Protecting a flower

Prudential treatment of assets and risk management​

ESBG believes that the green supporting factor should be looked at in careful detail in order to ensure that it is a secure tool. The SME supporting factor was established after a lot of research and data provided by banks, which should be the case in this instance. 

Regarding the brown penalising factor, ESBG is not in favour of such a tool. Penalization of financing to more exposed sectors to climate risk shall be avoided. It could raise serious concerns, and in particular, it may burden their transition and increase social risks if the needed steps to transition haven’t been taken. 

Finally, a unanimous set of definitions enhances legal certainly and consistency. Similarly, aligned implementation deadlines would be very helpful. Apart from that, specific guidance on what is expected from financial market participants would be appreciated. It would facilitate the better organisation and preparation to comply with the new rules. 

Identified Concerns

ESBG recognises the need to integrate ESG considerations into the risk management process. However, it identifies some lack of harmonisation between the guidance provided by the EBA and ECB. In particular, in the EBA guidelines, the risks of climate change for the financial performance of borrowers are identified as physical risks, such as risks to the borrower that arise from the physical effects of climate change, including liability risks for contributing to climate change, or transition risks, e.g. risks to the borrower that arise from the transition to a low-carbon and climate-resilient economy. The ECB guide, on the other hand, includes in the definition of climate related and environmental risks not only risks deriving from the effects of climate change but also environmental degradation. Also, the EBA guidelines apply from 30 June 2021. In particular, the guidance referring to loan origination procedures, including the assessment of borrower’s creditworthiness and loan pricing, applies to loans and advances that are originated after 30 June 2021. The ECB will apply from the final publication date, i.e. probably from the end of 2020.​​

Why Policymakers Should Act

Prudential treatment of exposures, with the introduction of a green supporting factor or a brown penalising factor, should be risk-based to avoid jeopardising the financial stability of financial institutions and the whole economy. Common definitions, as well as harmonised and realistic implementation deadlines of interdependent rules used by all regulatory and supervisory European bodies, ensure legal certainty and trust. This also facilitates the compliance of financial market participants with the new regulations. Ensuring this, in our view, should be one of the major points to focus on for EU decision-makers.

Background

Climate change and the response to it by the public sector and society in general have led to the identification of new sources of financial risk to which the regulatory and supervisory community is paying increased attention. Notably, climate change gives rise to both transition risk and physical risk. In this context, both public sector policy choices and the expectations of stakeholders are likely to change over time. This makes it essential that financial institutions be able to measure and monitor their exposures in order to deal with transition and physical risks and understand how they can be affected by changes in societal expectations.

In line with the expectation that consideration of ESG factors will be incorporated into all regulatory products, the EBA included references to green lending and ESG factors in its guidelines on loan origination and monitoring which will apply to internal governance and procedures in relation to credit granting processes and risk management. Based on the guidelines the institutions will be required to include the ESG factors in their risk management policies, including credit risk policies and procedures. These guidelines are the first specific policy product developed by the EBA incorporating sustainability considerations.

Furthermore, the revised CRR 2/CRD 5 package (Article 98(8) of CRD 2) calls on the EBA to assess the potential inclusion of ESG risks in the supervisory review and evaluation process performed by competent authorities. To that end, the EBA’s assessment must comprise, inter alia:

  • the development of a uniform definition of ESG risks including physical risks and transition risks;
  • he development of criteria for understanding the impact of ESG risks on the financial stability of institutions in the short, medium and long terms;
  • the arrangements, processes, mechanisms and strategies to be implemented by the institutions to identify, assess and manage these risks; and ​
  • the analysis methods and tools to assess the impact of ESG risks on lending and the financial intermediation activities of institutions.​

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Eco labels

EU Ecolabel for financial products

ESBG fully supports the development of a voluntary label to increase transparency for consumers on sustainability. However, regulators should firstly observe market developments and make sure that an EU standard will not complicate future harmonisation.

It is also important that such a label underpins an effective transition of the economy to a carbon-neutral society and sustainable development. Therefore, labels should not only apply to products that are strictly low-carbon but also support transition and enabling activities to promote a faster, broader, and more effective transition. Both low carbon activities, transition, and enabling activities should be included in the scope of the EU ecolabel.

With regards to the traceability of green deposits, an alternative solution of the current proposal of ring-fencing with similar outcome could be to trace the use of the assets a bank receives from the green deposits by ensuring that the right proposition of the assets coming from deposits are used to finance ecolabelled projects. It appears increasingly likely that banks will have to trace their green lending for risk reasons in the EU, by “tagging” the assets they finance.

Identified Concerns

Our main concerns are the asset classes that can be labelled, and the reality-check applied to the thresholds defined for each asset class. The ambition of the ecolabel should be maintained as high as possible, but also adapted to the asset class considered, and taken into account when defining the thresholds of green for each type of fund. ESBG is in favour of a label that is both environmentally ambitious and realistic, to ensure that thanks to the label, more and more dedicated green investment strategies will be developed for retail and institutional investors.

Another important question is the way the EU Taxonomy will be integrated in the EU ecolabel: the level of granularity of information that can be obtained from corporate issuers and banking clients is most of the time not adapted to the technical requirements (criteria, metrics) listed in the EU taxonomy. An example: the technical screening criteria for all environmental objectives will be ready by 31 December 2022. However, the EU Ecolabel for financial products is expected to be adopted in autumn 2021. It is not clear how the EC will ensure the alignment.

Moreover, we are concerned about the correct way of tracing the use of green deposits. The current proposal of the Commission refers to the option of “ring-fencing” green deposits. However, this option could cause a balance sheet burden for banks as well create regulatory issues relating to complying with liquidity requirements.

Why Policymakers Should Act

Building on the EU taxonomy, EU standards and labels for sustainable financial products would protect the integrity of and trust in the sustainable financial market, as well as enable easier access for investors seeking those products. An EU standard accessible to market participants would facilitate channelling more investments into green projects and would constitute a basis for the development of reliable labelling of financial products. Labelling schemes can be particularly useful for retail investors who would like to express their investment preferences on sustainable activities. However, the lack of labelled financial products may prevent investors from directly channelling their funds into sustainable investments.

Moving on to the traceability of green deposits, the idea of ring-fencing sounds right at first sight, but it could at minimum complicate the debate and the hopes many have on making it work and become mainstream.

A smart Ecolabel scheme, which takes into account the considerations above and below, will certainly be of added value to the EU’s financial system.

Background

The development of the EU Ecolabel for Financial Products is based on the European Commission’s 2018 Sustainable Finance Action Plan. The EU Ecolabel is a voluntary scheme that provides producers with an opportunity to market their products or services with a label of environmental excellence, provided that they fulfil the criteria on environmental performance.

In December 2019, the Commission’s Joint Research Centre (JRC) published its 2nd technical report on the ecolabel for retail financial products, with a draft proposal on the scope and criteria for granting an ecolabel to such products within the EU.

While the initial focus of proposals for an EU Ecolabel for retail financial products has been on investment products subject to the PRIIPs regulation (equity, fixed income and hybrid funds, including UCITS and AIMs; as well as IBIPs), the scope has now been extended to include savings deposit and fixed-term deposit accounts.

According to the proposal, in order to award the EU Ecolabel to the service of managing a deposit account, the link must be established between:

  • the decision of a retail customer to open an account and deposit money with a credit institution;
    the lending of the money deposited to new green projects and economic activities, and;
  • the payment of interest and the reporting of the associated environmental benefits to the account holder

In particular, JRC sets three requirements that allow for the earmarking of green loans and traceability of the link between each retail customer’s deposited money and their contribution to the total value of the green loans granted:

  • Green loan to deposit ratio: At least 70% of the value of the total deposits shall be used to make green loans and/or to invest in green bonds
  • Green loans made using the deposited money: Loans contributing to the green loan to deposit ratio shall only be granted to green economic activities
  • Internal ring fencing of the deposited money: The money held in deposit and granted as loans shall be strictly ring fenced within the accounts of the Credit Institution

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Houses inuslation

​​​EU Taxonomy

The specificities of retail banking should be taken into account in the framework in order to make sure that the taxonomy works for all types of economic activities, such as SME lending, energy efficiency of residential real estate.

While the technical screening criteria of the taxonomy must remain consistent and encourage capital reallocation towards a sustainable economy, they should be selected so that they may be applied to all relevant financing activities without creating an excessive administrative burden for some players. In other words, all financial institutions should have the tools at hand to play a vital role in financing the transition to a more sustainable EU economy. Definitions should therefore be clear, and applicable indicators should ensure a sufficient degree of comparability.

Where criteria already exist in relevant legislation, such as in forestry, those criteria should be used and referred to. As a matter of legal certainty, financial contracts concluded before the framework to facilitate sustainable investment (Taxonomy Regulation) and the associated delegated acts enter into force should be grandfathered, out of their scope. Generally speaking, we regard it as important that the clients keep freedom of choice on whether to invest or lend in sustainable products.

A workable and dynamic taxonomy is essential to ensure a homogeneous inclusion of environmental considerations throughout the EU. The taxonomy needs to take into account SME lending and improvement of the energy efficiency of private real estate.

Also, to avoid conflicting objectives between environmental protection concerns and social objectives (prosperity and employment) the taxonomy and its delegated regulation should ascertain that greening the economy is fully coherent with the social aims supported by retail banks, sustaining local communities and SMEs, which is most crucial for innovation and job creation.

The European Commission should make sure regulation around sustainability always takes into account a policy measure’s social impact. Although ESBG acknowledges the fundamental importance of the fight against climate change, ESBG stresses the importance of building a holistic framework fostering both environmental and social goals. As the European Commission itself also pointed out in its action plan, the concept of sustainability rests on environmental and social considerations alike. Thus, we urge the decision makers to accelerate and focus their work on establishing social criteria. Beyond that, good governance principles and a commitment to good corporate citizenship are especially important in the financial sector.

Finally, considering that the Level 2 work will not be ready before the end of the year, more time is needed for a solid consultation process and in-depth discussion with stakeholders. Also, it would be reasonable to adjust the date of entry into force of the Regulation. The response to the COVID-19 outbreak has shifted the focus of financial institutions to essential regulatory and supervisory actions and is significantly limiting the available time of institutions to prepare the implementation of new legislation.

Identified Concerns

ESBG fully acknowledges the need to address the lack of clarity on what can be considered environmentally sustainable for investment purposes, to scale up green investment to meet the EU’s climate and energy targets for 2030 and 2050. The regulation establishing a framework to facilitate sustainable investment will play a central role, as it will not only harmonise national public taxonomies but also define standardised disclosure obligations on financial market participants. It should hence be the basis for upcoming legislations relating to sustainability in finance. As an indispensable milestone, the taxonomy should be made operative before regulatory measures relying on it are implemented and the different sustainable finance legislative proposals should be synchronised. Considering that the Level 2 work will not be ready before the end of the year in combination with the response to the COVID-19 outbreak that has shifted the focus of financial institutions to essential regulatory and supervisory actions and is significantly limiting the available time of institutions to prepare the implementation of new legislation, there is not enough time for a solid consultation process and in-depth discussion with stakeholders as well as for its implementation. ​

Why Policymakers Should Act

Because of the key role of the regulation establishing the sustainable finance taxonomy, defining a workable framework is absolutely necessary to ensure a homogeneous inclusion of environmental considerations throughout the EU and ensure the financing of the transition towards a low-carbon economy. Furthermore, it is important for policymakers to acknowledge the dynamic inherent to the transition process in order to reflect it in the taxonomy and make sure adequate incentives can be put in place. This is something the static approach of the current taxonomy cannot do. Also, securing simple and clear rules that are being applied with respect to the principle of proportionality contributes to the facilitation of the taxonomy regulation’s understanding and use by all financial market participants. Apart from that, it is essential for policy makers to ensure equal opportunities for all financial participants taking into consideration that the transition towards a more low-carbon EU economy involves structural sectoral changes, and changes in business models and skill requirements that take time and additional resources to implement, especially for SMEs. Lastly, given that a social taxonomy is already in the Commission’s plans and considering that banks are already requested to report their social impact although there is no social taxonomy yet, a common understanding of “Social Objectives” will be helpful for the industry. We urge policy-makers to also focus on the social dimension of sustainable finance as savings and retail banks in Europe have been doing for a long time.​​

Background

Acknowledging the urgent need to further promote sustainable growth, the European Commission published an Action Plan on Sustainable Finance in March 2018. The Action Plan set out 10 actions to reorient capital flows, manage financial risks stemming from climate change, resource depletion, environmental degradation and social issues, and to foster transparency and long-termism. One of the central pillars was to establish an EU classification system for sustainable activities, i.e. an EU taxonomy The European Commission followed through on this action in May 2018 with a proposal for a regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy regulation). Meanwhile, the regulation was published in the Official Journal of the EU and entered into force on 12 July 2020. It will apply in two stages: as of 1st January 2022 for the first 2 environmental objectives (climate change mitigation and adaptation) and as of 1st January 2023 for the 4 other environmental objectives. The Taxonomy Regulation sets out four requirements for economic activities to comply with in order to qualify as environmentally sustainable, for the purpose of establishing the degree of environmental sustainability of an investment (art. 3). Economic activity should:

  • Contribute substantially to one or more of the environmental objectives;
  • Not cause significant harm to any of the environmental objectives;
  • Must be carried out in compliance with minimum safeguards (such as adherence to international social and business standards and conventions);
  • Must comply with technical screening criteria.​

Under art. 5 of the Regulation, environmental objectives are:

  • climate change mitigation;
  • climate change adaptation;
  • sustainable use and protection of water and marine resources;
  • transition to a circular economy;
  • pollution prevention and control;
  • protection and restoration of biodiversity and ecosystems

Moreover, the Regulation introduces disclosure requirements for financial market participants, i.e. institutional investors and corporates preparing non-financial statements under the EU Non-Financial Reporting Directive to disclose how and to what extent their underlying investment and company’s activities are associated with environmentally sustainable economic activities as defined in the Regulation. The regulation also includes a clause allowing the Commission to consider extending the Taxonomy to harmful activities (so-called “brown taxonomy”). ​

The Taxonomy Regulation tasks the Commission with establishing the actual list of environmentally sustainable activities by defining technical screening criteria for each environmental objective. These criteria will be established through delegated acts. The taxonomy for climate change mitigation and climate change adaptation should be established by the end of 2020, in order to ensure its full application by end of 2021. For the four other environmental objectives, the taxonomy should be established by the end of 2021 and will apply by the end of 2022. The first company reports and investor disclosures using the EU Taxonomy are due at the start of 2022.

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Disclosures and reporting in the context of sustainable finance

We call the EU to build or support, based on existing solutions, a centralised electronic European ESG data register. We understand that a common European Green Deal dataspace to support the Green Deal priorities is already envisaged in the EU data strategy.

As a first building block, the European data register should focus on ESG disclosure in line with the Non-Financial Reporting Directive (NFRD), EU taxonomy-based information, starting with climate change adaptation and mitigation objectives, as well as ESG data necessary to financial market participants to comply with the SFDR. As another building block the register should include relevant ESG information already collected by European and national institutions such as governments, central banks, statistical bodies, etc. The EU should open up its databases that collect environmental reporting data and make those re-usable. This data is critical for financing, and to track the economic performance of sustainable activities. Such data should be gathered and made available digitally to users of non-financial information – not only investors, but also lenders, academia, researchers, authorities and others. To facilitate the collection, a certain level of standardisation would be necessary. Finally, data should be provided to users ideally free of charge.

Sustainability regulation must establish uniform and clear standards throughout Europe and prevent greenwashing. For that reason we request the Commission not to adhere to the timetable of the SFRD. A full postponement of the implementation date of the SFDR to 1 January 2022 would facilitate financial market participants’ and financial advisors’ compliance with the new disclosure requirements. This moderate extension would give market participants more time for practical implementation (assuming publication of the draft RTS by end January 2021). It would also help not to impede the distribution of sustainable financial products.

In addition, ESG disclosures under SFDR still need to be complemented by Taxonomy related information which will require further adaptations of the RTS, to be effective as from 1 January 2022. The suggested extension for the application of SFDR would therefore have the additional advantage of allowing the coordinated implementation of all ESG-related disclosure requirements for sustainable products with lower implementation costs in the interest of the end-investors.

ESBG acknowledges the benefits that an improved non-financial reporting can have in order to improve the competitiveness of the company, CEO engagement in ESG matters, accountability; the integration of externalities risk assessments, financial assessments, as well as to mitigate negative impacts on the climate while building trust with stakeholders. While supportive of the implementation of the recommendations of the TCFD, savings and retail banks nonetheless draw attention to the issue of data availability in relation to the proposed indicators. For these reasons, non-financial reporting should remain reliable and as flexible as possible, and companies should be able to choose the reporting strategy and guidelines that fits better their strategies and position, considering information related to the four main topics and the principle of materiality.

Identified Concerns

The recent regulatory developments in the context of the EU Sustainable Finance agenda create an urgent need for publicly available ESG data as well as how to enhance their sourcing. Compliance with the new disclosure obligations introduced by the SFDR requires financial market participants to have access to comparable robust and reliable ESG data at the level of companies. From the perspective of the EU Taxonomy Regulation, companies subject to the NFRD will have to disclose how and to what extent their activities qualify as environmentally sustainable as defined in the Regulation. Unfortunately, the availability of comparable, reliable and public ESG data of good quality is currently insufficient to comply with the increasing expectations and new regulatory requirements due to apply shortly. When available, data is often difficult to compare and raises reliability questions. Moreover, ESG data by third party providers is often expensive in particular for small-size financial market players, researchers or academia. With an increasing demand for ESG information, the fragmentation in ESG third party data providers risks leading to insufficient availability of comparable and reliable ESG data as well as to unnecessary costs and competition concerns.​

Corporate reporting has to change – it is not broken; but it will be unless it changes. It has gotten better at showing what is valuable for companies. There is a confusion between what should be and how to change. Reporting is important for better business, better society, better information, better transparency and better capital markets.

Also, financial market participants and financial advisors face huge challenges in ensuring compliance with SFDR by 10 March 2021:

They must include templates for sustainability information in their distribution documents by the time the regulation comes into force on March 10, 2021. The requirements will be developed by the ESAs and will not be available before the end of January 2021. This leaves just five weeks to adapt the investor information.

We therefore echo the concerns highlighted by the ESAs in this regard that financial market participants need more time to properly implement the provisions in the RTS. This situation poses operational challenges in order to be able to update systems and documentation in time.

Furthermore, the timetables and regulatory content between the SFDR and the various sustainable finance work-streams have also been misaligned. These include the Taxonomy Regulation, NFRD, and also the MiFID II RTS on ESG factors and preferences, the latter of which has also been published for feedback quite late Previously discussed issues still persist such as the lack of an ESG data register, and the legal risk for ESG products arising from unclear and inconsistent data indicators, methodologies, definitions etc. ​​

Why Policymakers Should Act

While ESG products are becoming more popular in Europe, justifying common harmonised product disclosure rules, the area of principal adverse impact reporting is relatively new. Data constraint is one of the biggest challenges when it comes to sustainability-related information to end-investors, especially in the case of principal adverse impacts of investment decisions.

Harmonised EU rules on sustainability-related disclosures to end-investors is fundamental to achieve the objectives of the SFDR, i.e. to enhance data availability and comparability and foster sustainable investments while avoiding the risk of greenwashing. Otherwise, in the absence of harmonised EU rules on sustainability-related disclosures to end-investors, it is likely that diverging measures in some EU member states will have the effect that investors are provided with information only in a piecemeal fashion. Such divergent approaches would continue to cause significant distortions of competition resulting from significant differences in disclosure standards. Divergent disclosure standards make it very difficult to compare between different financial products and create an uneven playing field between these products and between distribution channels, and erect additional barriers to the internal market. Such divergences can also be confusing for end-investors and can distort their investment decisions.

Apart from that, the availability of raw harmonized ESG data would allow for better comparability, increase transparency, lower barriers and costs, generate efficiency, reduce complexity and attract new players. Robust, comparable and reliable ESG data is key to identify and assess sustainability risks in lending activities. In addition, availability of ESG data is also necessary to enable financial institutions and investors to steer their portfolios towards the objectives of the Paris Agreement and of the European Green Deal much more efficiently and on a much broader scale.

EU institutions have identified the need to become active. In particular, it is being assessed to which extent the non-financial reporting framework is still fit for purpose and for new challenges (sustainability, assurance and digitalisation).

The principle of proportionality is crucial in this respect. Policy-makers need to bear it in mind when designing legislation and reporting and disclosure requirements for both financial institutions and corporates, including SMEs.​

Background

Following the adoption of the 2015 Paris Agreement on climate change and the United Nations 2030 Agenda for Sustainable Development, the Commission has expressed in the 2018 Action Plan “Financing Sustainable Growth” its intention to increase transparency in the field of sustainability risks and sustainable investment opportunities.​

Given the challenging situation in terms of global warming, urgent action is needed and financial market participants and financial advisers are expected to disclose specific information on their approaches to the integration of sustainability risks and the consideration of adverse sustainability impacts.

In December 2019, the EU Disclosure Regulation entered into force and will be applicable as of 10 March 2021. The Regulation will apply to financial market participants and financial advisers (e.g. insurance intermediaries; credit institutions, investment firms, AIFMs and UCITS management companies which provide investment advice as defined in MiFID II Directive). Also, the Regulation introduces a range of other new definitions, including for concepts such as sustainable investments, sustainability risks and adverse impacts on sustainability factors.

EBA, EIOPA and ESMA (Joint Committee) are tasked with drafting Regulatory Technical Standards (RTS) on:

pre-contractual disclosures to specify the details of the presentation and content of the information disclosed;
the content, methodologies and presentation of information published in financial markets participants’ websites;
the content and presentation of information disclosed in periodical reports; ​

and Implementing Technical Standards (ITS) to determine the standard presentation of information on the promotion of environmental or social characteristics and sustainable investments.

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The Proportionality Card: A needed part of EU regulatory framework​

How can the locally focused sa​vings and retail-banking model contribute to further growth in Europe? On the policy front, financial legislation should weave in the principle of proportionality. That means rules applied to all financial institutions, taking into account a bank’s size, nature of its activities, complexity, risk profile and business model. Proportionate regulation should not be linked to size only.

Less risk must lead to less bureaucratic burden for our 650,000 service-driven employees and for our clients. Different regulatory regimes for different banking models would help local and regional banks – oftentimes smaller and less risky – to compete on an equal footing with other players. Doing so would give Europeans better access to much-needed finance.​

The prudential area remains a cornerstone of the proportionality debate. The Basel agreements provide a perfect example of rules designed for large, internationally active banks. Requiring huge administrative and compliance efforts, Basel rules applied to every bank in the same way will lead to a distortion of a level playing field. EU policymakers have an opportunity to change course, and end the regime that requires every bank on the continent to be compliant with the full Basel rulebook. ESBG members are well capitalised with an average CET1 ration of 15.3 per cent, higher than the industry average in EU markets where our banks are present.

Recently, some legislation used proportionality. The latest “risk reduction measures package” included reforms of the Capital Requirements Regulation and Capital Requirements Directive, with some elements of proportionality introduced in the prudential ruleset.

More elements of proportionality should be reflected in existing and future EU banking rules. Relatedly, overabundant regulation affects the financial services workforce too. Proportionality can help boost service levels by reducing the burden faced by bank employees when complying with EU banking rules.

At international level, Basel IV rules were agreed upon several months ago. The big question now is just how will EU decision-makers transpose this agreement into EU legislation? It is imperative that EU decision-makers take into consideration the nature, scale and complexity of the activities of European credit institutions. Given that financing via credit institutions remains by far the most preferred way of external financing for EU citizens and SMEs, Europe must keep a well-functioning banking sector that fulfils its special role in people’s economic lives.

In addition, ESBG favours a break from new waves of regulatory initiatives. It is high time to evaluate the functioning and consequences of current legislation before taking any additional initiatives. One example is MiFID II, where regulation has created a cumbersome process that stifles the commercial process to the detriment of financial institutions and customers alike. Implementing new rules – and complying with them – hit smaller and less-complex institutions particularly hard. 

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Act now

Sustainable finance: future focused action now

Corporate Social Responsibility : OUR DNA

Regulatory actions in the financial sector must prioritize the completion and implementation of the regulation developed in the 2018 Sustainable Finance Action Plan and what is provided in the EU Green Deal and the upcoming Renewed Sustainable Finance Strategy.

See Charter

WSBI-ESBG Charter for Responsible and Sustainable Business

See Developments Goals

WSBI-ESBG contribution to UN Sustainable Development Goals

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coronavirus

WSBI statement on Covid-19

The financial industry faces an unprecedented challenge that may last for quite some time due to the coronavirus pandemic, states a letter for policymakers worldwide from savings and retail banking association WSBI.

Signed by its President Isidro Fainé and Managing Director Chris De Noose, the letter says focus starts with saving as many lives as possible, eradicating the coronavirus pandemic and ensuring that the so-called “real economy” suffers as little as possible from vast Covid-19-caused economic damage.

Support measures done so far by governments can help SMEs, WSBI writes, expecially the the self-employed and individuals, as well as larger, heavily affected industries such as the services sector at large, in particular manufacturing, transport and tourism.

“Economic, financial, fiscal and social measures need to be designed and implemented straightaway, the letter states, adding “international cooperation is of utmost importance. The world needs to face the coronavirus crisis with decisive actions in a united and well-coordinated manner.”

​Committed to people, communities, SMEs and beyond

Savings and retail banks fully commit to supporting their customers, the letter states, be it individual people, families, SMEs, institutions, young people, the elderly and society in general who live in urban as well as in rural areas. “We aim to figure out the best, sustainable solutions. Locally rooted savings and retail banks have a crucial stabilising function in times of crisis with their infrastructure, closer relationship with customers and continuous lending.” WSBI member banks help SMEs and other companies overcome liquidity bottlenecks and provide stability. “For this to succeed,” WSBI added, “everything possible should be done in regulatory and macroprudential terms to maintain the liquidity and credit supply.”

On firmer footing since crisis

Playing an essential part of the solution, savings and retail banks see major financial reforms during the past decade have made their banks safer, more stable and more resilient in the face of shocks. Facing the coronavirus on stronger footing, their inclusive and socially committed approach to banking remains vital and steadfast during challenging times like these, they note.

WSBI added: “Clients of savings and retail banks can continue to rely on their banks as partners that do their utmost to mitigate the effects of this critical situation. Now, more than ever, we will stand strong to provide confidence, comfort and trust when customers and communities need it most.”

Policy ideas to give banks enough flexibility

WSBI members welcome the measures already taken by authorities, and proposes ideas to give banks “enough flexibility to continue supporting their customers. Some steps already taken need additional guidance and extended scope to achieve their objectives.” They include:

  • temporarily relax the rules when it comes to capital and liquidity buffers
  • increase monitoring, develop contingency plans and provide additional support for the most hard-hit sectors – tourism, transportation and the hospitality industry – by easing the tax burden for certain much-affected firms in vulnerable regions.
  • a plan to recover economic activity and production of goods and services and to stimulate consumption to prevent the economy from recession.
  • public authorities should free up additional capital and provide loan guarantees
  • flexibility on the asset quality assessment of loans by supervisors when public moratoria on payments have been implemented. This would also strengthen banks in temporarily supporting solvent clients facing liquidity difficulties.
  • IFRS 9 accounting standard implementation for the recognition of loan loss provisions should take into account the disruptive Covid-19 crisis. It is crucial that banks are granted enough manoeuvring room to modify the payment schedule of the affected borrowers without affecting their accounting provisions nor their solvency; that is, avoiding the increase in non-performing assets that would derive from the current regulations.

​Global coordination, relief measures much needed

At national and regional level, much can be done through coordination among policymakers, keeping neighbors in mind. At a global level, need exists for G20 to prioritise global financial stability, a sustainable and swift recovery and a balanced development as common goals. The recent G7 leaders’ commitment to do ‘whatever is necessary’ to support the global economy, a very well received first step, but future decisions regarding interpretation, adjustments, and tailoring of regulations must be properly coordinated at global level via the Financial Stability Board, the Basel Committee, the International Organization of Securities Commissions and the International Association of Insurance Supervisors. The IMF has also underlined the need for global coordination in its recent paper on policy.

What happens next

WSBI suggests in its statement that regulatory authorities ask themselves if new regulatory requirements that are planned to be implemented in 2020-2022 are critical, or, if there is a possibility, that they can be delayed by 1-2 years, depending on how the crisis further develops. Even if only a part of the upcoming regulation could be delayed this would certainly help banks, and other players, to focus their resources on critical immediate action.

Once the emergency has been overcome and the situation is stable, it may be useful to carry out an impact assessment in order to see what measures should be taken to ensure that the global economy is still growing.

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Networking image

Covid-19: European banking, insurance social partners statement 2

Joint statement of the European social partners in the banking and insurance sectors on the Covid-19 emergency crisis.

The European social partners in the financial services sector – UNI Europa Finance, the Banking Committee for European Social Affairs of the European Banking Federation (EBF BCESA), the European Savings and Retail Banking Group (ESBG), the European Association of Cooperative Banks (EACB), Insurance Europe, the Association of Mutual Insurers and Insurance Cooperatives in Europe (AMICE), and the European Federation of Insurance Intermediaries (BIPAR) – would like to express their sincere sympathy to everyone directly suffering because of the Covid-19 pandemic and to profoundly thank all those risking their own health to save lives. As social partners, we are fully committed to ensuring that the European banking and insurance sectors continue to assist their customers and support European economic activities to the best of our abilities during this unprecedented pandemic crisis.

This requires close and intense coordination with public authorities and for the European institutions, regulatory and supervisory authorities and the financial services sector to work together to try to neutralise as much as possible and to the best of our abilities the effects of Covid-19 on the economy. Important measures have already been taken to help the banking sector in supporting the economy. As this is a rapidly evolving situation, the social partners call on the public authorities to stand ready to take further action and use the necessary flexibility at their disposal to overcome the present difficulties. 

Employees and employers in the European banking and insurance sectors, as well as insurance and financial intermediaries, are doing their utmost to offer essential services to the public within the limits imposed by public authorities, and will continue to do so throughout the crisis as best they can. The European social partners in the financial services sector thank all employees in the banking and insurance sectors who are working to alleviate the effects of this crisis. 

Across the sector, all the European social partners agree that the health and safety of our employees, our customers and the general public are absolutely paramount, and that every effort and contribution should be made to help contain the spread and impact of Covid-19. 

To this end: 

• All the actors in the European financial services sector follow strictly the recommendations and rules of public authorities and health agencies in relation to Covid-19.  

• Companies in the sector have organised for the vast majority of their employees to work remotely whenever and wherever possible to reduce their exposure to the virus and limit its spread.  

• The European social partners in the financial services sector ask for their customers’ forbearance when they are requested, in line with the public measures decided at national level, to limit physical visits to branches, agencies and offices as well as face-to-face meetings. All the actors in the sector have reorganised their operations to remain at the service of customers through telephone, email and other communication technologies and tools, or, when necessary and when allowed and always in line with the rules and guidance of public authorities and health agencies, through face-to-face contact.

• During this Covid-19 crisis, all employees at their workplace, especially those who continue in their public-facing roles, need to be given appropriate protection in terms of both equipment and infrastructure on the basis of the relevant rules and guidance of the appropriate public authorities and health agencies, to minimise the risk of contagion as far as possible. This is in the best interests of customers and the general public.

Social Dialogue at all possible levels can provide a good context for finding suitable solutions for this exceptional situation and experience shows that it contributes to reach the high-level buy-in needed for successful implementation.  

Europe must show responsibility, solidarity and efficiency in facing this emergency by protecting all its affected citizens, workers and businesses. The European social partners in the financial services sector remain committed to protecting companies and the employees in the banking and insurance sectors and supporting European citizens and economic activities to the best of their abilities during this extraordinary crisis period. 

 

Signatories:

Michael Budolfsen President, UNI Europa Finance 

​Jens Thau Chairman, EBF BCESA 

Chris De Noose Managing Director, ESBG 

Hervé Guider Managing Director, EACB 

Andreas Brandstetter President, Insurance Europe 

Grzegorz Buczkowski President, AMICE 

Juan Ramón Plá Chairman, BIPAR 

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COVID-19: European banking, insurance social partners statement

​​​Joint statement of the European social partners in the banking and insurance sectors on the Covid-19 emergency crisis

The European social partners in the financial services sector – UNI Europa Finance, the Banking Committee for European Social Affairs of the European Banking Federation (EBF BCESA), the European Savings and Retail Banking Group (ESBG), the European Association of Cooperative Banks (EACB), Insurance Europe, the Association of Mutual Insurers and Insurance Cooperatives in Europe (AMICE), and the European Federation of Insurance Intermediaries (BIPAR) – would like to express their sincere sympathy to everyone directly suffering because of the Covid-19 pandemic and to profoundly thank all those risking their own health to save lives. As social partners, we are fully committed to ensuring that the European banking and insurance sectors continue to assist their customers and support European economic activities to the best of our abilities during this unprecedented pandemic crisis.

This requires close and intense coordination with public authorities and for the European institutions, regulatory and supervisory authorities and the financial services sector to work together to try to neutralise as much as possible and to the best of our abilities the effects of Covid-19 on the economy. Important measures have already been taken to help the banking sector in supporting the economy. As this is a rapidly evolving situation, the social partners call on the public authorities to stand ready to take further action and use the necessary flexibility at their disposal to overcome the present difficulties.

Employees and employers in the European banking and insurance sectors, as well as insurance and financial intermediaries, are doing their utmost to offer essential services to the public within the limits imposed by public authorities, and will continue to do so throughout the crisis as best they can. The European social partners in the financial services sector thank all employees in the banking and insurance sectors who are working to alleviate the effects of this crisis.

Across the sector, all the European social partners agree that the health and safety of our employees, our customers and the general public are absolutely paramount, and that every effort and contribution should be made to help contain the spread and impact of Covid-19.

To this end:

  • All the actors in the European financial services sector follow strictly the recommendations and rules of public authorities and health agencies in relation to Covid-19.
  • Companies in the sector have organised for the vast majority of their employees to work remotely whenever and wherever possible to reduce their exposure to the virus and limit its spread.
  • The European social partners in the financial services sector ask for their customers’ forbearance when they are requested, in line with the public measures decided at national level, to limit physical visits to branches, agencies and offices as well as face-to-face meetings. All the actors in the sector have reorganised their operations to remain at the service of customers through telephone, email and other communication technologies and tools, or, when necessary and when allowed and always in line with the rules and guidance of public authorities and health agencies, through face-to-face contact.
  • During this Covid-19 crisis, all employees at their workplace, especially those who continue in their public-facing roles, need to be given appropriate protection in terms of both equipment and infrastructure on the basis of the relevant rules and guidance of the appropriate public authorities and health agencies, to minimise the risk of contagion as far as possible. This is in the best interests of customers and the general public.

Social Dialogue at all possible levels can provide a good context for finding suitable solutions for this exceptional situation and experience shows that it contributes to reach the high-level buy-in needed for successful implementation.

Europe must show responsibility, solidarity and efficiency in facing this emergency by protecting all its affected citizens, workers and businesses. The European social partners in the financial services sector remain committed to protecting companies and the employees in the banking and insurance sectors and supporting European citizens and economic activities to the best of their abilities during this extraordinary crisis period.

Signatories:

Michael Budolfsen President, UNI Europa Finance
​Jens Thau Chairman, EBF BCESA
Chris De Noose Managing Director, ESBG
Hervé Guider Managing Director, EACB
Andreas Brandstetter President, Insurance Europe
Grzegorz Buczkowski President, AMICE|Juan Ramón Plá Chairman, BIPAR

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Joint statement of the European Social Partners in the Banking and Insurance Sectors on the COVID-19 Emergency Crisis

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ESBG: Covid-19 statement

United efforts to overcome the crisis are indispensable.

The following text is a letter sent today by ESBG to EU policymakers. The letter includes an annex with proposals to consider as they further address financial sector issues brought on by the pandemic. See annex at bottom of page.

BRUSSELS, 25 March 2020​

Dear Madam, Dear Sir:

In 2020, banks will have to face their biggest challenge for many years due to Covid-19. The past decade since the crisis has seen major financial reforms, making banks safer, more stable, and more resilient in the face of shocks. But a health pandemic was not on the cards and banks need to work together with authorities to avoid any collapse in the economic system.

Our savings and retail banks are fully committed to supporting their customers when they are struggling – individuals, families, small and medium-sized companies (SMEs), institutions, young people, the elderly and society in general, in urban and also rural areas. We aim to figure out the best, sustainable solutions. Locally-rooted savings and retail banks have a crucial stabilising function in times of crisis with their infrastructure, contact management and continuous lending. They help SMEs and other companies overcome liquidity bottlenecks and provide stability. For this to succeed, everything possible should be done in regulatory and macroprudential terms to maintain the liquidity and credit supply.

What is most important is that the so-called “real economy” suffers as little as possible. In particular, SMEs are facing extraordinarily challenging times. They must not be left alone in this time of crisis. We welcome the very strong support measures offered in many countries to help them, as well as to larger, heavily affected industries, such as transport and tourism. It is clear that all stakeholders from the public and private sectors will need to work together to overcome this difficult period. Economic, financial, fiscal and social measures need to be designed and implemented as soon as possible. What is more, this is a moment in which European cooperation is of utmost importance. Europe needs to face the coronavirus crisis in a united and well-coordinated manner.

In the current coronavirus crisis, banks are an essential part of the solution, not the problem. ESBG members’ inclusive and socially-committed approach to banking is vital, and it will not change in challenging moments. Clients of savings and retail banks can continue to rely on their banks as partners that do their utmost to mitigate the effects of this crisis situation. Now more than ever, we will stand strong to provide confidence, comfort and trust when customers and communities need it most.

What has been done so far?

ESBG members welcome the initiatives being taken in Europe in order to support the economy at this difficult time. Actions such as reducing counter-cyclical buffers, enabling the use of capital and liquidity buffers, as well as fiscal and budgetary changes are part of the flexibility needed. We consider liquidity contributions and bridging loans from governments as indispensable right now. Help from the public side creates trust, supports companies in securing their existence and ensures employment and income for the people concerned. The more successful this is, the less need there will be for stabilisation of overall economic demand.

The ECB has already stated it will ease some regulatory requirements including the conditions for targeted longer-term refinancing operations (TLTRO), which is a great bank lending support to those affected most by the spread of the coronavirus. Furthermore, the ECB announced plans for extra asset purchases, which is another very useful measure to support the real economy (and the public sector). ESBG members also appreciate that the ECB Banking Supervision provides temporary capital and operational relief in reaction to coronavirus as well as additional flexibility regarding the treatment of non-performing loans to ensure banks can continue to fulfil their role to fund the real economy.

The European Supervisory Authorities have also taken commendable actions to help alleviate the immediate operational burden for banks, in particular the European Banking Authority’s decision to postpone the stress tests until 2021 will allow banks to focus on and ensure continuity of their core operations, including support for their customers.

Finally, we think that it is unavoidable that the EU spends money in order to increase the financial firepower. At its meeting mid-March, we understand that the 19 Eurozone members have decided fiscal measures of about 1% of the GDP for 2020 and the provision of liquidity facilities of at least 10% of the GDP to support the economy, which is a welcome step in the right direction.

All of this is much needed, in our opinion, and will help support economic activity, employment, and price stability. In an annex to this letter, we are sharing with you some additional measures which would be important to be implemented to help savings and retail banks fulfil their role in this economically challenging period.

​What happens next?

Regulatory authorities should question themselves if new regulatory requirements that are planned to be implemented in 2020-2022 are critical or if there is a possibility that they can be delayed by 1-2 years or more, depending on how the crisis further develops. This would allow supervised entities to focus on the coming challenges caused by the Covid-19 crisis and act accordingly (review strategies, adapting procedures, policies, maybe even IT systems, enforce controls) and creating enough flexibility within their workforce planning to act on foreseeable and non-foreseeable upcoming issues. Even if only a part of the upcoming regulation could be delayed this will certainly help banks, and other players, to focus their resources on critical immediate action.

What’s more, the current crisis is adding to many workloads and shifting priorities. ESBG member banks are currently focusing most of their resources on assuring a normal and smooth continuation of their activities, in order not to interrupt serving companies, in particular SMEs, and households. In order to respond adequately to public consultations currently under way by different authorities, such as the European Commission and the EBA, ESBG members call for prolonged deadlines in order to give us the time to carefully gather our feedback. This would help make sure authorities’ expectations in terms of quality and quantity will be met. In this context, we noted that the Basel Committee already announced that it would be suspending consultation on all policy initiatives and postponing all outstanding jurisdictional assessments for the time being. European institutions could take inspiration from this announcement.

Once the emergency is stable, it may be useful to carry out an impact assessment in order to see what measures should be taken to ensure that the global economy is still growing.

Together, it is possible to reduce the effects of Covid-19 on the economy. But measures need to be taken now, at the same time, instead of gradually. By acting immediately, we may manage to endure this crisis better than the one before. The economy must recover as quickly as possible after the pandemic. Capital levels and labour force potential must be maintained during the crisis. They form the basis for the economy’s recovery.

We remain at your disposal in case you would like to discuss these points in greater detail. It is of utmost importance that a good dialogue between public authorities as well as the industry is maintained in these challenging times. We look forward to seeing how different regions will continue to respond, and the impact it will have on financial stability, and we stand ready to help navigate through the crisis, supporting particularly the most vulnerable actors of the economy, such as SMEs and households.

Best regards,

​Helmut Schleweis
President, ESBG​​

​Chris De Noose
Managing Director, ESBG


Annex to the ESBG statement on Covid-19: United efforts to overcome the crisis are indispensable.

Savings and retail banks believe that some additional measures would be appropriate at this time, in order to give banks enough flexibility to continue supporting their customers. Some measures already taken need additional guidance and an extended scope to achieve its objective. Please find below a list of proposals:

ECB:

Regarding conditions established to have access to TLTRO III facilities, the benchmark period for the eligible net lending should be backdated to 1 March 2020 (instead of 1 April 2020 as it was announced). Many companies are already requesting credit lines during this month due to the Covid-19 crisis.

Increase multiplier for the 2-tiered interest rate of the over fulfilment of the Minimum Reserve requirement.

Introduce a Repo facility with QE investments with a tenor of at least 35 days (ideally on an evergreen basis).

Allow (in cooperation with the EBA) for an immediate non-deduction (capitalisation) of software assets (both purchased and developed internally) as foreseen in CRR 2 Article 36 (1) (b) in order to eliminate current disadvantages for the EU institutions in comparison with the USA institutions and to create and foster a level playing field;

Regarding the flexibility on asset quality assessment of loans under Covid-19 related public moratoria, we ask ECB to extend this flexibility to all moratoria given by banks to temporarily support solvent clients facing liquidity difficulties due to Covid-19 crisis.

Postponement of first impact of the ECB NPL Addendum (which should start in April) for one year and review of supervisory expectations affecting the stock of NPLs communicated to entities in the SREP letter.

Allow for a non-deduction of irrevocable payment commitments (IPCs) from own funds.

 

National level:

National competent authorities and national governments could significantly increase public default guarantees in order to back temporary emergency loans for companies hit by the coronavirus outbreak (like being short of cash due to sharp falls in sales) and to mitigate the effects of possible moratoria that may be established by the entities in the payment schedules of their clients (with special focus on SMEs and the self-employed); they could relax fiscal rules and coordinate fiscal action in Europe (also supported by the IMF) to avoid supply/demand shocks.

In cooperation with the ECB, measures of price stability must be foreseen because during this period prices of various products began to increase, having the potential to provoke an unjustified speculating panic to the detriment of consumers.

European Banking Authority (EBA):

EBA should promptly issue a waiver to EBA guidelines on definition of default to competent authorities on how to temporarily, in a clearly defined timeframe, wave prudential and, only if necessary, consumer protection regulation in order to:

  • avoid or limit adverse liquidity effects on European businesses and households;
  • secure the continuation of credit transmission by banks without major disruption to their prudential status;
  • secure the continuation of payment services;
  • allow banks to change the payment schedule of borrowers which are affected by the consequences of the COVID-19 (e.g. moratorium tool for instalment payments of sound borrowers) along with other exceptional measures deemed necessary to minimize the impact of COVID-19 on consumers (for instance, exceptional delay in payments in case consumers experience a disruption in their revenue stream);
  • ensure that these measures are available and put in place without an increase of costs and burden of distressed consumers. Taking inspiration on the EBA Guidelines on arrears and foreclosure (under the MCD), it would make sense that all measures have a neutral impact on credit institutions and borrowers;
  • facilitate the debt restructuring of firms which are in temporary distress but still economically viable;
  • set up clear expiration dates for the temporary measures aimed at stabilizing the financial system, and a plan for a return to compliance with current regulatory requirements, such as easing forbearance and NPL regulations.
  • advise national competent authorities that they should apply a pragmatic approach if due to the corona crisis banks can temporarily not cope with the given deadlines for supervisory reporting; the same should apply with regard to statistical reporting deadlines.
  • advise national competent authorities to take a pragmatic approach if due to the corona crisis large exposure limits are exceeded, especially in cases in which commitments are drawn to ensure liquidity

Later implementation of planned/currently consulted Guidelines (suspension by 6 months including delayed implementation timelines accordingly):

EBA draft guidelines on the treatment of structural FX under 352(2) of the CRR;

EBA draft guidelines on loan origination and monitoring.

Delayed implementation of the three reporting packages EBA 3.0, EBA 2.10 and EBA 2.9 (Changes to FINREP concerning non-performing and forborne exposures reporting, P&L and IFRS 16, Changes to LCR to align with the LCR amending Act and Changes to reporting requirements as specified in the ITS on supervisory benchmarking of internal models).

 

Resolution authorities:

The calendar for MREL compliance should be reviewed, taking into account the extreme volatility and rising risk aversion in the markets. This is particularly important for those cases in which MREL compliance was anticipated at the end of 2020, through the transitional agreements communicated individually to entities. The calendar established in BRRD 2 should also be extended beyond January 2024, especially the first binding milestone of January 2022 should be moved to 1 January 2024. These days the AT1 instruments are suffering a lot in the market due to their risk nature, and we fear that appetite on the markets for these instruments will significantly decrease.

Flexibility regarding the resolvability self-assessments, due in mid-2020, should be granted: As banks have to do the comprehensive resolvability assessment for the first time, endorsed by the management body, and due to limited technical work capabilities, priority setting and limited capabilities for external support, flexibility in deadlines and scope should be introduced.

Further proposals for the European level:
Application of parts of CRR II that were supposed to entre into force in December 2020 and that require significant implementation efforts should be postponed until the corona crisis is overcome, e.g. extended consolidation rules.

A temporary increase in exposures being subject to the derogation provided for in the NPL backstop regulation (CRR article 469a) must not cause the exposures to be included in the NPL backstop deductions, when the increase in exposures can be directly attributed to the consequences of Covid-19.

The implementation of the IFRS 9 accounting standard for the recognition of loan loss provisions should take into account the disruptive Covid-19 crisis as many banks are re-focusing their short-term priorities to ensure customer protection. In addition to this, a postponement of the implementation of definition of default seems appropriate in the current exceptional situation, as well. Given the current circumstances, the already very challenging deadline of 1 January 2021 appears overly optimistic. We have the opinion that a postponement of one year would be useful to both banks and supervisors to get ready to apply the new definition consistently across Europe. It is crucial that banks have enough room of manoeuvre to modify the payment schedule of the affected borrowers without affecting their accounting provisions nor its solvency (that is, avoiding the increase in non-performing assets that would derive from the current regulations). Such clarification is essential to the extent that IFRS 9 is a principle-based standard and the EBA Guidelines have become a key reference to determine the accounting judgments and policies that entities apply in the classification and assessment of credit risk.

The SRB should consider measures to reduce or defer this year’s contribution in light of the corona crisis to come to solvency discharges for banks.

We also propose to increase the percentage up to which institutions are entitled to provide their contribution in form of IPCs from the current 15% to 30% (50% would be legally possible). ​

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