Banks told to review clients amid historic ESG crackdown in EU

European Banking Authority is revising the framework for capital requirements for lender to incorporate environmental and social risks. Photograph: iStockBanks in Europe will need to adjust the risk assessments they conduct of their clients to reflect new ESG requirements enforced by their watchdog.

Cracking down on such risks will be “a key area” for banks under the new framework, said Jacob Gyntelberg, director of economic and risk analysis at the EBA. Current rules already allow banks to “take a forward-looking perspective,” and this is “one of the areas where we should be able to move a little bit faster,” he said in an interview.

The EBF’s key concern now is that the prudential framework “remain evidence and risk based,” she said. “It is also crucial that once the EBA considers a more comprehensive revision of Pillar 1 or a macroprudential framework, this is done at a global level to ensure a level playing field for EU banks.”

Its report contains more than five pages of instructions to banks and national supervisors for short and longer-term changes. Banks and their national supervisors will be expected to reassess collateral values and incorporate environmental risks into trading book budgets. That includes internal trading limits and the creation of new products, the EBA said.

Such steps follow warnings from institutional investors who are losing patience with banks. They want the gatekeepers of capital to use their clout to impact greenhouse gas emissions by steering cash away from heavy emitters and toward green clients. James Alexander, chief executive of the UK Sustainable Investment and Finance Association , said in an interview last month that many institutional investors are “frustrated” at the pace of progress. And that’s fed “a real appetite for using litigation.”

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