The European Banking Authority has opened a consultation on what factors should be added to regulators’ prudential frameworks for financial institutions. Should the ‘social’ aspect of ESG be considered? What about the concept of ‘double materiality’? Given the increasing severity and frequency of physical environmental events, should a forward-looking risk analysis be included?
These specific questions are part of an EBA discussion paper, ‘The Role of Environmental Risks in the Prudential Framework’, which is designed to explore how environmental risks should be incorporated into the Pillar 1 prudential framework (on the minimum capital that all banks are legally required to hold).