Your experts for consolidated financial statements.
Here you’ll find everything you need on the topic of consolidated financial statements—concise, clear, and to the point.
The information sheet was issued by BaFin (German Federal Financial Supervisory Authority) as a guideline for the companies it supervises. In it, the authority first recommends a "strategic approach to sustainability risks". It defines these as "environmental, social or governance events or conditions [which corresponds to the ESG criteria; author'snote] whose occurrence could have an actual or potential negative impact on the net assets, financial position, results of operations and reputation of a supervised entity".
A distinction is made between physical risks (e.g. environmental disasters), transition risks(e.g. changes in the legal situation) and reputational risks (e.g. business transactions that disregard human rights). These should be taken into account in the strategic orientation, but also in the operational business, e.g. when granting loans. To this end, the "regulations for dealing with sustainability risks should be implemented consistently across the Group in the business and risk strategy as well as the organizational guidelines."
Such a strategy also includes standardized ESG reporting, which in the case of banks and financial service providers is the responsibility of the risk controlling function, which "reports fully to management on the nature and extent of significant sustainability risks".
In addition, the supervised companies are required to "review the ability and willingness of the contractual partner or the investment object to take risk-minimizing measures, including the assessment of the quality of its sustainability management and the possible (contractual) agreement of corresponding risk minimization measures".
From this point of view, a sustainability strategy makes sense for all companies that wish to access funds from investors, banks and financial service providers. You can assume that a suitable management system for sustainability risks will significantly improve the conditions offered by banks and financial service providers (at least in Germany).
In addition, BaFin sees dealing with sustainability risks as an impetus to "adapt existing processes and develop new, innovative measurement, management and risk mitigation tools, depending on the risk profile".
Conclusion: The information sheet published by BaFin in 2020 is also likely to have an impact on other investors. This will further increase the relevance of sustainability management (and therefore also ESG reporting).
