The Danish Financial Supervisory Authority has published a note for smaller credit institutions summarising observations from its review of how small and medium-sized banks handle ESG-related credit risks and setting supervisory expectations for further development. The review found institutions at different stages, but emphasises that all banks, regardless of size, should address all relevant credit risks and have a plan for continued work. All surveyed institutions had begun by focusing on sectors they consider most exposed to environmental, social and governance-related credit risks, but the supervisor expects banks over time to map all material ESG-related credit risks across industries, customer groups and collateral types. Complementing its October 2024 good-practice note, the new note sets out a simple, systematic approach and expects institutions to identify ESG-related credit risks at a sufficiently detailed and operational level, determine which customer groups or collateral types could be affected, analyse and where possible quantify ESG-related credit risks for individual customers, and include ESG-related credit risks on an equal footing with other risks in their ongoing ICAAP.
Danish Finanstilsynet 2025-10-10
Danish Financial Supervisory Authority issues note urging smaller banks to strengthen methods for managing ESG-related credit risks
The Danish Financial Supervisory Authority issued a note for smaller credit institutions on handling ESG-related credit risks, highlighting varied progress among banks and setting supervisory expectations. It advises banks to map all material ESG-related risks across industries and customer groups, integrating these into their Internal Capital Adequacy Assessment Process (ICAAP). This follows an October 2024 good-practice note and emphasizes a systematic approach to identifying and quantifying ESG risks.