22. As part of the materiality assessment, competent authorities should identify which ESG risks …

As part of the materiality assessment, competent authorities should identify which ESG risks are most material to financial entities, considering their business model, portfolios, geographic exposures, and sectoral activities over a short- to long-term horizon. Competent authorities should consider, over the different time horizons, both:

• ▪ the exposure of assets and liabilities to transition risks (for example, based on their carbon footprint) and physical risks (for example, based on their geographical location); and
• ▪ the potential impacts of ESG factors on the traditional categories of financial risks, i.e. market risk, credit risk, counterparty risk, underwriting risk, as well as operational risk, reputational risk and strategic risk through the identification of the main transmission channels.

5 As these guidelines are addressed to competent authorities, the application of proportionality should follow the proportionality requirements laid down in sectoral legislation. 6 In accordance with the objectives enshrined in the Paris Agreement (2015). 7

1. Overview

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

3. Related Standards

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