Response to consultation on draft Guidelines on the management of ESG risks
Question 4: Do you have comments on the materiality assessment to be performed by institutions?
DBG considers that further information is needed for social and governance risk - especially which kind of data should be used, as the data availability for environmental forecasts is already quite limited to a handful of data providers. There are nearly no forecasts for governance and social aspects - guidance would be expected which sources or proxies can therefore be used.
Question 6: Do you have comments on the data processes that institutions should have in place with regard to ESG risks?
The proposed data points for S and G would just apply for the short-term time horizon and are not helpful for assessing the medium- to long-term horizon. There are no forward-looking data points available on the market that would cover social and governance topics to a sufficient level (compared to the case for environmental data points). Also, the suggestion to use proxies does not add any value - therefore more precise guidance is required on how to deal with the data gaps.
Further, we ask for clarification when clients are banks or other financial institutions, does collecting ESG asset-level data mean getting clients’ portfolio breakdown related-information?
Question 8: Do you have comments on the exposure-based methodology?
The provided approach is not sufficient to quantify social and governance risk in the long-term time horizon, as there are no data points available to estimate how governance and social factors are evolving. Additionally, the rating information is only valid for a 12-month period ahead and there is not yet any provider who is offering rating forecasts - therefore the information and approach given in point 33. is not sufficient and clarification/more guidance is needed.
Question 9: Do you have comments on the portfolio alignment methodologies, including the reference to the IEA net zero scenario? Should the guidelines provide further details on the specific scenarios and/or climate portfolio alignment methodologies that institutions should use? If yes, please elaborate and provide suggestions.
Further information should be provided on the scenarios and explanation why IPCC and NGFS are not included as well. In addition, the stated portfolio is not very conservative, and an explanation is needed why others are not in scope.
Question 11: Do you have comments on section 5.2 – consideration of ESG risks in strategies and business models?
We ask for clarification how S and G risks shall be incorporated over a medium- and long-term without any sufficient data base? For E risks, at least scenario data is available, but for the S and G dimension there are no forward-looking data points which could be included in a business strategy.
Question 16: Do you have comments on section 5.7 – consideration of ESG risks in policies and procedures for market, liquidity and funding, operational, reputational and concentration risks?
We ask for clarification if it is necessary to have a separate specific process for to identify, prevent and manage litigation or reputational risks resulting from greenwashing or perceived greenwashing practices, or can it be catered for by regular internal processes and standard risk assessments?
Question 17: Do you have comments on section 5.8 – monitoring of ESG risks?
Concerning the granular and frequent monitoring of counterparties, this cannot be implemented for institutions that have a short-term lending business model.
Question 22: Do you have comments on section 6.5 – transition planning?
For institutions that have a short-term lending business model, it is challenging to proactively engage with counterparties over the long run and put in place Engagement tools to support an enhanced transition trajectory for the counterparty.
Question 24: Do you think the guidelines should provide a common format for the plans required by the CRD? What structure and tool, e.g. template, outline, or other, should be considered for such common format? What key aspects should be considered to ensure interoperability with other (e.g. CSRD) requirements?
The short-, medium- and long-term time horizons are mentioned a few times, however the assigned duration is inconsistent throughout the paper and compared to CSRD (e.g. point 92. states that the short-term time horizon is 3 years, compared to 1 year defined by CSRD). We ask for a review.
Question 26: Do you have other comments on the draft guidelines?
Point 6.3 (page 6).
“Competent authorities shall ensure that institutions test their resilience to longterm negative impacts of ESG factors, both under baseline and adverse scenarios within a given timeframe, starting with climate-related factors. For the testing, competent authorities shall ensure that institutions include a number of ESG scenarios reflecting potential impacts of environmental and social changes and associated public policies on the long-term business environment.”
The development of ESG factors is derived via scenarios/pathways – please clarify what is meant by the long-term assessment under baseline scenario compared to how stress tests are to be performed.
Point 36 (page 24).
Why are only the IEA scenarios considered and none from NGFS, IPCC? Additionally, the net zero emissions 2050 is not very conservative, as the probability that this target is indeed reachable is quite low.
Point 92 (page 39).
The time horizon is contradicting with the previous information and is not in line with other regulatory expectations (like CSRD), where the short-term time horizon is clearly defined as 1 year.
Point 8 (page 47).
Not in line with previous mentioned time horizons - should please be reviewed.