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Published : 2022-10-07
Vol. 88 No. 3 (2022)

Attempts to integrate ESG risks into EU prudential regulations for banks

Monika Marcinkowska

https://orcid.org/0000-0002-3494-9834

DOI: https://doi.org/10.26354/bb.2.3.88.2022

Abstract

The purpose of this article is to discuss existing and proposed EU regulations on ESG risks within the prudential regulation of banks. The nature of ESG factors and risks, the European Commission's objectives for sustainable finance and the identification of key regulations are discussed. The possibility of including ESG risks in micro- and macro-prudential regulation for banks is then analysed, with pointing out the advantages and disadvantages of the different possible standards. The analysis leads to the conclusion that pillar one of micro-prudential regulation is not appropriate to address ESG risks, and that a better outcome would be to expand pillar two and three, as well as macro-prudential regulation. These elements should be consistent with broader sustainability and monetary policies.  The effectiveness of prudential arrangements will depend on the degree of market development and the perception of sustainability objectives and ESG risks themselves by supervisors and the market (investors, customers of financial institutions and issuers of securities).

Keywords:

ESG, environmental, social and corporate governance factors, banks, prudential regulation

JEL Codes

G21, K20, Q01, O16


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Marcinkowska, M. (2022). Attempts to integrate ESG risks into EU prudential regulations for banks. Safe Bank, 88(3), 35–65. https://doi.org/10.26354/bb.2.3.88.2022

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email: redakcja@bfg.pl

Publisher:
Bankowy Fundusz Gwarancyjny

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