Response to consultation on Implementing Technical Standards on amended disclosure requirements for ESG risks, equity exposures and aggregate exposure to shadow banking entities

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1. Do you have any comments on the proposed set of information for Large institutions?

Introduction to RASB Response Approach

The Risk Accounting Standards Board (RASB) supports the EBA’s goal to simplify and align ESG disclosures under the evolving Pillar 3 framework. We also recognize the challenges that come with reporting on externally driven, complex, and often poorly quantified non-financial risks.

Our comments throughout this consultation are based on the Risk Accounting methodology developed by Peter J. Hughes during his tenure with Chase Manhattan Bank and subsequently refined within UK academia. The method is now maintained and promoted as an accounting standard by the Risk Accounting Standards Board (RASB), a not-for-profit academic initiative. It proposes the use of standardized Risk Units (RUs) to quantify, standardize, and disclose residual risk acceptance, covering non-financial, ESG, and emerging risks.

While we respect that this consultation does not support attachments, we invite the EBA to engage with RASB further to explore how the RU methodology could enhance current templates, simplify implementation, and improve comparability across institutions, particularly in regard to ESG disclosures, equity exposures, and shadow banking risks.

Now, to answer the question:

We support the EBA’s objective to enhance transparency, comparability, and governance of ESG-related risks for large institutions. However, we believe the current set of proposed disclosures, while extensive, falls short in delivering meaningful insight into risk exposure and management.

RASB Observations:

Focus on Classification, Not Risk Acceptance
Backward-Looking and Exposure-Based
Limited Support for Internal Risk Governance

The templates prioritize taxonomy alignment, EPC labels, and counterparty segmentation. While these support exposure transparency, they do not capture how much ESG risk is actually accepted or mitigated by the institution.

The reporting is largely historical and fails to reflect the forward-looking governance, real-time accumulation, or strategic management of ESG risks. It limits institutions to passive observation rather than incentivizing proactive control.

Current disclosures may satisfy external comparability but offer limited value for internal decision-making, stress testing, or capital planning, particularly where ESG risks are integrated across portfolios.

RASB Suggestion:

We recommend the inclusion of a residual ESG risk measure, such as Risk Units (RUs), at transaction level, embedded into standard accounting workflows. This would:

Allow institutions to quantify ESG risk they choose to accept, even in the absence of perfect data,
Provide supervisors with a comparable, auditable view of ESG risk governance across institutions,
Deliver business value to institutions by aligning ESG reporting with capital allocation, pricing, and client engagement.

We believe this approach would simplify reporting, improve comparability, and convert ESG disclosure into a strategic risk management tool. We would welcome the opportunity to engage further on this.

2. Do you have any comments on the simplified set of information for Other listed institutions and Large subsidiaries?

We support the principle of proportionality in ESG disclosure requirements. However, the proposed simplifications risk creating fragmentation in ESG risk governance, especially within banking groups operating across multiple jurisdictions and legal entities.

RASB Observations:

Disclosure Simplification May Undermine Group-Wide Consistency
Other Listed Institutions Still Face Market Scrutiny
Risk of Structural Loopholes

Where ESG risk is not captured consistently across the group, parent institutions may appear compliant while allowing material risk accumulation within less transparent subsidiaries.

Despite their smaller size, listed institutions are subject to investor expectations and market discipline. Over-simplified disclosures could reduce market comparability, harming transparency.

Simplified reporting may unintentionally encourage regulatory arbitrage, shifting ESG-intensive exposures to less visible entities within the group structure.

RASB Suggestion:

We propose a more targeted approach: rather than eliminating disclosures, these institutions could adopt risk accounting principles to quantify residual ESG risk directly from normal accounting data. This would:

Minimize reporting burden through transaction-level integration,
Maintain a consistent ESG risk view across the group,
Empower smaller institutions to align with ESG strategy while preserving simplicity.

This would uphold proportionality without compromising governance or supervisory oversight.

3. Do you have any comments on the simplified set of information proposed for SNCI and other non-listed institutions?

We agree that reporting obligations should reflect the size and complexity of institutions. However, we caution that simplification must not result in blind spots that obscure ESG risk accumulation across the system.

RASB Observations:

Simplicity Should Not Equal Opaqueness
Existing Business Processes Already Capture Useful Data
Business Benefits Should Extend to Smaller Institutions

Many SNCIs engage in capital markets, derivatives, or sectoral lending that may carry material ESG risks. Reduced visibility at this level may unintentionally allow systemic vulnerabilities to build outside supervisory sightlines.

Furthermore, the materiality of SNCIs stems not only from individual balance sheets, but from their collective presence across the financial system. Their number, geographic dispersion, and specialization (e.g., in real estate, agriculture, or SME lending) can amplify climate-related or transition risks. As seen in past crises, risk underestimation at the periphery often accumulates into systemic consequences.

ESG risk transparency does not require a new reporting infrastructure. Most SNCIs already maintain accounting, loan origination, or underwriting systems that, if enriched with risk attributes, can fully support ESG reporting at minimal additional cost.

ESG compliance should not be viewed purely as a regulatory burden. If embedded into normal workflows, ESG risk tracking can improve credit decisions, enhance risk-adjusted pricing, and support client advisory, especially important for community-based or specialized lenders.

RASB Suggestion:

We propose that SNCIs adopt risk accounting techniques adapted to their size. These allow:

ESG risk to be quantified at the transaction level using existing accounting entries,
A scalable and proportionate solution that meets disclosure expectations without overburdening operations,
Smaller institutions to benefit from internal ESG insights, rather than treating disclosure as a compliance exercise.

This approach ensures that ESG transparency is inclusive, proportionate, and value-generating, regardless of institutional size.

4. Do you have any comments on the proposed approach based on materiality principle to reduce the frequency (from semi-annual to annual) of specific templates (qualitative, template 3, and templates 6-10) for large listed institutions?

We understand the rationale for easing reporting frequency when ESG risks are deemed immaterial. However, we caution that relying on backward-looking or judgment-based assessments risks introducing inconsistency, subjectivity, and potential blind spots.

RASB Observations:

Backward-Looking Assessments Are Insufficient

ESG risk accumulation is inherently forward-looking. Risk may not appear material based on past exposure data but can change rapidly due to climate, political, or reputational events.

Materiality Triggers Vary Widely Across Institutions

Without standardized criteria, different institutions may apply materiality thresholds inconsistently, reducing comparability and opening doors to under-reporting.

Risk Frequency ≠ Disclosure Frequency

ESG risks may evolve dynamically even where reporting is only annual. If these changes are not captured, both supervisors and stakeholders face delayed visibility into emerging risk concentrations.

RASB Suggestion:

We propose using residual ESG risk measures, such as Risk Units (RUs), to determine whether a template’s reporting frequency can be safely reduced. This would:

Enable objective, auditable thresholds for disclosure decisions,
Ensure that reporting frequency follows risk evolution, not just exposure trends,
Preserve consistency and credibility across institutions.

This approach balances simplification with integrity, ensuring that disclosures remain timely, proportional, and risk-sensitive.

5. Do you have any comments on the transitional provisions and on the overall content of section 3.5 of the consultation paper?

The transitional provisions in Section 3.5 are a pragmatic response to the complexity and evolving nature of ESG data and reporting practices. However, the current approach also risks prolonging the lack of comparability and reliability in disclosed ESG metrics during the transitional period.

RASB Observations:

Prolonged Uncertainty for Smaller Institutions
Inconsistent Data Landscapes
Opportunity to Introduce Risk-sensitive Phasing

Institutions benefiting from transitional relief may delay essential investments in ESG risk infrastructure and governance.

Staggered implementation timelines may result in fragmented and non-comparable disclosures across the market, reducing the value of aggregated supervisory analysis.

The provisions focus on administrative simplification rather than alignment with institutions' capacity to measure and manage ESG risk.

RASB Suggestion:

We recommend that the transitional arrangements be accompanied by:

A risk sensitivity overlay, enabling earlier implementation by institutions with adequate ESG risk frameworks,
Clear milestones and expectations for systems development,
Incentives for early adoption tied to supervisory recognition.

Embedding risk quantification mechanisms (e.g., Risk Units) even during the transitional period can help institutions progressively internalize ESG risk within their decision frameworks without waiting for full compliance obligations.

6. Do you have any comments on the proposed amendments to Table 1 and Table 3?

The proposed amendments to Table 1 and Table 3 reinforce the structure of ESG reporting but continue to emphasize static exposure classification rather than dynamic risk quantification.

RASB Observations:

Exposure Data ≠ Risk Insight

While Tables 1 and 3 are useful for identifying which activities are taxonomy-aligned, they say little about the residual risk institutions choose to accept within these exposures.

Non-Taxonomy-Aligned ≠ High Risk

The current framing may inadvertently suggest that non-aligned exposures are inherently higher risk, when in reality, they may be well-managed or transitional in nature.

Sector Mapping Lacks Risk Differentiation

Mapping exposures by NACE codes provides economic classification, but fails to reveal ESG risk concentration, propagation, or control effectiveness.

RASB Suggestion:

We recommend integrating a risk quantification overlay, such as transaction-level Risk Units (RUs), to complement the exposure data in Tables 1 and 3. This would:

Clarify how much ESG risk is accepted vs. mitigated,
Differentiate between risk-intensive and well-managed activities regardless of taxonomy status,
Allow for improved risk-adjusted benchmarking across institutions.

In this way, Tables 1 and 3 would evolve from static exposure inventories into dynamic tools for ESG risk governance.

7. Do you have any further suggestions on Table 1A?

We view Table 1A as a potentially valuable tool for summarizing ESG exposures across key metrics. However, its current structure still reflects a static taxonomy-based alignment exercise, which limits its practical utility for active ESG risk management.

RASB Observations:

Table 1A Highlights Exposure, Not Risk
One-Directional Reporting Lacks Feedback Loop
May Reinforce Box-Ticking Over Accountability

Institutions can appear fully aligned with sustainable activities while still accepting large volumes of residual ESG risk. Without risk-weighting or control indicators, Table 1A may give a misleading impression of risk governance quality.

ESG reporting should inform and evolve internal practices. Table 1A offers little in the way of feedback or incentive mechanisms to improve ESG performance or reduce risk over time.

By focusing on taxonomy ratios and eligibility, Table 1A may reinforce compliance behavior rather than risk-sensitive decision-making.

RASB Suggestion:

We recommend enhancing Table 1A with a residual ESG risk column derived from internal accounting systems using Risk Units (RUs). This would:

Allow institutions to express how much ESG risk is accepted within each asset class or exposure type,
Highlight divergence between taxonomy alignment and actual risk governance,
Provide a common baseline to compare institutions’ internal ESG management maturity.

We believe this would significantly improve the decision-usefulness of Table 1A without creating a parallel reporting burden.

8. Do you have any comments on the proposed additions and deletions to the sector breakdown?

We acknowledge the intent to streamline and modernize sector classification within ESG reporting. However, the proposed changes still center around economic activity codes that are insufficiently tied to actual ESG risk levels or governance realities.

RASB Observations:

Sector Codes ≠ ESG Risk Exposure
Over-Reliance on Static Labels
Cross-Sector Exposures Obscured

Merely categorizing exposures by sector (via NACE or other taxonomies) does not capture the ESG risks embedded within firms, projects, or instruments. A company in the same sector may be aligned or misaligned based on its practices, not just its economic role.

Static sector definitions may fail to reflect dynamic transitions (e.g. energy, transportation, agriculture) where ESG risks and trajectories evolve rapidly, potentially skewing risk perceptions.

ESG risks often span sectors, for example, a commercial real estate exposure may be linked to high-emission tenants or vulnerable geographic areas, none of which is captured in the current classification.

RASB Suggestion:

We recommend that sector breakdowns be complemented with residual ESG risk measures, such as Risk Units (RUs), that reflect:

The actual risk accepted within each sectoral exposure, regardless of taxonomy alignment,
Differentiation between high-risk and low-risk actors within the same sector,
A dynamic view of sectoral transitions and institutional response to ESG shifts.

This would ensure that changes to sector classification support risk insight, not just reporting tidiness.

9. Do you have any views with regards to the update of the templates to NACE 2.1?

We support the effort to modernize the templates by adopting NACE 2.1, as it improves harmonization with existing reporting frameworks. However, we caution that this update, while technically useful, should not be viewed as a solution to deeper challenges in ESG risk classification.

RASB Observations:

Granularity ≠ Precision in Risk Classification
Persistent Risk Blind Spots
Superficial Alignment May Mask Material Risk

Updating to NACE 2.1 may allow slightly more granular classification of counterparties, but it does not solve the underlying challenge: sector codes do not reflect the quality of ESG governance, nor the residual risk institutions bear.

NACE codes, even updated, do not capture intra-sectoral divergence, such as a sustainable vs. polluting energy producer, or the transitional status of firms. This limits the decision-usefulness of template outputs.

Institutions could appear fully taxonomy-aligned under the new codes while still accepting high volumes of unmanaged or mispriced ESG risk.

RASB Suggestion:

We recommend that the update to NACE 2.1 be accompanied by the introduction of residual risk quantification metrics, such as Risk Units (RUs), that:

Offer a risk-sensitive overlay to static classification systems,
Capture how much ESG risk is accepted and how effectively it is governed,
Promote consistent treatment of risk across sectors, regardless of code changes.

Without such a complementary mechanism, the benefits of template updates may remain cosmetic rather than substantive.

10. Do you have any views with regards to NACE code K – Telecommunication, computer programming, consulting, computing infrastructure and other information service activities, and in particular K 63 - Computing infrastructure, data processing, hosting and other information service activities, whether these sectors should be rather allocated in the template under section Exposures towards sectors that highly contribute to climate change?

We acknowledge the EBA’s intention to improve classification by evaluating whether sectors such as NACE K (including K63 - Computing infrastructure, data processing, hosting, and other information services) should be categorized under "Exposures towards sectors that highly contribute to climate change." However, we caution against simplistic reallocation based on assumed average impact.

RASB Observations:

Divergence Within the Same Sector
Hidden Infrastructure Risk
Incentives for Sector Improvement

Institutions within the K63 sector range from energy-intensive data centers to climate-neutral cloud providers. A blanket classification may distort the real risk exposure and reduce the decision-usefulness of the disclosures.

While digital infrastructure often has low visible emissions, its lifecycle impact (especially energy dependency, cooling systems, and geographic concentration) can pose substantial transition and physical risk.

Misclassification risks penalizing low-impact firms and disincentivizing investments in sustainable digital infrastructure.

RASB Suggestion:

We propose:

Maintaining NACE K sectors under a separate transitional monitoring category until more precise emissions/impact benchmarks are established,
Encouraging institutions to use residual risk quantification, such as Risk Units, to reflect internal ESG governance and actual risk acceptance at the counterparty level,
Using risk sensitivity overlays in parallel with taxonomy alignment to reward early transition leaders within high-dependency sectors.

This approach preserves classification integrity while enabling meaningful comparative disclosures and sound supervisory oversight.

11. Do you have any comments on the inclusion of row “Coverage of portfolio with use of proxies (according to PCAF)”?

The addition of the row "Coverage of portfolio with use of proxies (according to PCAF)" is welcome as it increases transparency regarding the degree of estimation and uncertainty embedded in reported ESG metrics. However, its effectiveness depends on how banks interpret and operationalize "proxies."

RASB Observations:

Proxy Use Can Obscure Risk Accountability
Standardization Challenge
Missing Link to Internal Risk Appetite

Heavy reliance on proxies, particularly when not backed by robust internal risk assessments, can lead to under- or over-reporting of exposures and reduce reliability of disclosures.

The PCAF guidance is valuable, but its flexible application may create inconsistencies across institutions.

Disclosure of proxy use does not reflect how much residual uncertainty the institution accepts as part of its governance or strategy.

RASB Suggestion:

We recommend:

Clarifying the operational boundaries of what constitutes an acceptable proxy under PCAF,
Encouraging institutions to report their proxy-related residual risk exposure using Risk Units to transparently capture the risk accepted due to estimation,
Supervisors to monitor not just proxy coverage, but also the institutions’ governance of estimation error and its implications for decision-making.

This adjustment would make the disclosure row a genuine indicator of risk awareness and control rather than merely a technical compliance item.

12. Do you have any further comments on Template 1?

The cumulative structure of Template 1, while attempting to offer a comprehensive view of exposures by environmental performance, still leans heavily on static and backward-looking data.

RASB Observations:

Static Snapshots Hide Real Risk Movement
Lack of Linkage to Risk Appetite
Opacity of Proxy Assumptions

Point-in-time snapshots do not capture the direction or pace of transition risk. Institutions may appear low-risk based on legacy exposure ratings while actively increasing high-emission financing.

The template fails to disclose how the institution manages its exposure to poor-performing counterparties in terms of ESG, e.g., whether it intends to reduce, maintain, or hedge such exposure.

Template 1 is vulnerable to misuse of proxies, as it doesn’t demand explanation for data estimation strategies or their accuracy.

RASB Suggestion:

We propose:

Adding a trend indicator showing direction of exposure (e.g., increasing, stable, decreasing) by sector,
Introducing a governance overlay disclosing how institutions manage underperforming or proxy-based segments,
Encouraging the use of residual risk metrics (Risk Units) to allow institutions to declare how much ESG uncertainty they have chosen to accept rather than hide behind data availability.

This would convert Template 1 from a static registry into a dynamic risk governance tool aligned with supervisory oversight needs.the

13. Do you have any comments or alternative suggestions for SNCIs and other institutions that are not listed, regarding the sector breakdown?

While simplification is essential for non-listed and smaller institutions, sector breakdowns must still support supervisory visibility into risk accumulation, particularly given the potential collective systemic footprint of SNCIs.

RASB Observations:

Risk May Be Underreported Across Sectors
Collective Risk Footprint Is Often Overlooked
Oversimplification Encourages Compliance Without Insight

Simplified templates risk aggregating exposures in ways that obscure sector-specific ESG risks, particularly in real estate, energy, agriculture, and SME lending, where SNCIs are active.

Individually immaterial SNCIs may collectively amplify ESG risk in specific sectors or geographies. Without adequate breakdown, regulators lose visibility into systemic patterns.

Removing granularity from sector reporting may reduce the burden, but also removes incentives for institutions to understand or manage their own sectoral risk exposure.

RASB Suggestion:

We recommend retaining sector breakdowns but allowing SNCIs to report exposures augmented by internal residual risk metrics, such as Risk Units (RUs), rather than extensive external classifications. This approach:

Preserves visibility into sectoral risk concentrations,
Encourages institutions to internalize ESG risk governance using their existing accounting systems,
Supports proportionality while avoiding systemic blind spots.,

14. Do you have any additional suggestions how to adjust Template 1A for SNCIs and other institutions that are not listed?

We understand that Template 1A must be adapted for SNCIs and non-listed institutions to ensure proportionality. However, simplification must not come at the cost of losing comparability, risk transparency, or incentives for sound ESG governance.

RASB Observations:

Template 1A Should Reflect Risk, Not Just Alignment
Non-Listed Institutions Still Contribute to Systemic Risk
Over-Simplification Could Obscure Emerging Risk Patterns

Current proposals center on taxonomy alignment but offer little insight into the residual ESG risks accepted by smaller institutions.

Though individually smaller, these entities may hold significant exposures in sectors sensitive to ESG transition, physical risk, or reputational volatility.

By reducing disclosure fields too aggressively, regulators and markets may miss early signs of risk accumulation, particularly in concentrated sectors or regions.

RASB Suggestion:

We propose a lean version of Template 1A tailored to SNCIs and non-listed institutions that retains:

Key sectoral and counterparty segments (streamlined if needed),
A residual ESG risk column, reported through internal accounting enrichment (e.g. Risk Units),
A qualitative box where institutions disclose how ESG risk is tracked, not just how exposures are categorized.

This ensures proportionality without sacrificing strategic oversight or institutional learning.

15. Do you have any further comments on Template 1A?

Template 1A represents a core element of the ESG disclosure framework. However, its utility remains limited without incorporating mechanisms that reflect actual ESG risk governance, not just alignment with external taxonomies.

RASB Observations:

Static Disclosure Does Not Encourage Dynamic Risk Management

Template 1A’s current structure encourages institutions to report taxonomy-aligned exposure volumes, but not how those exposures are monitored, priced, or governed over time.

Misaligned Incentives May Arise

Institutions could appear compliant on paper while continuing to accept high-risk exposures, especially in sectors labeled as transitional or mixed-alignment.

Limited Feedback Loop to Strategy

Without visibility into residual risk or change over time, Template 1A does not offer meaningful signals to improve strategic capital allocation or client engagement on ESG matters.

RASB Suggestion:

We propose enhancing Template 1A with the following refinements:

A residual ESG risk metric, such as Risk Units (RUs), to quantify accepted risk regardless of taxonomy status,
A trend indicator (e.g., directional arrows or color-coding) to reflect whether exposure is increasing, decreasing, or stable over time,
A short narrative field where institutions summarize key risk governance practices behind reported figures.

These additions would convert Template 1A from a static inventory into a more insightful ESG risk dashboard.

16. Should Template 2 in addition include separate information on EPC labels estimated and about the share of EPC labels that can be estimated?

Yes, we support the inclusion of a separate breakdown between actual and estimated EPC labels in Template 2. However, we caution that this distinction is meaningful only if it is linked to how institutions manage the uncertainty and residual ESG risk associated with estimates.

RASB Observations:

Estimates Introduce Measurement Uncertainty
Incomplete Labeling May Skew Decision-Making
No Risk Governance Insight from Estimates Alone

Without disclosing how much of the EPC data is estimated, it becomes difficult to assess the reliability and comparability of reported energy performance indicators.

Banks that rely heavily on estimates may unknowingly concentrate risk or misclassify assets, especially in real estate-heavy portfolios where EPC data coverage is low.

Separating actual vs. estimated EPCs helps transparency but does not indicate how the associated uncertainty is managed or priced in.

RASB Suggestion:

We recommend that Template 2 include:

A clear segregation between actual and estimated EPC labels,
A disclosure of estimation methodology or assumptions used (standardized if possible),
A column or narrative field reflecting residual risk accepted due to the uncertainty, which could be measured using internal risk accounting techniques such as Risk Units (RUs).

This would enhance both transparency and accountability while preserving comparability across institutions.

17. Should rows 2, 3 and 4 and 7, 8 and 9 for the EP score continue to include estimates or should it only include actual information on energy consumption, akin to the same rows for EPC labels?

While transparency on actual energy consumption is critical, prohibiting estimates outright could lead to underreporting and loss of visibility in institutions or regions where data availability remains low. Therefore, we advocate for retaining estimates, but clearly distinguishing them, and coupling them with disclosure of residual risk.

RASB Observations:

Binary Restriction May Undermine Risk Visibility
Estimates Are Necessary but Should Be Disciplined
Risk Blind Spots May Arise from Exclusion

Requiring only actual data could exclude substantial parts of the portfolio where estimates are the only feasible input, especially for older or geographically dispersed assets.

Estimates are often the only available method, but their use should not be unqualified. Institutions should be incentivized to improve data quality over time.

If estimated data is omitted, institutions may appear artificially ‘low-risk’ due to incomplete disclosure, which defeats the purpose of a comprehensive ESG risk picture.

RASB Suggestion:

We propose the following approach:

Maintain estimates in the EP score rows (2–4 and 7–9), but clearly segregate actual vs. estimated values,
Introduce a methodological disclosure field outlining estimation logic and data sources,
Incorporate a risk overlay, such as Risk Units (RUs), that quantifies the residual uncertainty and potential ESG impact associated with relying on estimates.

This would ensure a balanced, pragmatic, and risk-sensitive use of both actual and estimated data, improving both comparability and internal governance value.

18. Do you have any comments on the inclusion of information on covered bonds?

We support the inclusion of covered bonds in ESG-related disclosures, as they represent a significant portion of banks’ funding and are often backed by real estate assets that carry embedded ESG risk, particularly related to energy performance and climate resilience.

RASB Observations:

Material Asset Class Often Overlooked
Transparency Supports Investor Confidence
Risk May Be Masked by Dual Recourse Structure

Covered bonds are typically excluded from risk reporting due to their perceived safety. However, their collateral, especially mortgage pools, can carry material transition and physical risk, particularly if energy performance is poor or regionally concentrated.

ESG-conscious investors are increasingly scrutinizing collateral quality. Enhanced disclosures would improve market functioning and enable ESG-aligned funding strategies.

While covered bonds benefit from dual recourse, this structure should not obscure the underlying ESG exposure in the cover pool. Ignoring this could mislead stakeholders about the institution’s actual ESG risk footprint.

RASB Suggestion:

We recommend that covered bonds be included in ESG disclosures with:

Disaggregation by underlying collateral characteristics (e.g., EPC labels, sector, geography),
An indication of whether ESG data is actual or estimated,
A field capturing residual ESG risk, such as Risk Units (RUs), to quantify risk embedded in the bond pool, regardless of the dual recourse protection.

This would bring ESG transparency into the funding structure and align risk governance with investor expectations and regulatory oversight.

19. Do you have any comments on the breakdown included in columns b to g on the levels of energy performance?

We support the effort to segment energy performance disclosures, but caution that broad categorical groupings may obscure material differences in risk exposure, particularly when institutions manage large, diversified portfolios.

RASB Observations:

Energy Bands Can Be Too Coarse for Risk Differentiation
Lack of Transition Indicators
Inconsistent Interpretation Across Institutions

Grouping assets into broad EPC or EP score ranges may dilute visibility into critical thresholds, e.g., assets that are just above or below the cut-off for regulatory penalties or market devaluation.

The current structure does not indicate whether an asset is on a trajectory of improvement or deterioration, which is essential for assessing ESG risk management and transition finance strategies.

Without standardized data collection protocols or estimation methodologies, the same asset could be placed in different categories by different banks, limiting comparability.

RASB Suggestion:

To strengthen the usefulness of columns b to g, we recommend:

Subdividing bands where thresholds have regulatory, pricing, or capital implications,
Including a trend indicator to reflect performance improvement or deterioration over time,
Complementing the performance bands with a residual ESG risk measure (e.g., Risk Units) that reflects not just label status but exposure volatility, uncertainty, and risk acceptance.

This would better align the template with its risk disclosure intent and improve both strategic signaling and portfolio management utility.

20. Do you have any further comments on Template 2?

Template 2 is a vital component for capturing ESG characteristics of real estate exposures and their alignment with energy performance goals. However, as currently structured, it emphasizes static classification rather than risk insight or management actionability.

RASB Observations:

Template Focuses on Labels, Not Risk
No Differentiation Between Active and Passive Management
Ignores Risk Accumulation Over Time

While EPC labels and energy scores are informative, they do not account for the likelihood of deterioration, retrofitting feasibility, or concentration of risk across portfolios.

The template does not distinguish between institutions actively managing energy performance risks and those passively holding high-risk assets.

Without tracking exposure changes or improvements, the template lacks early warning value for both institutions and supervisors.

RASB Suggestion:

We propose enhancing Template 2 with the following additions:

A residual risk metric, such as Risk Units (RUs), to quantify the unmitigated ESG risk in each segment,
A retrofit indicator showing whether assets are undergoing or planned for improvement,
Optional narrative space where institutions can briefly explain portfolio-level strategies for managing energy-related ESG risks.

These adjustments would transform Template 2 from a compliance table into a tool for strategic governance, risk differentiation, and stakeholder communication.

21. Do you have any comments on Template 3?

Template 3 aims to capture information on exposures to counterparties in climate-sensitive sectors, aligned with climate mitigation and adaptation. While conceptually relevant, its practical execution risks becoming symbolic rather than strategically informative, unless paired with risk quantification and trend data.

RASB Observations:

Focus on Classification Over Risk Governance
Static View Misses Emerging Risks and Opportunities
No Link to Strategic Decisions

The template identifies counterparties in sensitive sectors but does not reflect how much risk is accepted, how it is managed, or how it is evolving, limiting its usefulness for forward-looking supervision.

ESG risk and opportunity evolve rapidly in transition-sensitive sectors. Without tracking risk trajectories, institutions may report compliance while actually accumulating exposure.

The current format offers limited support for institutions seeking to align capital allocation or client engagement with ESG priorities.

RASB Suggestion:

We propose that Template 3 be enhanced with:

A residual ESG risk field, for example, Risk Units (RUs) at the exposure level, enabling quantification of risk beyond classification,
An exposure trend indicator, showing if engagement in these sectors is increasing, stable, or declining,
A brief narrative field for disclosing risk mitigation strategies or sector-specific engagement plans.

This would help transform Template 3 into a decision-useful instrument that fosters alignment between risk management and sustainability objectives.

22. Do you have any comments with the proposals on Template 4 and the instructions?

Template 4 is intended to disclose exposures to top GHG-emitting firms and their decarbonization targets. While this aligns with the EU’s transparency goals, the approach risks data distortion, comparability issues, and limited insight unless further contextualized with governance indicators and risk acceptance levels.

RASB Observations:

Template Relies on Unverified Counterparty Commitments
Risk Accountability Shifted Away from Reporting Institution
Misalignment Between Exposure and Control

Institutions are asked to report counterparties' decarbonization plans, but these plans may be aspirational, unaudited, or inconsistent across regions and sectors.

The structure places informational responsibility on the counterparty rather than assessing how the institution manages exposure to transition risk associated with those firms.

Banks may hold large exposures to GHG-intensive firms but have no influence on their strategies, creating residual risk that is invisible in the current format.

RASB Suggestion:

We recommend the following enhancements:

Include a residual transition risk field (e.g., Risk Units) to quantify how much risk remains in the institution’s book due to reliance on high-emitting counterparties,
Clarify that reported targets should be based on validated data or public sources, not internal assumptions,
Add a qualitative field where institutions can explain their exposure strategy: e.g., divestment, engagement, or risk mitigation via financial structuring.

These changes would ensure Template 4 not only promotes transparency but also strengthens institutional accountability and resilience in managing carbon-related financial risk.

23. Do you have any views on whether this template could be improved with some more granular information in the rows, by requesting e.g. split by sector of counterparty or other?

Yes, we believe adding more granularity to Template 4, such as a sectoral breakdown or counterparty-type segmentation, would significantly improve the risk differentiation and strategic relevance of the template. However, granularity alone is insufficient without insight into risk governance and exposure quality.

RASB Observations:

Sectoral Split Improves Contextualization
Granularity Supports Supervisory Focus
But Granularity Without Risk Intensity Fails to Inform

Transition risk varies drastically by sector. For example, exposure to a decarbonizing utility differs materially from exposure to a high-emitting heavy industry firm. Splitting by sector would highlight these dynamics.

More detailed rows would help regulators track systemic concentrations and transition bottlenecks across the financial sector, especially in energy, transport, and real estate.

Knowing that exposure exists in a sector is less useful than knowing how much ESG risk is accepted in that exposure. Thus, added rows should be matched by risk intensity indicators.

RASB Suggestion:

We recommend:

Introducing sectoral or counterparty-type breakdowns in Template 4,
Adding a risk-weighted exposure metric (e.g., based on Risk Units) to indicate the residual transition risk in each segment,
Retaining proportionality for smaller institutions by limiting the depth of breakdown based on exposure thresholds.

This would help shift ESG disclosures from static listings to strategically differentiated risk insight, both for regulators and institutions.

24. Do you have any further comments on Template 4?

While Template 4 adds value by focusing on emissions-intensive counterparties and their decarbonization strategies, its current implementation lacks integration with actual risk management, capital allocation implications, and performance monitoring mechanisms.

RASB Observations:

Template Captures Commitments, Not Risk Exposure
Incentive for Surface-Level Reporting
No Capital Linkage

Disclosure of counterparties’ decarbonization targets provides useful context, but fails to quantify the financial risk borne by the institution if those targets are missed or delayed.

Institutions may report large exposures to transition-intensive sectors without disclosing how they plan to mitigate or hedge the risk, leading to box-ticking rather than strategic clarity.

ESG disclosures remain detached from capital planning or risk appetite frameworks, reducing their integration into core bank governance.

RASB Suggestion:

To strengthen Template 4, we recommend:

Including a residual transition risk field derived from internal measures like Risk Units (RUs),
Adding a column indicating whether the exposure is subject to internal capital/risk limits,
Encouraging a short qualitative disclosure on the institution’s transition risk strategy, including client engagement, divestment, or hedging.

These refinements would bridge the gap between ESG commitments and financial risk governance, improving both transparency and supervisory oversight.

25. Do you have any comments on the proposal using NUTS level 3 breakdown for Large institutions and NUTS level 2 for Other listed institutions and Large subsidiaries? Would NUTS level 2 breakdown be sufficient for Large institutions as well?

While geographic breakdown by NUTS levels adds a valuable spatial dimension to ESG risk reporting, especially for physical risk assessment, its utility depends on whether it supports meaningful risk differentiation and institutional comparability.

RASB Observations:

NUTS Level 3 Offers Greater Precision for Physical Risk
Level 2 May Be Sufficient for Aggregated Strategic View
Proportionality vs. Oversight

For climate-related physical risks (e.g., flooding, wildfire, heatwaves), Level 3 provides the granularity needed to identify localized concentrations of risk, particularly in real estate or SME portfolios.

For transition risk or broad policy alignment, Level 2 may suffice, especially for institutions with diverse, cross-border portfolios.

While Level 3 reporting is more demanding, it is critical for institutions with significant exposures in climate-sensitive geographies, making its inclusion for large institutions justified.

RASB Suggestion:

We support the proposed distinction, NUTS Level 3 for large institutions, Level 2 for others, but recommend:

Allowing institutions to escalate to Level 3 voluntarily where they deem it material for internal risk governance,
Complementing geographic data with residual physical risk estimates (e.g., using Risk Units) to highlight not just location, but vulnerability and exposure quality,
Encouraging trend tracking to assess whether exposure concentration in high-risk geographies is increasing or decreasing.

This would enhance the value of NUTS-based templates as risk governance tools, not just mapping exercises.

26. Do you have any comments on the instructions for the accompanying narrative and on whether they are comprehensive and clear?

The narrative instructions accompanying ESG disclosure templates are essential for contextualizing the figures, especially where estimates, data gaps, or evolving methodologies are involved. However, the current instructions may fall short in guiding institutions toward narratives that reflect governance quality, risk strategy, and forward-looking insights.

RASB Observations:

Narrative Lacks Structure for Risk Governance Insights
Risk vs. Compliance Framing
Missed Opportunity for Strategic Signaling

Institutions are encouraged to describe assumptions and methodologies but not how these relate to their internal risk appetite, decision-making processes, or mitigation actions.

The current instructions seem oriented toward explaining compliance rather than articulating how ESG risks are governed or integrated into business models.

Well-structured narrative fields could help institutions explain their ESG transition plans, innovation strategies, or risk-driven exit decisions, enhancing the templates’ value for supervisors and stakeholders.

RASB Suggestion:

We recommend refining the instructions for the accompanying narrative by including prompts that encourage institutions to:

Describe their ESG risk management frameworks,
Explain how quantitative data links to capital planning, client engagement, or remediation actions,
Clarify uncertainties and trends, especially where disclosures are based on estimates or assumptions.

Additionally, institutions should be encouraged to use internal metrics, such as Risk Units (RUs), within narratives to quantify risk acceptance and governance quality where standardized figures fall short.

27. Do you have any further comments on Template 5 and on its simplified version Template 5A?

Template 5 and 5A aim to capture institutions’ exposure to climate-related physical risks, but their current format may be insufficient to reflect the actual vulnerability, loss potential, and mitigation capacity of institutions across different geographies and asset classes.

RASB Observations:

Template Focuses on Exposure, Not Vulnerability
No Tracking of Risk Evolution or Mitigation
Simplified Template Risks Overshadowing Material Risks

Identifying exposures in high-risk zones is useful, but without linking this to the resilience or adaptive capacity of the assets or counterparties, the template lacks risk relevance.

There is no indication of whether exposure to high-risk zones is increasing or being actively reduced, or how physical risks are being addressed (e.g., through insurance, retrofitting, or exit strategies).

While proportionality is important, over-simplifying Template 5A for smaller institutions may obscure emerging risk clusters, especially in regions vulnerable to climate events.

RASB Suggestion:

To improve the value of Template 5 and 5A, we propose:

Adding a column for residual physical risk quantification (e.g., using Risk Units) based on asset vulnerability and governance capacity,
Including a trend indicator to track changes in physical risk exposure over time,
Allowing for a qualitative field where institutions can summarize mitigation strategies or adaptive investments relevant to the disclosed exposures.

This would convert Templates 5 and 5A from geographic exposure tables into dynamic tools for climate risk monitoring and resilience planning.

28. Do you have any comments on the proposal to fully align templates on the GAR, that is, templates 7 and 8, with those under the Taxonomy delegated act by replacing the templates with a direct cross reference to the delegated act?

While alignment with the Taxonomy delegated act can reduce duplication and promote consistency, replacing Templates 7 and 8 with only a cross-reference may weaken the usability, traceability, and internal governance value of ESG disclosures.

RASB Observations:

Loss of Contextual Transparency
Reduced Internal Accountability
Impedes Consistency in Cross-Template Analysis

Templates 7 and 8 currently allow institutions to report their Green Asset Ratio (GAR) within the Pillar 3 framework. A direct cross-reference to Taxonomy reporting may hinder consolidated oversight, particularly for supervisors relying on the ESG disclosures in one place.

Templates embedded within Pillar 3 disclosures are often used in internal dashboards and governance structures. Removing them may detach taxonomy reporting from risk management workflows.

Eliminating Pillar 3-specific GAR templates disrupts template-to-template comparability, especially in relation to sectoral and geographic disclosures elsewhere in the framework.

RASB Suggestion:

Rather than eliminating Templates 7 and 8, we propose:

Retaining simplified GAR templates within Pillar 3 as summary reconciliations referencing detailed Taxonomy disclosures,
Introducing a residual risk overlay (e.g., via Risk Units) to quantify ESG risks in “non-aligned” assets, even where they comply with other frameworks,
Providing optional narrative space to describe governance mechanisms used to ensure alignment between taxonomy reporting and risk management.

This would preserve alignment benefits while maintaining reporting coherence and supporting institutional risk accountability.

29. Do you have any comments on the proposal related the BTAR and to keep it voluntary?

We support keeping the Banking Book Taxonomy Alignment Ratio (BTAR) voluntary at this stage, given current methodological and data challenges. However, its long-term potential to assess the alignment of lending portfolios with sustainable economic activities should not be overlooked.

RASB Observations:

Voluntary Approach Reflects Data Immaturity
Potential for Forward-Looking Risk Insight
Limited Risk Integration in Current Form

In many jurisdictions, the data necessary to calculate the BTAR, particularly for SMEs and non-EU clients, is not yet available or standardized, making mandatory reporting premature.

BTAR can become a powerful indicator of transition alignment, especially when paired with decarbonization commitments and exposure trajectories.

As currently structured, BTAR reporting lacks a mechanism to link alignment with financial risk acceptance or capital implications.

RASB Suggestion:

We propose:

Keeping BTAR voluntary in the near term, but encouraging its use through supervisory incentives or disclosure benefits,
Enhancing its future utility by integrating risk-based overlays, such as Risk Units (RUs), to reflect ESG risk intensity even in “aligned” exposures,
Encouraging institutions to narrate their alignment strategies and use BTAR not only as a static metric but also as a strategic planning tool.

This approach would support gradual adoption, promote internal risk governance, and prepare institutions for a future where taxonomy alignment becomes central to supervisory evaluations.

30. Do you have any comments regarding the adjustments to template 10?

Template 10’s updates appear intended to clarify the reporting of ESG exposures under the banking book, particularly for taxonomy-aligned and non-aligned assets. While the technical adjustments may improve structure, the template still falls short in conveying risk intensity, strategy relevance, and exposure quality.

RASB Observations:

Template Still Lacks a Risk Governance Dimension
Transition Risk Hidden in “Non-Aligned” Segment
Does Not Distinguish Between Passive and Active ESG Stances

Even with refinements, Template 10 remains focused on categorizing exposures, without capturing how ESG risks are accepted, mitigated, or priced within the institution.

Institutions may hold large volumes of assets not aligned with the taxonomy that still carry material ESG risk, yet the template doesn’t require or encourage disclosure of risk management actions on these holdings.

Institutions with similar exposures but different ESG risk strategies appear identical in the template, reducing comparability and accountability.

RASB Suggestion:

We recommend that Template 10 be enhanced to:

Include a residual ESG risk measure, such as Risk Units (RUs), to express the institution’s risk exposure beyond taxonomy labels,
Allow institutions to flag whether assets are under active engagement, divestment, or watchlist status,
Introduce a trend indicator showing movement of exposures between aligned, transitional, and non-aligned categories over time.

These changes would strengthen Template 10’s role as a risk governance tool, rather than merely a classification ledger.

31. Do you have any further comments on the Consultation Paper Pillar 3 disclosures requirements on ESG risk?

Yes. While the proposed updates to ESG disclosures reflect genuine efforts to improve standardization and proportionality, we believe the framework still lacks a fundamental risk quantification mechanism. This gap undermines the ability of supervisors, stakeholders, and institutions themselves to fully understand, compare, and manage ESG risk exposure.

RASB Observations:

Current Templates Are Primarily Backward-Looking
Disclosures Do Not Reflect Internal Risk Acceptance
Materiality Thresholds Invite Fragmentation

Most disclosures are based on static classifications (e.g., NACE codes, EPC labels) or lagging data. This limits their value for forward-looking supervision, stress testing, or capital planning.

The templates do not require institutions to report how much ESG risk they knowingly accept, or how well such risks are governed. As a result, the disclosures may create a false sense of comparability.

While simplification is important, materiality-based exemptions, especially across institution types, could allow significant ESG risks to go unreported, particularly when aggregated across the financial system.

RASB Proposal for Structural Improvement:

To resolve these gaps, we advocate for the adoption of a risk accounting framework that introduces:

A transaction-level risk metric, Risk Units (RUs), to quantify residual ESG risk across exposures,
Risk tokenization methods that allow risk data to be aggregated and analyzed consistently, regardless of institution size or reporting exemptions,
Integration of RUs into Pillar 3 templates as a supplementary field, enhancing comparability and risk sensitivity without overhauling the existing structure.

Such an approach transforms ESG disclosures from compliance outputs into governance instruments, enabling institutions to align their business models with sustainable finance goals while maintaining financial resilience and accountability.

We welcome the opportunity to further engage with the EBA on this structural enhancement and invite exploratory discussions with the relevant working groups.

32. Are the new template EU SB 1 and the related instructions clear to the respondents? If no, please motivate your response.

Yes, the template and instructions are technically clear. However, they highlight a structural challenge: banks are expected to report exposures to entities that do not themselves disclose risk information, reducing the effectiveness of the template.

RASB Observations:

Disclosure Clarity vs. Risk Opacity
Supervisory Blind Spots Persist
Risk Accountability Gap

EU SB 1 is well structured but reliant on incomplete or opaque input data, particularly from entities outside the regulatory perimeter.

The template may point to where exposures lie but not how risky those exposures are, especially given the absence of counterparty transparency.

Banks can comply with the template without providing insight into how much risk they assume or how they manage it.

RASB Suggestion:

We recommend incorporating a residual risk field using Risk Units (RUs) to allow institutions to express the risk level and governance quality of each exposure. This enhances supervisory oversight and ensures banks internalize and report the risk dimensions of opaque relationships.

33. Do the respondents agree that the new template EU SB 1 and the related instructions fit the purpose and meet the requirements set out in the underlying regulation?

While the template meets the regulatory requirement for disclosure, it falls short of enabling meaningful risk governance or supervisory judgment.

RASB Observations:

Compliance ≠ Supervisory Insight
Opaque Entities Create Reporting Asymmetries
No Capital or Governance Linkage

Institutions can meet disclosure requirements without disclosing the true nature, volatility, or concentration of risk.

The template lacks depth in capturing how institutions control or price the risk stemming from these exposures.

The template does not require institutions to explain how these exposures fit into their broader risk frameworks or internal capital assessment processes.

RASB Suggestion:

We propose integrating a risk governance dimension, such as residual risk scoring or narrative disclosure on internal controls, to strengthen the template’s strategic and supervisory value.

34. Are the amended template EU CR 10.5 and the related instructions clear to the respondents? If no, please motivate your response.

The amended Template EU CR 10.5 appears clearer in structure and improved in technical coherence. However, it still lacks an explicit connection to risk governance or exposure quality.

RASB Observations:

Instructions Are Clear, But Purpose Needs Reinforcement
Risk Profiling Not Required

The template serves a disclosure function, but its instructions don’t emphasize why equity exposures matter from a risk concentration or volatility standpoint.

Banks disclose positions, but not the strategic rationale, risk-return trade-offs, or governance over equity holdings.

RASB Suggestion:

We recommend enhancing the template by including:

A qualitative narrative field on governance policies around equity exposure,
A field for expressing residual market or strategic risk (e.g., RUs),
Guidance encouraging institutions to explain their role as strategic shareholders or passive investors.

This would ensure that equity exposures are disclosed not only as financial facts but also as risk-bearing positions governed by internal controls and forward-looking strategy.

35. Do the respondents agree that the amended template EU CR 10.5 and the related instructions fit the purpose and meet the requirements set out in the underlying regulation?

Yes, in terms of compliance. No, in terms of adding meaningful insight into equity-related risk acceptance or governance.

RASB Observations:

Disclosure Without Differentiation
No Context on Governance or Volatility
Missed Opportunity for Strategic Risk View

The template allows for listing exposures but does not distinguish between trading, strategic, or passive holdings.

There’s no indication of the institution’s governance stance, volatility appetite, or ESG impact regarding these exposures.

Equity exposures may carry systemic or reputational risks that remain invisible without qualitative or risk-sensitive disclosures.

RASB Suggestion:

We recommend adding:

A qualitative field on governance and strategic rationale for equity holdings,
A residual risk overlay (e.g., via RUs),
Optional indicators for holdings under watch, engagement, or divestment, aligning with ESG or systemic oversight objectives.

36. Do the respondents consider that the “mapping tool” appropriately reflects the mapping of the quantitative disclosure templates with supervisory reporting templates?

The mapping tool is a welcome step toward streamlining reporting obligations, but it remains incomplete without addressing the qualitative gap between supervisory reporting and actual risk governance.

RASB Observations:

Structural Mapping Works; Conceptual Mapping Falls Short
No Integration of Internal Risk Measures

The tool aligns template references but does not help institutions understand how data translates into supervisory insight or capital implications.

The mapping assumes a static view of templates; it does not support institutions that have adopted internal risk metrics, such as Risk Units (RUs), in parallel with standard disclosures.

RASB Suggestion:

Enhance the tool with:

A guidance layer describing how disclosures connect to Pillar 2 governance expectations,
Optional sections to allow integration of internal risk measures with mapped templates,
Clarity on how mapped data supports supervisory review, proportionality decisions, and risk-based assessments.

Such refinements would support the mapping tool in becoming not just a data alignment exercise, but a bridge between transparency and accountability.

Name of the organization

Risk Accounting Standards Board (RASB)