ESG Risk Framework

Definition

ESG Risk Framework (also ESG Risk Management Framework) is the totality of Risk Policies, internal Risk Management Processes and Risk Tools used by an organization to manage the variety of ESG Risks it is facing.

Regulatory Requirements

Institutions should integrate ESG risks in their regular risk management framework by considering their role as potential drivers of all traditional categories of

• financial risks, including
  • credit
  • market
• operational
• reputational
• liquidity
• business model and
• concentration risks.

Institutions should have a robust and sound approach to managing and mitigating ESG risks over the short, medium and long term, including a time horizon of at least 10 years, and should apply a range of risk management tools including engagement with counterparties. Institutions should embed ESG risks in their regular processes including risk appetite, internal controls and ICAAP. Besides, institutions should monitor ESG risks through effective internal reporting frameworks and a range of backward and forward-looking ESG risks metrics and indicators.