Difference between revisions of "ESG Risk Appetite"
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== Definition == | == Definition == | ||
| − | '''ESG Risk Appetite''' is an organizations [[Risk Appetite]] in relation to managing its [[ESG Risks]]. This is an emerging term (as with most aspects of [[ESG Risk Management]]). | + | '''ESG Risk Appetite''' is an organizations [[Risk Appetite]] in relation to managing its [[ESG Risks]]. This is an emerging term (as with most aspects of [[ESG Risk Management]]).<ref>EBA/CP/2024/02, Draft Guidelines on the management of ESG risks</ref> |
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| + | == Scope == | ||
| + | ESG risk appetite must clearly define and addresse all material ESG risks an organization is exposed to. Risk appetite should specify the type and extent of the ESG risks institutions are willing to assume in their portfolio composition in relation to all relevant business lines, geographies - including jurisdictions and more granular geographical areas, economic sectors, activities and products, including as regards the portfolio’s concentration and diversification objectives. | ||
| + | |||
| + | == Requirements == | ||
| + | The risk appetite should be implemented with the support of appropriate ESG-related key risk indicators (KRIs), including potential limits, thresholds or exclusions. These KRIs should anchor ESG considerations in relation to products or financial instruments issued, originated or held by the institution, client segments, type of collateral and risk mitigation instruments. Institutions should use backward-looking and forward-looking indicators tailored to their business model and complexity. | ||
== Dimensions == | == Dimensions == | ||
Revision as of 18:05, 8 February 2024
Definition
ESG Risk Appetite is an organizations Risk Appetite in relation to managing its ESG Risks. This is an emerging term (as with most aspects of ESG Risk Management).[1]
Scope
ESG risk appetite must clearly define and addresse all material ESG risks an organization is exposed to. Risk appetite should specify the type and extent of the ESG risks institutions are willing to assume in their portfolio composition in relation to all relevant business lines, geographies - including jurisdictions and more granular geographical areas, economic sectors, activities and products, including as regards the portfolio’s concentration and diversification objectives.
Requirements
The risk appetite should be implemented with the support of appropriate ESG-related key risk indicators (KRIs), including potential limits, thresholds or exclusions. These KRIs should anchor ESG considerations in relation to products or financial instruments issued, originated or held by the institution, client segments, type of collateral and risk mitigation instruments. Institutions should use backward-looking and forward-looking indicators tailored to their business model and complexity.
Dimensions
- Countries or regions of operation and their prevailing ESG Factors and risks.
- Business models / business lines and their intrinsic ESG footprint
Issues and Challenges
- Reputation Risk
- ↑ EBA/CP/2024/02, Draft Guidelines on the management of ESG risks
