Response to consultation on draft ITS on Pillar disclosures on ESG risk
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NGFS scenarios are emerging as market standard. They are based on Integrated Assessment Models and have been developed with academic research institutes like Potsdam Institute, University of Maryland and the ETH in Zurich. For example, their orderly, disorderly and hot house approach is now used in the Bank of England’s Climate Biennial Exploratory Scenario (CBES) exercise. To capture uncertainty, MSCI has developed a wide range of alternate scenarios that are helping our clients to explore different key assumptions that can alter risk and return outcome.
- Another point that could be explained further by the template is whether and how the Do No Significant Harm (DNSH) and Social Safeguards principles should be incorporated in the context of these templates.
- In due course, the template should be enriched to include not only assets but interest income as well. It will be useful for users of financial information to see this data, as while knowing the percentage of assets is important, it is also important to understand whether the interest income comes from climate change mitigation or climate change adaptation. This will also enable users of financial information to see the asset yield these assets generate compared to those of non-eligible assets.
Question 1: Are the instructions, tables and templates clear to the respondents?
No CommentQuestion 2: Do the respondents identify any discrepancies between these tables, templates and instructions and the disclosure requirements set out in the underlying regulation?
No CommentQuestion 3: Do the respondents agree that the new draft ITS fits the purpose of the underlying regulation?
No CommentQuestion 4: Do the respondents agree that the tables with qualitative information proposed capture properly the information that institutions should provide?
Yes, we support the qualitative information proposed, which is built upon the FSB-TCFD recommendations.Question 5: Regarding template 1 – ‘Banking book - Climate change transition risk: Quality of exposures by sector’, do the respondents agree with the proposals in terms of sector and subsector classification included in the rows of the template and the indentification of the most exposed sectors in columns f to k and p to u?
MSCI has co-developed the Global Industry Classification Standard (GICS) methodology and also licenses climate alignment data to institutional investors using the GICS codes. We have internally mapped the NACE and GICS codes in order to provide our climate alignment analysis on equity and corporate fixed income securities using either classification system. We have observed that GICS is commonly used by investors while NACE is mostly used by policy makers. In our opinion, it is important to leave flexibility to investors and banks and use the classifications they rely upon already.Question 6: Do the respondents agree with the proposal included in templates 1 and 3 to disclose information on scope 3 emissions and with the transitional period proposed?
No CommentQuestion 7: Do respondents agree that information in terms of maturity buckets by sector proposed in template 2 is relevant to understand the time horizon of when the institution maybe more exposed to climate change transition risk?
No CommentQuestion 8: Do respondents agree that information in terms of alignment metrics and relative scope 3 emissions proposed in template 4 is relevant to understand and compare the transition risk phased by institutions? What are the respondents’ considerations with regard to the alignment metrics proposed and the sectors that should be covered by this disclosure? Do respondents agree with the transitional period proposed?
No CommentQuestion 9: Regarding the same template 4, what are the respondents’ considerations with respect to the choice of the 2 degrees reference scenario, would respondents opt for a different scenario?
We recommend calculating the distance to climate scenarios based on Integrated Assessment models such as AIM-CGE, REMIND or GCAM, as recommended by the Network for Greening the Financial System (NGFS).NGFS scenarios are emerging as market standard. They are based on Integrated Assessment Models and have been developed with academic research institutes like Potsdam Institute, University of Maryland and the ETH in Zurich. For example, their orderly, disorderly and hot house approach is now used in the Bank of England’s Climate Biennial Exploratory Scenario (CBES) exercise. To capture uncertainty, MSCI has developed a wide range of alternate scenarios that are helping our clients to explore different key assumptions that can alter risk and return outcome.
Question 10: Do respondents agree that information proposed in template 5 is relevant to understand the level of climate change transition risk and that information on exposures towards the most polluting companies is a good complement to the sectorial information included in other templates? Specific feedback is sought on possible alternative formats for the presentation of the information required in template 5. In particular, the EBA seeks feedback on whether aggregate information on exposures towards th
No CommentQuestion 11: What are respondents view on the way template 6 reflects how the trading book of institutions may be impacted by climate change transition risk? Do respondents agree that the threshold proposed to determine which institutions have to disclose this template is the appropriate threshold? Feedback on whether there are alternative ways to present information on the trading book that may allow for a better understanding of how climate change transition risk may impact the trading portfolio.
No CommentQuestion 12: Do respondents agree that the information included in template 7 is appropriate to understand how and to what extent the institution may be exposed to climate change physical risk and that the differentiation between a simplified and an extended template is necessary in the short/medium term?
No CommentQuestion 13: Regarding template 7, specific feedback is asked regarding the methodologies and data sources that institutions may use to identify the relevant geographies. Feedback is also required on the content and disclosures proposed in the extended version of the template and on the transitional period proposed.
No CommentQuestion 14: Regarding templates 8 and 9, do respondents consider that this template should be enriched including information not only on assets aligned with the taxonomy but also in the interest income generated by those assets? Do respondents agree with the timeline proposed and transitional period proposed for the disclosure of these templates?
- Further clarity may be useful to guide the banks on how to determine a material exposure to the sector for the purposes of Template 8 and 9. A high level guidance on how to identify and gauge material or significant exposure would help in making the report more useful to the users of the templates.- Another point that could be explained further by the template is whether and how the Do No Significant Harm (DNSH) and Social Safeguards principles should be incorporated in the context of these templates.
- In due course, the template should be enriched to include not only assets but interest income as well. It will be useful for users of financial information to see this data, as while knowing the percentage of assets is important, it is also important to understand whether the interest income comes from climate change mitigation or climate change adaptation. This will also enable users of financial information to see the asset yield these assets generate compared to those of non-eligible assets.