IFRS series on sustainability-linked financing
Perspectives
IFRS series on sustainability-linked financing
Fri 18 Nov 2022
As environmental, social and governance concerns are becoming more and more prevalent, sustainable finance is now under the spotlight. The financial sector has a key role to play in achieving the ESG transition. One of the levies developed by the financial industry is to propose new kinds of financing that promote ESG practices and projects amongst corporate businesses. This ‘green”, “social” or “sustainability-linked” financing is growing fast and is raising accounting issues under IFRS that are not fully addressed at the moment.
This series of articles aims to cover the various accounting issues raised by those new financing features from the perspective of both the fund providers and the fundraisers and to follow the latest developments of the IASB on these issues:
- Article 1 – IFRS series on sustainability-linked financing
- Article 2 – Why ESG-linked features impact financial assets classification under IFRS?
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Vincent Guillard Partner - Paris
Marc Alexandre Sarot Senior Manager - Paris
Justine Lewis IFRS Manager - South Africa
Why ESG-linked features impact financial assets classification under IFRS?
In our last article on sustainability-linked financing, we highlighted the accounting issues related to these contracts that are currently being debated between stakeholders. The most critical issue is the classification of loans or bonds that reference the borrower or issuer’s environmental, social and governance (ESG) key performance indicators (KPIs) on the balance sheet of lenders […]
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Key considerations on institutions’ credit IRB and IFRS 9 models
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IFRS 16: Potential Changes in Real Estate Strategies
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Quantified impacts of IFRS 9 : initial findings
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Addressing the challenges of the new sustainable finance regulations
As the world gears up for the transition to net-zero, the European Union is setting ambitious targets with respect to its own environmental footprint. For instance, by 2030 the EU is looking to reduce European greenhouse gas emissions by at least 55% compared to 1990 levels; increase the share of renewables within Europe’s total energy […]
Ultimate Forward Rate (UFR): Why we are seeing a change to the rate curve
On 6 February 2018, EIOPA published its latest risk-free interest rate curve to be taken into account for the purposes of Solvency II calculations. Based on calculations for January 2018, the curve is slightly different from previously published curves. This is reflecting significant changes in the long-term expectations of interest rates in recent years which calculates […]
Whistleblowers: a path to combatting fraud
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The Basel Committee finalises the Basel III agreements
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TRIM: Is Winter Coming for Internal Models?
Measuring banking risks is a difficult exercise, but striking a balance between simplistic and overly complex measurement techniques is the key to accurate risk measurement. This was the substance of the European Central Bank’s (ECB) Chair of the Supervisory Board, Danièle Nouy, in a speech at the Austrian Chamber of Commerce in Vienna, on 2nd […]
Podcast: Implications of Banks Implementing IFRS 9
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The Reduction of Regulatory Compliance Examinations for Financial Institutions
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IFRS 9 new provisioning and the phase-in period of regulatory capital: a discretionary approach
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EBA opinion on IFRS 9 and the impact on regulatory capital
After the Basel Committee consultation in October and then the European Commission’s legislative proposal of the package CRR II / CRD V in November 2016, the EBA has now given its opinion on the management impact of IFRS 9 on regulatory capital, notwithstanding a second impact study has just been completed. This opinion, primarily addressed […]
The management of regulatory capital following the transition to IFRS 9
On 1 January 2018, banks applying IFRSs move into a new era with the implementation of IFRS 9 on financial instruments, which will supersede the existing IAS 39. Although adopting this new standard will lead to many changes, it was phase 2 of the standard, on provisions, that interested the Basel Committee on 11 October, […]
Harmonisation of internal model approaches, a new era for banks?
Basel 4 and Single Supervisory Mechanism act to reduce the excessive variability in the results of internal model approaches to credit risk. For more than ten years, Basel reform has encouraged the development and use of internal models designed to better place risk management at the heart of banks’ control arrangements. Basel II saw massive banking […]
Digital Finance : Meeting Ethics and Compliance Challenges in Financial Services
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The use of Big Data tools to improve the effectiveness for AML/CFT and KYC policy
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How banks can demonstrate responsible banking during the pandemic
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Building a more inclusive tax model
Michael Lennard, Chief of International Tax Cooperation and Trade in the Financing for Sustainable Development Office (FSDO) of the United Nations, discusses, from a personal perspective, a range of key issues on the UN’s approach to transfer pricing. In 2019 the United Nations Tax Committee issued draft guidance on financial transactions. It was finalized in […]
Sustainable finance series: Driving credible ESG actions
Implementing credible environmental, social and governance (ESG) actions requires successful enablers. So how can firms identify these enablers and, crucially, remove barriers to implementation? If we take our latest C-Suite Sustainability Barometer, we can see that out of the over 1,100 businesses accounted for in the survey, 75% are planning to increase their investment in […]
Sustainable finance regulations signal a sea change for insurance sector
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Climate change valuation adjustment: introducing a climate change scenario extrapolation to long dated CDS curve
The global climate crisis has triggered the financial sphere to address the way in which it conducts business. Climate risk consideration is currently growing in the banking industry but should also be considered by banks in the Credit Valuation Adjustment (CVA) when pricing derivatives. The credit risk for long dated derivatives (beyond 10 years), reflected […]
The Fed shares instructions on its first pilot climate scenario analysis exercise
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COP27: stepping up implementation and the role of finance
A lot of attention at COP27 was focused on the likelihood of keeping global warming to 1.5 °C, in line with the goals of the 2015 Paris Climate Agreement. The consensus was that we are in real danger of falling off track. Few nations revised their nationally determined contributions to reduce their carbon footprint compared […]
Results of the ECB 2022 thematic review on climate-related and environmental risks
The European Central Bank (ECB) has expressed a significant supervisory concern surrounding more than half of supervised banks in terms of the progress made on fulfilling the expectations specified in the Guide on climate-related and environmental risks. The ECB recently concluded its 2022 thematic review of the banking sector’s alignment with supervisory expectations. This review […]
Green taxonomy trends facing the real estate sector
The European Union (EU) has taken the first step in directing capital investments toward so-called sustainable activities with the introduction of the Green Taxonomy on 1 January 2022. For the real estate sector, the objective is to measure the share of eligible activities contributing to the first two climate objectives – the mitigation of climate […]
Can BIS develop a cryptoasset regulatory framework without limiting the innovation process?
In summer 2022, the Bank for International Settlements (BIS) published its second consultation paper on the prudential treatment of cryptoasset exposures. The guidelines outlined in the proposed document follow an initial discussion paper released in 2019 and a first consultative document issued in 2021. The complete text is set up as a new standard to […]
The FED announced a pilot climate scenario analysis exercise for early 2023
The Federal Reserve Board (FED) will commence its first bottom-up climate scenario analysis exercise at the beginning of 2023, as announced on 29 September. The exercise will be exploratory in nature and will not result in extra capital requirements. The list of designated participants consists of six of the largest U.S. banks, i.e., Bank of […]
Reliable information key to the insurance sector’s ability to apply Green Taxonomy
The objective of the European Union’s Taxonomy regulation, in force since 1 January 2022, is twofold for the insurance and reinsurance sector. First, to measure the share of investments devoted to financing economic activities eligible for the taxonomy, known as the Investment Ratio. Second, to measure the share of gross premiums written in eligible non-life […]
Banks grapple with GAR objectives
In force since 1 January 2022, the European Union’s Taxonomy regulation aims to support the market for green finance. More specifically, greater transparency in the market will help prevent greenwashing by providing information to investors about the environmental performance of assets and economic activities of financial and non-financial information. For the banking sector, the target […]
Results of the ECB 2022 climate risk stress test
The first supervisory climate risk stress test (2022 CST) conducted by the European Central Bank (ECB) has concluded with official results and findings made public on 8 July 2022. The exercise has complemented the broader ECB’s agenda to assess the readiness of banks in Europe to manage climate-related and environmental risks. The 2022 CST was […]
How to address climate risk in the banking prudential framework
Climate change is now firmly in the focus of prudential regulators and supervisors across the globe. Against this background, the European Banking Authority (EBA) is mandated to assess whether a dedicated prudential treatment of exposures related to assets or activities associated substantially with environmental and social objectives would be justified. Based on its findings, the […]
France steps up sustainable transformation with mission-led business law
France’s innovative and incentivising Action Plan for Business Growth and Transformation (PACTE) law lays the legal foundations for corporate social responsibility. With more than 400 companies established as “sociétés à mission” – mission-led businesses – by the end of 2021, this new scheme is an undeniable success. The number of mission-led companies has doubled in […]
Eurofi financial summit addresses EU’s ecological and digital transition
As a setting for exchange between European Union (EU) economic and financial regulators and senior financial sector executives from the industry, one of the world’s largest financial services conferences, Eurofi, took place in Paris in February. Established in 2000, the Eurofi meetings occur bi-annually* alongside the Economic and Financial Affairs Council configuration (ECOFIN) meetings. The […]
Injecting noise into the discussion
Michael Lennard, Chief of International Tax Cooperation and Trade in the Financing for Sustainable Development Office (FfDO) of the United Nations, examines the role of tax toolkits for developing countries from a personal perspective. The Platform for Collaboration on Tax (PCT) involving the UN, OECD, IMF and the World Bank, is certainly a good example […]
Banks need to step up efforts on climate and environmental risk disclosures
In March 2022, the European Central Bank (ECB) published its second snapshot of climate-related and environmental risk disclosure levels among significant institutions under its direct supervision. In line with the results of the first snapshot published in November 2020 – regarded as the baseline measurement – none of the institutions in scope for this second […]
Embarking on an ambitious common climate framework
As part of the European Green Deal, the European Union intends to encourage green investments and prioritise the revision of the Non-Financial Reporting Directive (NFRD). The European or Green Taxonomy, which sets out a precise classification of sustainable activities with the strategic objective of redirecting capital flows towards those activities from 2022, is a result […]
Sustainability and climate risk: what can banks expect?
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The FSOC weighs in on climate risk
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ESG investing: Three risks to consider
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ESG investing: From buzzword to mainstream
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Benchmark study of approaches to estimate probability of default in the context of climate risk
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EBA: draft technical standards on Pillar 3 disclosures of ESG risks
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EBA discussion paper on the management and supervision of ESG risks
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Developing a toolkit for responsible investment decisions
This article is part of the series covering the impact of sustainable finance on the insurance sector. Read further:Part 1: Assessing the impact of sustainable finance on insurance entitiesPart 2: How the insurance sector is meeting ESG challenges Clarity of information provided to various stakeholders is a growing issue for financial organisations. Despite the efforts […]
How the insurance sector is meeting ESG challenges
This article is part of the series covering the impact of sustainable finance on the insurance sector. Read further:Part 1: Assessing the impact of sustainable finance on insurance entitiesPart 3: Developing a toolkit for responsible investment decisions When taking environmental, social, and long-term asset portfolio issues into consideration, insurance companies must assess the specific risks […]
Assessing the impact of sustainable finance on insurance entities
This article is part of the series covering the impact of sustainable finance on the insurance sector. Read further:Part 2: How the insurance sector is meeting ESG challengesPart 3: Developing a toolkit for responsible investment decisions Amid a global pandemic and a rising threat of climate change, today’s society expects financial organisations to uphold strong […]
Raising the bar
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