ESG Risk and Regulatory Compliance

Society and regulators increasingly require financial institutions to act more responsibly towards the environment, social issues, and their own governance. As a result, regulatory agendas worldwide are shifting to promote a transition to a more responsible and sustainable economy.

In Europe, the European Commission has developed a broad Sustainable Finance Action Plan (SFAP) that aims to reorient capital flows towards sustainable investments, integrate sustainability into risk management and foster transparency and long-termism in financial activity. Among several other regulatory requirements, SFAP introduces sustainability-related disclosure requirements through the Sustainable Finance Disclosure Regulation (SFDR), a taxonomy setting out a list of sustainable activities through the EU Taxonomy, and Environmental, Social, Governance (ESG) embedment in the updated MiFID II framework.

While these developments are a leap forward towards a sustainable economy, they also generate increased concerns regarding compliance risk management. Tight regulatory implementation timelines, limited ESG knowledge and awareness, data challenges to demonstrate ESG performance, limited availability of industry best practices, and continually evolving regulatory guidance and market standards remain key challenges for financial institutions.

Your trusted advisor in Sustainability Compliance Risk Management

At Deloitte, we understand that regulatory response to complex new initiatives rarely requires a quick fix or a one-size-fits-all-approach. We therefore offer our tailor-made offerings that provide insight in the possibilities and tools we have developed to minimize sustainability risks. Whether your reason for action is triggered directly from a letter received by the supervisor or results from a change in strategy, we will be able to provide the desired support.

Some examples of the support we can provide:

• Integrating ESG in the overall risk management framework
• Embedding ESG data collection in your existing KYC/CDD framework
• Integrating ESG in the credit / investment process including suitability assessments and product governance
• Monitoring and assessing for impact existing and emerging sustainable finance regulations
• Embedding ESG in existing risk practices and policy house
• Creating inspiring and impactful sustainability learning journeys to increase knowledge