship between risk drivers and actual risk levels on capital has not been established yet. Current risk measure models are not developed for a long-time horizon, the underlying capital planning likewise cannot be designed to take capital decisions in 30 years as the uncertainty increases based on accumulating assumptions. There are still a lot of uncertainties as to the evolution of physical and transition climate risk drivers coupled with a lack of reliable data and statistical data elements as well as lack of skills and methodologies to understand the expected impact given the interrelation between physical risks and transition risks respective evolutions (according to climate policies, technology, investor and consumer behavior, etc.) and the non-linear, incremental nature of physical risks over time in particular. Scenario analyses are also still in a pilot stage and will become more sophisticated over time. Stress testing methodologies for ESG risks have so far mainly been applied in an exploratory manner. While some assumptions and simplifications are needed so that the exercises are doable given the current limitations regarding data and methodologies, the framework and its results might be unrealistic, and special care has to be taken when analyzing the results. Therefore, as long as data, methodologies, and results of regulatory stress testing exercises are not stabilized, these exercises should not imply any quantitative impact on the capital requirement of the entities. Qualitative impacts in the supervisory review process should be restricted to very limited cases (for example, where it is unequivocal that a bank has not started to set up the governance and internal processes to integrate and account for climate-related financial risks). Climate-related stress testing should also be kept separate from “regular” stress testing.
- A phased-in approach as a way forward. Given the current lack of available quality data, harmonized definitions, and forward-looking risk methodologies to assess the impact of climate-related risk on existing risk categories we believe it is necessary to underline the need for a phase-in approach for banks
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]]>EBA consultation on draft technical standards on Pillar 3 disclosures of ESG risks: EBF response
Publication date: 2 June 2021
Key messages
Please find below a few key points of the EBF response on the EBA consultation on draft technical standards on Pillar 3 disclosures of ESG risks:
- Article 8 reporting requirements should not be included in the Pillar 3 scope and only disclosed under the Taxonomy Regulation Delegated Act.
- ESG Pillar 3 content, scope, and frequency should be aligned with NFRD/ CSRD content, scope, and frequency.
- The ITS requirements should be simplified, aligned with the objective of public risk disclosures, and reflect the maturity of methodological developments as well as the availability of relevant and reliable data. A meaningful reporting to supervisors/survey should be explored until robust methodologies for banks are developed at the EU level.
- The disclosures should focus on the exposures of the banking book which represent the vast majority of banks’ risks.
- We recommend that EBA develops a Pillar 3 approach by building blocks. It should commence with a limited number of ‘core’ templates based on available and high-quality data and methodologies and gradually, the level of granularity should be adapted.
For more information:
Denisa Avermaete, Senior Policy Adviser, Sustainable Finance, d.avermaete@ebf.eu
Eleni Choidas, Policy Adviser, Sustainable Finance, e.choidas@ebf.eu
About the EBF:
The European Banking Federation is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere. The EBF serves as the voice of the European banking sector, bringing together national banking associations from across Europe. Website: www.ebf.eu Twitter: @EBFeu.
Subscribe to the EBF Weekly + FinReg Agenda
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]]>CONSULTATION RESPONSE
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Management and supervision of ESG risks for credit institutions and investment firms: EBF response to EBA consultation
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BRUSSELS, 4 February 2021 – The European Banking Federation has responded to the European Banking Authority’s consultation on incorporating ESG risks into the governance, risk management and supervision of credit institutions and investment firms.
Key message
- The financial impact of the climate on the bank’s counterparties and the financial impact of the counterparties on climate could impact the risk position of the bank itself. Banks are therefore increasingly active in the assessment of ESG factors as drivers for existing risk categories. However, risks related to ESG factors are still difficult to quantify. The time horizon of ESG impacts is longer than the regular time horizon for strategic planning, the prudential timeframe and the supervisory time horizon. There are too many uncertainties about the actual effects and also methodological challenges to integrating these risk divers in the risk management framework and models.
- Lack of data is also a challenge. The recent legislative developments will only accelerate the provision of data on green assets but will not improve data on non-green assets that are much needed for the development of quantitative indicators and methodologies. Most of the listed indicators are not necessarily suitable for risk management and are difficult to be evaluated and applied. Some could be useful for categorization of sustainable finance product offering but such categorization is per se not linked to risk management.
- In the short-term horizon, the focus should therefore be on the correct assessment of risks. In the medium/long-term horizon (3 to 10 years), the focus should be on consistency in approaches, ensuring that strategy of institutions was built considering ESG factors and expected ESG trends in a qualitative manner.
- Scenario analysis could be a useful tool to feed thought around business strategy, but their results should be used with caution. The outcomes should for the time being primarily focus on ESG-related KPIs, and secondarily on specific financial indicators, in order to focus on the assessment of ESG risk drivers on the business model. They should remain clearly differentiated from solvency-related stress testing exercises, which use different methodologies, pursue different objectives, and therefore measure different impacts, based on different indicators. Scenario analysis and stress testing should only be used qualitatively and not for capital adequacy or allocation as they cannot be considered a tool for proper measurement of banks resilience, given the current uncertainty around methodologies and data.
Find the EBF response to this consultation by clicking the ‘full document’ button below:
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FOR MORE INFORMATION:
Sustainable Finance page on the EBF website: CLICK HERE
Denisa Avarmaete, Senior Policy Adviser, Sustainable Finance, EBF
d.avarmaete@ebf.eu
MEDIA CONTACTS:
Ruta Barthet, Senior Communications & Media Officer, EBF
r.barthet@ebf.eu, +32 492 46 73 04
Raymond Frenken, Director of Communications, EBF
r.frenken@ebf.eu +32 2 508 3732
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ABOUT THE EUROPEAN BANKING FEDERATION:
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.
Subscribe to the EBF Weekly + FinReg Agenda
Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
Subscribe to the EBF Morning Brief
The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
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]]>A centralized register for ESG data in the EU:
EACB, EBF, EFAMA, ESBG, IE, PE Joint Letter
BRUSSELS, 10 June 2020 – The European Banking Federation, together with five other financial industry associations, is calling for the European Commission to establish a common ESG data register in the European Union to enhance the availability of relevant and reliable ESG data, facilitate disclosure and scale-up sustainable funding.
- The data register should focus on ESG disclosure in line with Non-Financial Reporting Directive and EU taxonomy, starting with climate change adaptation and mitigation objectives, as well as ESG data necessary to financial market participants to comply with the Sustainable Finance Disclosure Regulation.
- The register should also include relevant ESG information already collected by European and national institutions such as governments, central banks, statistical bodies, etc. The EU should open up its databases that collect environmental reporting data and make those re-usable to users of non-financial information.
- Such data should be gathered and made available digitally to users of non-financial information, not only investors but also lenders, academia, researchers, authorities and others.
Subscribe to the EBF Weekly + FinReg Agenda
Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
Subscribe to the EBF Morning Brief
The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
The post A centralized register for ESG data in EU: EACB, EBF, EFAMA, ESBG, IE, PE Joint Letter appeared first on EBF.
]]>EBF advisor: Lucia Pecchini
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Publication date: 30 September 2019
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General remarks:
The EBF welcomes the possibility to express its views on the Draft Guidelines on loan origination and monitoring. Having a consistent and functioning framework for loan origination and monitoring is key to ensure a stable credit market and financial stability.
As a general remark, we note:
Firstly, the objective of these guidelines is to support the creation of a single rule book and to promote convergence and a level playing field. This is in line with the rule that guidelines of the European supervisory authorities are meant to support harmonized interpretation and application of EU law. They are not meant to amend it or to add new requirements. However, many of the requirements in the current version of the guidelines, go beyond existing legal texts and the harmonisation/clarification mandate of the guidelines. Any changes to existing legislative frameworks should be subject to the codecision process. Also, given the breadth of application and implications of these guidelines, the consultation period is considered as not proportionate, nor timely. Many of the underlying L1 texts (e.g. Consumer Credit Directive, Mortgage Credit Directive) are currently undergoing an evaluation exercise by the European Commission which can lead to a review of the text via codecision procedure. This means that within a short time frame, new legislation could regulate the very same topics covered by the guidelines. Some other topics addressed in the guidelines are currently under negotiation (e.g. sustainable taxonomy) and will be applicable after the proposed date for entry into force of the guidelines.
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Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
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The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
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]]>EBF advisor: Daniel Bouzas
Publication date: 19 February 2019
We would like to clarify the scope of the proposal, as the mandate of the Commission is clear, focusing on firms offering portfolio management and investment advice services, while ESMA seems to go beyond. As to avoid uncertainty or negative impacts, ESG principles shall be included in MiFID after the legislative proposals are finalised, all definitions adopted and fully operational.
Organisational requirements
- We are not convinced that amending general organisational requirements for investment firms is the most appropriate way to integrate sustainability risks in their advisory process. If included, it is important to clearly identify the specific organisational requirements and provide further guidance on how they should be applied by firms.
- We support the high-level principle-based approach for the integration of sustainability risks within the MiFID II requirements, similar to that one already followed for all other relevant risks.
- We would also like to remark the need of coordination with the EU proposed regulations on Sustainable Finance in order for terms and expressions to be given the same meaning.
- We would like to see further clarifications on specific aspects of conflicts of interest.
Product Governance
- Regarding market standards and “labels”, we advocate for a positive yet gradual approach while warning against their, sometimes, national character, and concerns with possible greenwashing.
- We urge supervisors and legislators to embrace, as much as possible, pro-active market initiatives already set up. And to not interfere with them until the EU harmonised framework and regulation is in place.
- Clients that have expressed ESG considerations may be offered “non-ESG” products if appropriately informed about this in the suitability report.
Suitability
- It is essential to provide as much flexibility as possible for the methods used by firms for integrating ESG preferences within their suitability model.
- Two-step approach towards clients’ preferences: Only asking detailed ESG questions when clients indicate a positive interest in ESG considerations.
Find the EBF response in this consultation by clicking the ‘full document’ link below:
Subscribe to the EBF Weekly + FinReg Agenda
Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
Subscribe to the EBF Morning Brief
The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
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