26. When setting up, approving and overseeing the implementation of the aspects listed in paragraph …

When setting up, approving and overseeing the implementation of the aspects listed in paragraph 25, the management body should aim to ensure a business model and governance arrangements – including a risk management framework – that take into account the risks investment firms are or might be exposed to or the risks that they pose or might pose to others¹⁶ . When taking into account all risks, investment firms should take into account all relevant risk factors, including environmental, social and governance risks factors. Investment firms should consider that the latter may drive their prudential risks¹⁷ . Such ESG risk factors include, e.g. legal risks in the area of contractual or labour law, risks relating to potential human rights violations or other ESG risk factors that may affect the country where a service provider is located and its ability to provide the agreed service levels.

¹⁶ See Article 26 of Directive (EU) 2019/2034.

¹⁷ See EBA discussion paper on ESG risk management and supervision published under the CRD Art. 98(8) for a description of the EBA’s understanding of ESG risks, transmission channels and recommendations for arrangements, processes, mechanisms and strategies to be implemented by institutions to identify, assess and manage ESG risks.

1. Overview

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

3. Related Standards

• EBA - Published by the European Banking Authority at https://www.eba.europa.eu/