The EACB welcomes the opportunity to comment on the EBA Discussion Paper on the role of environmental risks in the prudential framework.
We appreciate the stance of the EBA in clarifying that the approach followed will be first and foremost risk based. Indeed, we believe that it is key to clarify that the aim is not to embed in the framework prudential incentives/disincentives to redirect capital as this might in an early phase lead to the buildup of risk in counterparties that are still economically uncompetitive and lack credible long-term strategies and/or hamper the financing of transition activities that would help other sectors to become more sustainable.
We would also highlight that climate and environmental risks are, as of today, beginning to be covered by Pillar 2 (SREP) and Pillar 3 (disclosure) requirements. Supervisory expectations and guidance documents were published giving institutions direction on how to better arrange processes and strategies in terms of climate risks (e.g. ECB guide on climate-related and environmental risks for banks, EBA Report on management and supervision of ESG risks etc). The exposure towards environmental and climate risk is sufficiently addressed at institution specific level, and as it is mentioned in the discussion paper, the Pillar 1 framework already includes mechanisms that allow the inclusion of new types of risk drivers such as environmental risks (e.g. via credit ratings or the valuation of collateral).
As the discussion paper focuses on the Pillar 1 framework, it must be born in mind that environmental risks could also be tackled via the buffer framework. While a review of the macroprudential framework is in the pipeline, and some elements are already being addressed as part of the CRD 6/CRR 3 legislative process, it is worth noting that macroprudential measures such as the sectoral systemic risk buffer must not lead to any double counting of risks, especially when they are already covered by P2R/P2G (as stated also in the EBA Call for Advice for the review of the EU macroprudential framework).
In our paper we also explore questions related to the use of double materiality, the treatment of object finance and valuation of immovable collateral, the preservation of a pragmatic infrastructure support factor.