The Danish Financial Supervisory Authority has published a cross-cutting report from its 2025 inspections of the largest Danish banks, concluding that they needed to strengthen how they identify, analyse and manage credit risks linked to environmental, climate, social and governance factors. The report consolidates the main supervisory observations and the authority’s practice under existing governance and financial business rules, and it is intended to be relevant beyond the inspected banks to other institutions with ESG-related credit risk exposures. The main weaknesses concerned the identification of both physical and transition risks, portfolio analysis, and the embedding of ESG-related credit risk in credit policies and procedures. Institutions are expected to focus on ESG factors that are material to credit risk, use scenario analysis that goes beyond mild assumptions and is anchored in management, and collect only the ESG data needed for credit-relevant analysis. In individual credit assessments, banks should distinguish credit-relevant ESG risks from broader sustainability considerations, analyse customers where such risks are material, discuss those risks with the customer, and support the process with staff training and effective first- and second-line controls. The authority also notes that smaller institutions may apply less extensive internal requirements, but all institutions must identify material ESG-related credit risks and address them in their credit policy and business procedures.

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