Find out how the newly updated MaRisk version 7 implements specific requirements for the risk management of environmental, social and governance (ESG) risks in German banking institutions. Integrating ESG factors into risk management contributes to a more sustainable and resilient financial system. Discover the key changes and the importance of transparent ESG reporting for the banking industry.
The German Banking Act (KWG) forms the legal basis for the banking sector in Germany. It ensures the proper functioning of banking transactions, regulates competition in the banking sector and prescribes the supervision of credit and financial services institutions. The Minimum Requirements for Risk Management (MaRisk) substantiate sections 25a and b of the German Banking Act (KWG) and define the minimum qualitative standards for the institution-specific design of risk management. The amended MaRisk are binding with immediate effect for national banking institutions that are supervised by the Deutsche Bundesbank/Federal Financial Supervisory Authority (BaFin).
Main changes in the new version 7:
- Adoption of the guidelines of the European Banking Authority (EBA) for lending and monitoring into German regulation.
- Introduction of specific requirements for the risk management of environmental, social and governance (ESG) risks.
Banks are encouraged to measure their ESG risks with the help of scientifically sound findings. For example, instead of making their own assumptions about climate change or the transition to a sustainable economy, banks can use scenarios that have already been developed by recognized institutions or networks and apply them to their own business model. The principle of proportionality plays a role here, as smaller institutions are allowed to carry out a simpler risk assessment, depending on their level of ESG risk exposure. It is therefore important to first identify the existing ESG risks in your own portfolio. CRIF has developed an extensive catalog of data and assessments (KPIs) that provides comprehensive input for this. You can find out more here.
Integration of ESG risks in risk management: stress tests, strategy and monitoring
MaRisk explicitly emphasizes the identification and inclusion of ESG risks in the risk inventory. Transparency with regard to ESG risks in the portfolio and the development of suitable methods are emphasized. The principle of proportionality also applies here, in that smaller institutions can simplify their risk assessment by focusing on the most affected risk positions or portfolios.
Other sections in MaRisk describe the integration of ESG risks into various risk management processes, such as stress tests, strategy, risk appetite, monitoring and reporting. The development and implementation of meaningful ESG reporting and training at all levels are also emphasized.
These changes aim to ensure that German banking institutions effectively identify, assess and manage ESG risks in line with regulatory expectations. By integrating ESG factors into their risk management practices, banks are contributing to a more sustainable and resilient financial system.
Please note that this article is only a brief summary of ESG and does not cover all the details and provisions of MaRisk. It is recommended to refer to the official documentation for comprehensive information and guidance.
