EBA issues an Opinion in response to the European Commission’s proposed amendments to the EBA final draft technical standards on Pillar 3 disclosures on ESG risks

• The Opinion focuses on changes proposed by the European Commission to how the Banking Book taxonomy Alignment Ratio (BTAR) should be disclosed by institutions.
• The EBA accepts these changes as a way to introduce more proportionality but insists on the importance that the BTAR is disclosed as proposed in the ITS to prevent asymmetric treatment of exposures towards counterparties that may have similar levels of climate-related risks.  

The European Banking Authority (EBA) published today an Opinion on the amendments proposed by the European Commission to the EBA final draft Implementing Technical Standards (ITS) on prudential disclosures of environmental, social and governance (ESG) information. In the Opinion, while accepting the two substantive changes proposed by the Commission to enhance proportionality, the EBA insists that institutions should make every effort to collect and disclose the very relevant information reflected in the BTAR. 

The European Commission’s version of the ITS, compared to the final draft ITS submitted by the EBA on January 2022, includes two substantive changes, mainly with regard to the calculation and disclosure of the BTAR. In particular, the Commission has proposed amendments to emphasise: i) that institutions ‘may’ choose to disclose this information, instead of being required to do it on a ’a best effort basis’, and ii) that the collection of the information from the counterparties will be on a ‘voluntary basis’, including that institutions need to inform the counterparties about the voluntary nature of this request of information.

In the Opinion, the EBA recognises the importance of proportionality and, therefore, although favouring the original wording requesting institutions to disclose this information on a best effort basis, the EBA accepts the amendments proposed by the European Commission. The EBA also highlights that the aim of the BTAR is to prevent an asymmetric treatment of exposures towards counterparties which may raise similar level of riskiness to the institution and emphasises the importance that institutions make every effort to disclose this ratio and to collect the relevant information from their counterparties.

Legal basis and background

This Opinion is based on Article 15(1) of Regulation (EU) No 1093/2010 (‘EBA Regulation’), which requires the Authority to submit its response in the form of an opinion to amendments proposed by the European Commission. 

On 20 January 2022 the EBA submitted its final draft ITS and on the 31 August 2022, the EC sent a letter to the EBA about its intention to endorse the ITS with amendments and submitted a modified version of the ITS.