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\n1 Introduction 3  \n2 Scope and application 6  \n2.1 Application to significant institutions 6  \n2.2 Date of application 7  \n2.3 Application to less significant institutions 7  \n2.4 General prudential framework 7  \n3 Climate-related and environmental risks 10  \n3.1 Definitions 10  \n3.2 Characteristics of climate-related and environmental risks 10  \n3.3 Observations from stocktakes 14  \n4 Supervisory expectations relating to business models and strategy 16  \n4.1 Business environment 16  \n4.2 Business strategy 18  \n5 Supervisory expectations relating to governance and risk appetite 21  \n5.1 Management body 21  \n5.2 Risk appetite 24  \n5.3 Organisational structure 26  \n5.4 Reporting 29  \n6 Supervisory expectations relating to risk management 31  \n6.1 Risk management framework 31  \n6.2 Credit risk management 35  \n6.3 Operational risk management 38  \n6.4 Market risk management 40  \n6.5 Scenario analysis and stress testing 42  \n6.6 Liquidity risk management 43  \n7 Supervisory expectations relating to disclosures 45  \n7.1 Disclosure policies and procedures 45  \n7.2 Content of climate-related and environmental risk disclosures 48  \nReferences 51  \n1 Introduction  \nFollowing the adoption of the Paris Agreement on climate change 1 and the UN 2030 Agenda for Sustainable Development in 2015, governments are making strides to transition to low-carbon and more circular economies on a global scale. On the European front, the European Green Deal sets out the objective of making Europe the first climate-neutral continent by 2050. The financial sector is expected to play a key role in this respect, as enshrined in the Commission action plan on financing sustainable growth.  \nTransitioning to a low-carbon and more circular economy entails both risks and opportunities for the economy and financial institutions,2 while physical damage caused by climate change and environmental degradation can have a significant impact on the real economy and the financial system. For the second year in a row, the European Central Bank (ECB) has identified climate-related risks as a key risk driver in the SSM Risk Map for the euro area banking system. The ECB is of the view that institutions should take a strategic, forward-looking and comprehensive approach to considering climate-related and environmental risks.  \nThe ECB is closely following developments that are likely to affect euro area institutions. The Commission action plan on financing sustainable growth aims to redirect financial flows to sustainable investments, to mainstream sustainability in risk management and to enhance transparency and long-termism. Specifically for the banking sector, the European Banking Authority (EBA) was given several mandates to assess how environmental, social and governance (ESG) risks can be incorporated into the three pillars of prudential supervision. Based on this, the EBA published an Action Plan on sustainable finance and a Discussion Paper on the integration of ESG risks into the regulatory and supervisory framework.  \nThis guide outlines the ECB’s understanding of the safe and prudent management of climate-related and environmental risks under the current prudential framework. It describes how the ECB expects institutions to consider climate-related and environmental risks – as drivers of existing categories of risk – when formulating and implementing their business strategy and governance and risk management frameworks. It further explains how the ECB expects institutions to become more transparent by enhancing their climate-related and environmental disclosures.  \nThis guide is not binding for the institutions, but rather it serves as a basis for supervisory dialogue. As part of this supervisory dialogue, the ECB will discuss with institutions the ECB’s expectations set out in this guide in terms of any possible divergence","cbCaittERX1SEldP","https://ap.wps.com/l/cbCaittERX1SEldP","pdf",729502,54,"English","# Introduction\n# Scope and application\n# Climate-related and environmental risks\n# Supervisory expectations relating to business models and strategy\n# Supervisory expectations relating to governance and risk appetite\n# Supervisory expectations relating to risk management\n# Supervisory expectations relating to disclosures\n# References","[{\"question\":\"What is the purpose of this guide on climate-related and environmental risks?\",\"answer\":\"It describes the ECB’s understanding of safe and prudent management of climate-related and environmental risks under the current prudential framework and forms a basis for supervisory dialogue.\"},{\"question\":\"How are institutions expected to integrate climate-related and environmental risks into their strategy?\",\"answer\":\"Institutions should consider these risks as drivers of existing risk categories and integrate them into business strategy, governance, and risk management frameworks across the short, medium, and long term.\"},{\"question\":\"What governance and risk appetite expectations does the guide set?\",\"answer\":\"The management body is expected to oversee and consider climate-related and environmental risks when developing overall strategy and objectives, and institutions are expected to explicitly include these risks in the risk appetite framework and assign clear responsibilities within the organisational structure.\"},{\"question\":\"What disclosure-related expectations are covered?\",\"answer\":\"The guide outlines expectations for disclosure policies and procedures and specifies the content expected in climate-related and environmental risk disclosures.\"}]","Guide on climate-related and environmental risks - Supervisory expectations relating to risk management and disclosure - November 2020 | PDF",1789889689,136]