Sustainability disclosures and banking regulation in the European Union

Transparency is a key tool to promote market discipline in the financial sector, allowing investors and users to better understand banks, compare and make informed decisions. The publication of information on environmental and climate change-related, social or governance aspects has gained increasing relevance as a tool to promote the role of financial institutions in financing investments that may contribute to a sustainable economy, and to highlight the need for banks to develop appropriate risk management frameworks. There are multiple initiatives at European Union and international level in this regard. In fact, transparency and disclosure of information on sustainability is one of the pillars of the European Commission’s Action Plan on sustainable finance, and of the EBA, including the definition of a green asset ratio and of templates with information on climate change transition and physical risks. Regulators and policy makers should coordinate their initiatives, and help entities to address the challenges that they face when preparing this information, in terms of, for example, data availability.