32. With regard to the assessment of environmental risks at exposure level, institutions ’ internal …

With regard to the assessment of environmental risks at exposure level, institutions ’ internal procedures should include a set of risk factors and criteria that capture both physical and transition risk drivers. For large institutions, this includes, where applicable, at least the following: 23

• a) the degree of vulnerability to environmental hazards, taking into account the geographical location of the key assets of counterparties and guarantors, or of the physical collateral backing the exposures, considering both on-balance sheet and off-balance sheet exposures;
• b) the degree of vulnerability to transition risks, taking into account relevant technological developments, the impact of applicable or forthcoming environmental regulations affecting the sector of activity of the counterparty, the current and if any targeted GHG emissions in absolute and, where relevant, intensity value of the counterparty, the impact of evolving market preferences, and the level of energy efficiency in the case of residential or commercial real estate exposures together with the debt service capacity of counterparties;
• c) the exposure of the counterparty’s business model and/or supply chain to critical disruptions due to environmental factors such as the impact of biodiversity loss, water stress or pollution;
• d) the exposure of the counterparty to reputational and litigation risks taking into account completed, pending or imminent litigation cases related to environmental issues;
• e) the (planned) maturity or term structure of the exposure or asset;
• f) risk-mitigating factors, such as private or public insurance coverage, for example based on applicable national catastrophe schemes or similar frameworks, and the capacity of the counterparty to ensure resilience to transition and physical risks including through forward-looking transition planning.

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/