PRUDENTIAL TREATMENT OF ESG RISK

Guillaume Campagne () and Léa Rizk ()
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Guillaume Campagne: CAPCO, Postal: 121 avenue de Malakoff 75116 Paris FRANCE, https://www.capco.com/
Léa Rizk: CAPCO, Postal: 121 avenue de Malakoff 75116 Paris FRANCE, https://www.capco.com/

Journal of Financial Transformation, 2023, vol. 57, 125-129

Abstract: In May 2022, the European Banking Authority (EBA) published a discussion paper with the aim of evaluating the appropriateness of the current prudential framework to accurately assess the rising risks resulting from environmental issues. A key question the discussion paper seeks to address is: does the current Pillar 1 framework adequately cover new risks, such as environmental risk, or should they be subjected to a new dedicated treatment? In this article, we present the key concepts of environmental risk and examine the EBA’s analysis of the interaction between environmental risks and the traditional prudential risk categories – such as credit, market, operational, and concentration risks – in order to determine whether the tools used for the latter could be modified to manage the former. We further outline the key actions firms need to take to prepare themselves for a potentially binding Pillar 1 treatment, while awaiting further regulatory guidance.

Keywords: ESG; Climatic risk; Financial risk management; Prudential treatment; Pillar 1 (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1697

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