MSCI has launched a new tool for banks to align with the European Banking Authority’s Pillar 3 framework in measuring and reporting on ESG and climate-related risks.

The solution supports granular reporting required by the EBA’s implementing technical standards (ITS) on Pillar 3 disclosures on ESG risks. In addition to supporting banks manage climate risk exposure, this solution also helps banks with the reporting recommended by Task Force on Climate-related Financial Disclosures (TCFD) and measuring alignment of financing activities with the EU taxonomy.

The EBA ESG Pillar 3 disclosure standards are a mandatory requirement for banks with securities traded on a regulated market of any EU member state. Banks that are in-scope must report information about climate risks on four main categories:

• Exposure to climate related assets and assets subject to climate change-related risks, including transition and physical risks;
• Support for counterparties through the low-carbon transition and in climate adaptation;
• Key performance indicators on sustainable finance activities based on the EU taxonomy regulation;
• How banks integrate ESG considerations into governance, business, strategy and risk management.

As set out by the EBA, banks are required to disclose on five of the ten templates with their 2023 financial statement or as soon as possible thereafter.

Eric Moen, Head of ESG and Climate, at MSCI, comments: “The introduction of the European Banking Authority’s Pillar 3 ESG risk disclosure requirements and increasing stakeholder demands is putting greater scrutiny on financial institutions to measure climate risk transparency across their banking book. With this new disclosure framework in place, banks need to take urgent measures to ensure that they are meeting the regulatory requirements set out by EBA standard, as well as other region and country-specific frameworks. The new solutions from MSCI will help banks to familiarize themselves with the EBA’s expectations and their disclosure obligations.”