The relationship between ESG performance and access to finance is becoming highly formalized and regulated within the EU banking sector, driven by guidelines from bodies like the European Banking Authority (EBA). Financial institutions are required to enhance the incorporation of ESG risks into their business strategies and risk management frameworks.
For corporate ESG directors, this means that your bank is proactively assessing your resilience to transition risk and requiring specific information about your strategy. Specifically, financial institutions are expected to obtain or collect forward-looking plans from at least large corporate counterparties (as defined by CSRD), including transition plans, to adequately assess their risk level.
A core component of the bank’s internal risk management is the definition of a clear engagement strategy with its counterparties. Banks must establish formal engagement policies detailing:
• The frequency, scope, and objectives of engagement (which should be determined by the materiality assessment and risk measurement methods used by the bank).
• The types of potential actions that can be taken.
• The escalation processes or criteria that are triggered if the counterparty’s engagement efforts fail to mitigate identified ESG risks or if the company’s profile is not aligned with the bank’s own targets.
This formalized process ensures that financial risks stemming from poor ESG management are addressed early. The outcome of the bank’s internal assessment can lead to decisions to proceed with transactions, apply specific mitigation measures and/or conditions, or even decline the business transaction outright. Therefore, companies must move beyond mere compliance disclosure and prepare for continuous, structured dialogue with financial partners regarding their ESG policies, targets, and governance structures.
Don’t wait for a crisis to define your ESG relationship with your bank. Understand the mandatory engagement and escalation protocols demanded by the EBA at the ESG Congress: esg-congress.com