ESG Regulations and Concepts

This chapter provides an overview of the European regulatory scenario concerning the ESG issues and it describes the change of banking regulation toward ESG challenges. The context is characterized by a strong evolution which has expected and will expect important innovations in terms of climate and environmental risks in the financial sector. The main European authorities have established main sustainability objectives and requirements and they have foreseen some roadmaps to promote the transition toward sustainable finance by integrating ESG factors. The European Banking Authority (EBA) published in December 2019 an Action Plan for progressive integration of ESG factors in the players’ business strategies market through the identification of targeted actions to identify, measure, and monitor such risks and support the path toward sustainable finance. Also, the European Central Bank (ECB) has prepared a roadmap aimed at the progressive integration of ESG factors from the banking system. In November 2020 the ECB and the Authorities Competent Nationals (ANC) developed jointly the “Guidance on environmental climate risks” which reports the view of the Supervisors regarding climate-environmental risk management. The Guide also describes the expectations of how to take ESG issues into account in formulating and implementing corporate risk strategies. This Guide is not mandatory for banks, but it is relevant for the significant banks subjected to the direct supervision of ECB. The European Regulatory Framework on the topic is made up of EU Regulations with the aim of directing investments toward sustainable projects and activities. In this regard, the Proposal for a Commission Directive European Union 2021/189 of 04/21/21 (Directive CSRD), was issued with the dual objective of integrating previous Directives about corporate communication on sustainability and explaining the information set in more details, in compliance with EU principles on sustainability information. A key element of the EU CSRD is the setting of the European Sustainability Reporting Standards (ESRS) to which companies under the CSRD must align their reporting from 2024. The aim of these Standards is to ensure that in-scope companies report comparable, relevant, and reliable sustainability information as well as to make clear what they are expected to report on.