EBA considers impact of environmental risk on the prudential framework

While it may be possible to captureenvironmental risks within the existing prudential framework, it remains farfrom certain how those environmental risks will translate into financialrisks. Charlotte HillandDaniel Hirschfieldreporton a European Banking Authority discussion paper.

Charlotte Hillis a partner and head of the FinancialServices Regulatory group at Taylor Wessing in London, whereDanielHirschfieldis a senior knowledge lawyer. Contact themonc.hill@taylorwessing.comandd.hirschfield@taylorwessing.com.

The risks flowing from environmental matters,particularly those arising from climate risk, are affecting the overall risklandscape for the financial sector and are likely to assume even greatersignificance in the future. Can the European Union prudential framework forcredit institutions and investment firms adequately accommodate such risks oris there justification for a dedicated treatment for environmental risks? Thatis the question that is considered in the recent discussion paper (DP) from theEuropean Banking Authority (EBA) on the role of environmental risk in theprudential framework. [1] The DP, which invites comments from stakeholders,forms part of the work the EBA has been mandated to undertake under the CapitalRequirements Regulation and the Investment Firms Regulation. [2]