[2021 Asia Financial Forum] ESG Risks Expected to Impact Individual Financial Institutions

'How EBA Works for Sustainable Finance' Topic

Pierce Haven, Director of the European Banking Authority (EBA)

[Asia Economy Reporter Ki Ha-young] "Public interest in ESG (Environmental, Social, and Governance) is high, similar to the global warming issue witnessed over the past 40 years. From a financial regulatory perspective, ESG risks can impact individual financial institutions and the financial sector."

Piers Haben, Director of the European Banking Authority (EBA), on the 25th attended the '2021 Seoul Asia Financial Forum' held at the Westin Chosun Hotel on Sogong-ro, Jung-gu, Seoul, where he gave a lecture titled 'How EBA Works for Sustainable Finance.' Director Haben is responsible for topics including ESG, digital finance, supervisory reporting and transparency, loan management, anti-money laundering and counter-terrorist financing (AML/CFT), and consumer-related issues at the EBA.

He emphasized the importance of ESG, stating, "In particular, we pay close attention to global initiatives related to the financial sector and climate change, such as the Financial Stability Board (FSB), the Network for Greening the Financial System (NGFS), and the Basel Committee, while highlighting the Paris Climate Change Agreement."

He also explained EBA’s method for prioritizing ESG tasks, noting that due to data shortages, it has been difficult to examine ESG factors related to the financial sector, so they first attempted to disclose key ESG-related metrics.

Earlier, in March, the EBA released a consultation paper on three major disclosure standards for ESG risks. Performance indicators such as climate change risks on the balance sheet, climate change mitigation efforts, and the Green Asset Ratio (GAR) will be included in ESG information disclosures. Once the rules announced by the EBA are finally adopted, major banks in the European Union (EU) will be required to disclose the Green Asset Ratio starting in 2022. The Green Asset Ratio is a key indicator of the EU Taxonomy activities for carbon neutrality, representing the proportion of environmentally friendly assets within each bank’s total loans and investment holdings. The EU Taxonomy is a green finance classification system that categorizes economic activities into six areas, including climate change mitigation and transition to a circular economy, and measures them accordingly.

The EBA views the measurement of the Green Asset Ratio as crucial to achieving the goals of the Paris Climate Agreement. He said, "The Green Asset Ratio reflects the actual lending activities of banks, but since it also reflects the nature of the economy we are working in, I believe it is very important to manage this figure carefully."

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