ESG Risks

With a general banking knowledge.

ESG risk factors now play a pivotal role in the risk management framework of financial institutions, highlighting a broader focus on climate-related, environmental, and social concerns, as well as sustainable finance practices. Within this module, we will explore the evolving responsibilities of risk managers, delve into the new ESG factors that require consideration, and examine the dynamic interactions of this role with other business and control functions.

• Obtain a comprehensive understanding of the complexities surrounding ESG risk and related concepts.
• Grasp forthcoming developments in the prudential framework concerning ESG risk.
• Recognize the issues and repercussions of these measures for banks.
• Gain insight into the implementation roadmap and schedule.

Part 1: Introduction, Context, Implementation, Outlook

Gain an overview of the issues surrounding ESG risk and the various associated concepts:

• Context for encouraging sustainable investment.
• Definition of ESG risk:
  • Environmental risk:
    • Physical risk.
    • Transition risk.
    • Litigation risk
  • Social risk.
  • Governance risk
• Domino effect of ESG risk amplification on other risks
• The fight against greenwashing

Part 2: European measures to manage ESG risk

Get an overview of the actions taken by public authorities to improve ESG risk management.
Understand future developments in the prudential framework relating to ESG risk:

• Overview of the regulatory context (EU action plan) and the main European, national and international actions aimed at better managing ESG risks (ECB, CSSF (CSSF circular 21/773), FSB, etc.).
• Climate scenarios and stress tests (can be integrated into the first section on definition and concepts)
• Specificity of climate stress tests compared with other stress tests: long duration of the shock, dynamic balance hypothesis, forward-looking approach
• A look back at the ECB 2022 stress test exercises and the 2019 EBA stress tests
• Roadmap for implementing the stress test framework within the bank

Part 3: Changes in the prudential framework for ESG risk

Understand future developments in the prudential framework relating to ESG risk.
Identify the issues and impacts of these measures for banks.
An overview of the implementation roadmap and timetable:

• Future Pillar 1 requirements (CRR3): credit risk, market risk, concentration risk
• Future Pillar II requirements (CRDVI, EBA guidelines, ECB guidelines): integration of ESG into SREP, ICAAP, ILAAP, RAF, stress test framework, etc.
• Future Pillar III requirements (CRR2 and CRR3): ESG disclosure requirements
• ITS EBA ESG: 10 qualitative and 3 quantitative templates
• Roadmap for banks
• Preventing greenwashing

Part 4: Summary and conclusion

No exam is available for this course.