ESG Risk — How Belgian Financial Institutions Deal With the Implementation of the Regulatory Framework

Originally written by Pierre Wallemacq for The Banking Scene.

Climate change, environmental degradation, social issues, and other ESG (Environmental, Social, and Governance) factors pose significant economic challenges. An increasing frequency and severity of extreme weather conditions (floods, hurricanes, wildfires) directly threaten businesses and communities, leading to economic losses. Recently, the Covid-19 pandemic reminded us that the global value chain and economy could crash in just a matter of weeks, bringing many sectors in danger.

The European Union has established various plans since the 2015 Paris Agreement to transition to a greener and more sustainable economy. To reach its Goal, it will leverage financial institutions’ influence on the various economic actors to enforce a culture that integrates ESG concerns and factors. Initiatives, like the famous action plan on sustainable finance linked to sustainable investments or the delegated acts under the Markets in Financial Instruments Directive (MiFID II), were launched to achieve this.

The European Banking Authority (EBA) has been mandated with defining a set of rules to strengthen the consideration of ESG risks in the three pillars of Basel. A new version of…