ESG Risk Disclosure Standards Would Support Bank Stress Tests – Fitch

Ratings agency puts case for integration of ESG risks into financial reporting using “common set of internationally comparable metrics”.

Banks’ ability to carry out climate change related stress tests could be vastly improved by standardisation of corporate ESG risk disclosures, according to a new report published by Fitch Ratings.

As more prudential regulators have introduced climate-related stress testing requirements, banks have sought greater harmonisation of the variables and scenarios employed within the tests. Due to banks’ heavy reliance on input from corporate clients to conduct the tests, Fitch Ratings has called for a common sustainability standard, ideally led by a single authority, arguing that banks require standardised data on how physical and transition environmental factors translate into financial risks.

This change, Fitch states, will help to ensure that stress tests make use of reliable, high quality and easily comparable data, therefore leading to improved stress test results.

Further, standardisation of ESG reporting and disclosure would allow market participants to compare and assess … [continues]

Read the full article on Regulation Asia’s sister publication, ESG Investor.

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