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Overview

In 2019, the European Union enacted the Capital Requirements Regulation II (CRR II), which serves to amend the original Capital Requirements Regulation (Regulation (EU) No 575/2013) while incorporating the reform measures established by the Basel Committee on Banking Supervision (BCBS) pertaining to Pillar 3 disclosure requirements aimed at enhancing market discipline. Notably, CRR II introduces Article 449a, mandating the disclosure of Environmental, Social, and Governance (ESG) risks. Subsequently, in 2024, the disclosure requirements were further expanded with the adoption of CRR III (Regulation (EU) 2024/1623), which broadened the scope and specified additional data points for reporting.

Scope

The frequency and scope of disclosure requirements are contingent upon the size of the institution and its listing status on a regulated EU market.¹. This framework is designed to uphold the principles of proportionality while harmonizing reporting practices.

Large institutions, encompassing credit institutions and certain investment firms with publicly listed securities on a regulated EU market, are mandated to report on a semi-annual basis. Specific data points, such as the risk-weighted exposure amount, must be disclosed quarterly.

Conversely, large institutions that are not listed on a regulated EU market face less rigorous disclosure obligations, requiring annual reporting. In this case, only essential metrics and loss absorption capacity are to be reported semi-annually.

Beginning in 2025, CRR III extends the obligation to produce a Pillar 3 report concerning (ESG) risks to small, non-complex, and other institutions, albeit on an annual basis.

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^{1 Definitions according to Article 4 of Regulation (EU) 575/2013.}

Disclosure Requirements

Since end of June 2022, institutions within the scope shall disclose information on ESG risks, including physical risks and transition risks. This also includes providing insights on their integration into strategy, processes, risk management and governance mechanisms. 

Reporting Format

To specify uniform disclosure formats and instructions, the European Commission adopted implementing technical standards (ITS) in November 2022 based on a draft developed by the EBA (European Banking Authority).

These ITS contain templates, tables, and detailed disclosure instructions for both quantitative and qualitative disclosure requirements.

• The quantitative disclosures relate to climate change transition and physical risks and institutions’ mitigation actions, in particular the green asset ratio (GAR) and the Banking Book Taxonomy Alignment Ratio (BTAR).

• The qualitative disclosures focus on on how governance arrangements, business strategy and processes, and risk management consider risks in each ESG dimension.

The ITS will be developed further to integrate the developments of the technical screening criteria for the environmental objectives other than climate change mitigation and adaptation according to the Taxonomy Regulation.

With regards to CRR III, EBA published a draft for implementation guidance, which is currently in consultation.

Links and sources

• EBA, Transparency and Pillar 3

• EBA, Final Draft Technical Implementing Technical Standards 2025 

• Hummel, K., Jobst, D., 2024. An Overview of Corporate Sustainability Reporting Legislation in the European Union. Accounting in Europe. DOI: 10.1080/17449480.2024.2312145

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