46. Institutions should determine which combination of risk management and mitigation tools would …

Institutions should determine which combination of risk management and mitigation tools would best contribute to this, by considering a range of tools, including the following:

• a) engagement with counterparties aiming at better understanding the risk profile of the counterparty and at ensuring consistency with the institution’s risk appetite and stra-tegic objectives, in particular by:
• i. determining the scope of counterparties with whom to engage, taking into account the outcomes of the materiality assessment and of the risk measure-ment process;
• ii. establishing a dialogue with those counterparties to review their resilience towards ESG risks, taking into account the sectoral legislation that affects those counterparties and any transition plan they have developed;
• iii. where relevant and possible, providing relevant information and advice to clients on the assessment or mitigation of ESG risks they are exposed to; and

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• iv. considering a range of counterparty-specific actions, such as adjustment to product offering, agreement on a plan and remedial actions to support tran-sition efforts and an enhanced resilience of the counterparty, or as a last re-sort cessation of the relationship when continuation is considered incompat-ible with the institution’s planning and risk appetite .
• b) adjusting financial terms (e.g. including contractually-agreed safeguards and correc-tive measures), conditions (e.g. tenor) and/or pricing based on ESG risk-relevant cri-teria and the institution’s risk strategy and internal capital policy;
• c) considering ESG risks when developing sectoral policies and when setting global, re-gional and sectoral risk limits, exposure limits and deleveraging strategies;
• d) diversification of lending and investment portfolios based on ESG risk-relevant crite-ria, e.g. in terms of economic sectors or geographical areas;
• e) other risk management tools deemed appropriate in line with the institution’s risk appetite, such as a possible reallocation of financing between and within sectors to-wards exposures more resilient to 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/