ESG Disclosures: A New Regulatory Landscape #S2E6
06/21/23 • 18 min
Welcome to FinTalk, the leading podcast in Financial Services that addresses the most pressing topics in the FinTech and RegTech.
In this episode, our host Jawad Akhtar talks with Mark Davies, Partner at Element22, to shed light on ESG data and the European Union regulations shaping the banking industry. They discuss the importance of sustainability reporting, EU Taxonomy, data collection strategies, climate risks, and how financial institutions can adapt to regulatory changes while ensuring quality data.
This episode of FinTalk covers:
The intricacies of EU sustainability reporting, specifically NFRD and CSRD, and their impact on ESG reporting in banking.
Navigating essential metrics such as Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR), and understanding the role of EU Taxonomy in sustainability.
Strategies for data collection to address challenges and enhance data quality in sustainability reporting.
The significance of geographic data and climate information in analysing climate risks for the banking industry.
How financial institutions can stay updated with evolving regulations and leverage third-party tools for compliance and reporting.
Episode highlights:
“CSRD will actually expand its scope slightly, well, significantly actually, rather than just the largest exchange listed corporates being in scope for NFRD, under CSRD, the expectation is that approximately 50,000 corporates across Europe will be covered by that, based on having more than 500 employees and a number of different financial metrics in terms of the size of the organization. But in short, the green asset ratio depends on data that's being published by those organizations.”
Mark Davies.
“The EBA have published a really simple summary, two-pager I think it is, that explains the requirements for Pillar 3 disclosures around ESG and the expectations around that. Actually, it's an excellent document in the sense that it brings it up to a level that anyone can read and understand. I would begin there, understand those requirements. The key deadlines, there's a date of December 23, so the end of this year, for reporting the Green Asset Ratio, and the middle of 2024 for the BTAR ratio, banking book taxonomy alignment ratio”
Mark Davies.
“Clearly the Green Asset Ratio, I'd say because the deadlines are actually slightly earlier than the BTAR ratio deadlines, the information that's required to satisfy the GAR is probably the first place to begin. That would include capturing information from NFRD statements for large lending and financing customers. That would be a logical place to begin. The next piece of the puzzle I would say is then probably to start to think about some of the climate specific information. Having a good understanding of your three sectors is going to be critical because that will drive which aspects of the EU Taxonomy Compass and therefore the detail around your sustainability activities.”
Mark Davies.
Links & references:
VERMEG:
https://www.linkedin.com/company/vermeg/
Jawad Akhtar:
https://www.linkedin.com/in/jawad-akhtar-313562b/
Mark Davies:
https://www.linkedin.com/in/markdaviesdata
Element22 Link:
Welcome to FinTalk, the leading podcast in Financial Services that addresses the most pressing topics in the FinTech and RegTech.
In this episode, our host Jawad Akhtar talks with Mark Davies, Partner at Element22, to shed light on ESG data and the European Union regulations shaping the banking industry. They discuss the importance of sustainability reporting, EU Taxonomy, data collection strategies, climate risks, and how financial institutions can adapt to regulatory changes while ensuring quality data.
This episode of FinTalk covers:
The intricacies of EU sustainability reporting, specifically NFRD and CSRD, and their impact on ESG reporting in banking.
Navigating essential metrics such as Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR), and understanding the role of EU Taxonomy in sustainability.
Strategies for data collection to address challenges and enhance data quality in sustainability reporting.
The significance of geographic data and climate information in analysing climate risks for the banking industry.
How financial institutions can stay updated with evolving regulations and leverage third-party tools for compliance and reporting.
Episode highlights:
“CSRD will actually expand its scope slightly, well, significantly actually, rather than just the largest exchange listed corporates being in scope for NFRD, under CSRD, the expectation is that approximately 50,000 corporates across Europe will be covered by that, based on having more than 500 employees and a number of different financial metrics in terms of the size of the organization. But in short, the green asset ratio depends on data that's being published by those organizations.”
Mark Davies.
“The EBA have published a really simple summary, two-pager I think it is, that explains the requirements for Pillar 3 disclosures around ESG and the expectations around that. Actually, it's an excellent document in the sense that it brings it up to a level that anyone can read and understand. I would begin there, understand those requirements. The key deadlines, there's a date of December 23, so the end of this year, for reporting the Green Asset Ratio, and the middle of 2024 for the BTAR ratio, banking book taxonomy alignment ratio”
Mark Davies.
“Clearly the Green Asset Ratio, I'd say because the deadlines are actually slightly earlier than the BTAR ratio deadlines, the information that's required to satisfy the GAR is probably the first place to begin. That would include capturing information from NFRD statements for large lending and financing customers. That would be a logical place to begin. The next piece of the puzzle I would say is then probably to start to think about some of the climate specific information. Having a good understanding of your three sectors is going to be critical because that will drive which aspects of the EU Taxonomy Compass and therefore the detail around your sustainability activities.”
Mark Davies.
Links & references:
VERMEG:
https://www.linkedin.com/company/vermeg/
Jawad Akhtar:
https://www.linkedin.com/in/jawad-akhtar-313562b/
Mark Davies:
https://www.linkedin.com/in/markdaviesdata
Element22 Link:
Previous Episode
Consumer Duty Unpacked: An In-Depth Conversation with Matthew Tyrrell #S2E5
Welcome to FinTalk, the leading podcast in Financial Services that addresses the most pressing topics in the finance industry.
In this episode, our host Jawad Akhtar is joined by renowned industry expert Matthew Tyrrell, Senior Manager at EY. Together, they unravel the complex world of Consumer Duty, its importance, the role of data in understanding consumer needs, and how firms can adapt to meet new regulatory requirements and expectations.
This episode of FinTalk covers:
The concept and significance of Consumer Duty in financial services.
The role of data and technology in understanding and meeting consumer needs.
How firms can adapt to the evolving regulatory landscape and embrace change.
Next Episode
Navigating Basel III Reforms in the Banking Sector #S2E7
Welcome to FinTalk, the leading podcast in Financial Services that addresses the most pressing topics in the FinTech and RegTech.
In this episode, our host Jawad Akhtar talks with Paul Whitmore, Global Head - Counterparty Risk Solutions at Fitch to illuminate the Basel III final reforms and their global banking implications. They discuss the SCRA and ECRA approaches, the surge in interest in Basel III reforms amidst the COVID-19 pandemic, the role of different ratings, grades, and agencies in shaping banks' strategies, and much more.
This episode of FinTalk covers:
• Understanding the Basel III reforms and their impact on banking, particularly focusing on SCRA and ECRA approaches.
• The importance of quantitative impact studies in understanding and managing the implications of these reforms.
• The role of ratings, grades, and agencies in helping banks devise effective strategies.
• Exploring the unique implications for unrated banks within the Basel III regulatory framework.
• An in-depth discussion on the different interpretations and implementations of Basel III reforms across various jurisdictions like the EU, UK, and US.
Episode highlights:
“I'll give you an example. So the Canadian regulators that came into effect this year, they've given banks an option of how to treat unrated banks. You can use the simplified approach. Soone risk weight for all unrated banks, but you've got to stick with it. You can't swap and choose or you can adopt the SCRA. So most Canadian banks have opted for the simplified approach. "Let's just stick with I think it's 50% risk weight. That's not a bad compromise. We might not benefit from a 30% or a 40% risk weight, but we are avoiding the 150% risk way." So it was the regulators of Canada to make that decision on what's best for their country. And every country will implement something slightly different I think.” - Paul Whitmore (09:32)
“So this will probably have the largest impact. I think what people have to try and think about is it's not just this unrated bank thing. It's how bank exposures are being treated by all of the Basel proposals. So no longer can you estimate your own LGD. Okay, you could use your own rating assessment previously.” - Paul Whitmore (13:11):
“Okay, so that again, the framework is still being adopted, but there's nuances and every jurisdiction is going to have a slightly different flavor to it. Australia didn't implement the SCRA. They're fully on board with the Basel III final reforms, but decided on a simplified approach again. They felt after speaking to three or four of the larger banks in Australia, they said APRA felt that the SCRA was too complicated, which I don't think it is. As these banks were laughing at that saying, "Well, we all said it was a great approach, that APRA decided that it was too complicated to implement at this time." So they've gone for a simplified approach again.” Paul Whitmore (16:56):
Links & references:
VERMEG:
https://www.linkedin.com/company/vermeg/
Jawad Akhtar:
https://www.linkedin.com/in/jawad-akhtar-313562b/
https://www.linkedin.com/in/paul-whitmore-92a90412/
Fitch Solutions: Data, Research & Analytics for Credit Risk & Strategy
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