Summary
Details
- European Union
Under the original scope of CRR II, the climate risk disclosure requirements in Article 449a apply to large institutions whose securities are admitted to trading on an EU regulated market. In practice, these are primarily large listed banks and certain banking groups subject to the Capital Requirements Regulation.
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Background
CRR II forms part of the EU's Banking Reform Package and amends the original Capital Requirements Regulation (Regulation (EU) No 575/2013). Although most of its provisions concern capital adequacy, liquidity, leverage, and market risk, the regulation also marked an important step in integrating climate considerations into prudential supervision. For the first time, the regulation introduced Article 449a, requiring certain institutions to disclose information on environmental, social, and governance risks through the Pillar 3 disclosure framework. The objective is not to create a separate sustainability reporting regime but to provide investors and other stakeholders with information about how climate-related and other ESG risks may affect a bank's financial position and risk profile.
Climate Risk Reporting Requirements
Under Article 449a, institutions within scope must disclose information on their exposure to ESG risks using standardized reporting formats developed by the European Banking Authority (EBA). The disclosures focus primarily on climate-related financial risks and include both qualitative and quantitative information. The reporting framework includes disclosures on:
Governance, strategy, and risk management for ESG risks.
Exposure to climate-related transition risks.
Exposure to climate-related physical risks.
Exposures to carbon-intensive sectors and climate-sensitive assets.
Measures supporting counterparties' transition to a low-carbon economy.
Green Asset Ratio (GAR), Banking Book Taxonomy Alignment Ratio (BTAR), and other metrics specified in the EBA's Implementing Technical Standards.
The EBA's disclosure templates are intended to improve the consistency and comparability of ESG and climate risk information across European banks while supporting market discipline through greater transparency. Although Article 449a establishes the disclosure obligation, the detailed reporting templates and metrics are specified through the EBA's Implementing Technical Standards.
Current Status
CRR II remains an important milestone in the evolution of prudential ESG reporting because it introduced mandatory Pillar 3 disclosures on ESG risks. Since its adoption, however, the framework has evolved significantly. CRR III (Regulation (EU) 2024/1623) expands the application of Article 449a and introduces a more proportionate disclosure regime for different categories of institutions. The detailed reporting formats continue to be developed and updated through the EBA's Implementing Technical Standards, reflecting the EU's broader sustainable finance agenda.
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