Managing ESG risks in an evolving regulatory landscape: What the new EBA Guidelines mean for banks in light of the EU’s Omnibus proposal

While the European Union (EU) awaits the European Commission’s detailed proposals on the EU Omnibus proposal with revisions to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the Taxonomy Regulation by the end of February 2025, the European Banking Authority (EBA) took a decisive step forward in January, finalising its Guidelines on the management of Environmental, Social, and Governance (ESG) risks (EBA Guidelines).

As mandated within the Capital Requirements Directive (CRD6), the EBA Guidelines aim to ensure the safety and soundness of credit institutions as ESG risks intensify and the EU transitions towards a more sustainable economy. They also set expectations regarding transition planning, helping institutions address financial risks linked to ESG factors and aligning with the EU’s climate neutrality goals for 2050.

This blog post contextualises the EBA Guidelines within the regulatory framework, provides an overview of key provisions—particularly on transition planning—and outlines the next steps for implementation.

Regulatory context

Over the past years, the EU has gradually developed a framework for ESG risk management within credit institutions. The Credit Requirements Regulation (CRR3)/CRD6 package now for the first time defines “ESG risk” and establishes statutory requirements for identifying, measuring, managing and monitoring ESG risks within credit institutions, while at the same time granting supervisors the authority to assess these risks as part of their supervisory review and evaluation processes (SREP) (see our blogpost here). Those requirements, which have been enshrined in a new provision (Art. 87a CRD), have now been supplemented by the Guidelines. 

Beyond financial regulation, the EBA Guidelines intersect with broader EU sustainability initiatives like CSRD, CSDDD and the Taxonomy Regulation, all of which impose overlapping but distinct obligations on credit institutions. The interplay between these frameworks creates additional complexity as institutions must navigate evolving compliance requirements while mitigating enforcement risks.

Interdependencies and uncertainties within the regulatory frameworks pose a significant challenge, particularly given the ongoing legal and procedural ambiguities surrounding the Omnibus proposal and its impact on other legal frameworks incorporating ESG considerations. At this stage, it remains unclear what specific changes the European Commission will propose or how they will be structured. Key legal questions remain unresolved, including whether a separate proposal will be introduced to postpone the current rules. Such a postponement could help mitigate legal uncertainty for companies required to comply with the CSRD and CSDDD frameworks while they undergo parallel amendments. It is also uncertain whether potential changes would also extend to other regulatory frameworks that reference relevant requirements, such as CRDVI, which is already in force. These evolving developments add to the complexity of an already intricate regulatory landscape for credit institutions. 

Key provisions of the EBA Guidelines

Based on the consultation draft from January 18, 2024, the EBA Guidelines focus on three elements:

• ESG risk management standards – establishing minimum methodologies for identifying, measuring, managing, and monitoring ESG risks.
• Transition plans – requiring institutions to prepare structured plans with quantifiable targets and timelines, ensuring alignment with EU sustainability objectives, particularly the 2050 climate neutrality goal.
• Impact assessment criteria – defining qualitative and quantitative benchmarks to evaluate ESG risks’ effects on institutions’ solvency and risk profiles over the short, medium and long term.

The requirements are largely formulated in an abstract, principles-based manner. Rather than imposing rigid, uniform obligations, they set overarching objectives and follow the principle of proportionality outlined in the EBA Guidelines. 

The principle of proportionality distinguishes inter alia between larger and smaller credit institutions. For instance, large credit institutions within the meaning of the CRR are expected to benchmark their plans against a scenario compatible with limiting global warming to 1.5°C in line with the Paris Agreement and the goal of achieving climate neutrality by 2050, as established in EU Climate Law. In contrast, small and non-complex institutions within the meaning of CRR (SNCIs) may rely on a simplified set of key parameters and assumptions. A similar differentiation applies to targets and metrics. While all credit institutions must set quantitative targets to address ESG risks, SNCIs are not required to define specific time horizons over which these targets and metrics apply. This approach reflects the broader regulatory effort to ensure that ESG-related requirements are ambitious yet adaptable, considering the varying capacities and risk profiles of different types of institutions. 

In this context, institutions’ size will not be the sole indicator when it comes to proportionality in ESG risk management. Depending on their business model, smaller institutions can be prone to concentrations of exposures in ESG-sensitive economic sectors or in geographical areas exposed to physical risks. Institutions must implement risk management approaches proportional to their materiality assessment results in order to ensure safe and prudent ESG risk management.

Requirements for transition plans

A key feature of the EBA Guidelines is their emphasis on transition planning. Although rooted in the prudential framework for banks, the EBA Guidelines consider broader regulatory initiatives and legislative frameworks related to transition planning. 

When discussing transition plans, it is essential to differentiate between:

• prudential, risk-oriented transition plans under Art. 76(2) CRD VI which are further specified by the EBA Guidelines and must be reported under CRR; and 
• non-prudential, strategy-oriented transition plans under the potentially upcoming CSDDD which must be reported under CSRD as part of non-financial reporting (subject to the Omnibus proposal).

Prudential transition plans are limited to ESG risks and primarily serve as a tool for institutions and supervisory authorities to manage transition risks. Non-prudential transition plans incorporate an impact component in the sense of a double materiality assessment and are mainly designed to enhance transparency for external audiences such as shareholders and investors by outlining a firm's strategic approach to achieving specific climate commitments or targets. However, various interrelations exist between different transition plans. For instance, an ambitious ESG strategy could reduce the need to manage ESG risks in the medium and long term. 

For credit institutions, Article 76(2) CRD requires management bodies to develop and oversee the implementation of specific plans that include quantifiable targets and processes to monitor and address financial risks arising from ESG factors in the short, medium and long term. These plans must align with EU climate objectives and be based on reports from scientific advisory bodies, while also being consistent with transition plans prepared under other regulatory frameworks. This requirement is subject to regulatory oversight. Competent authorities are required to assess and monitor institutions’ ESG strategies, risk management practices, including transition plans. 

The EBA Guidelines provide clarity on key elements such as:

• Time horizons (distinguishing between short-term (immediate), medium-term (strategic), and long-term (10+ years) considerations).
• Quantifiable targets (which must be based on forward-looking metrics, such as financed GHG emissions).
• Milestones (which should align with EU climate goals, including a 55% emissions reduction by 2030 and net zero emissions by 2050).

Institutions are expected to ensure that short-, medium- and long-term objectives and targets are well integrated and articulated. This means that long-term commitments such as achieving net zero emissions must be translated into medium-term strategies, such as sectoral policies or growth targets for business lines. Additionally, short-term financial metrics—including profitability indicators, cost of risk, KPIs, KRIs, risk limits and pricing frameworks—must be coherent and consistent with medium- and long-term objectives.

The Annex to the EBA Guidelines provides examples, references and potential metrics for each key requirement, offering institutions a structured approach to formalising their transition plans while ensuring alignment with Pillar III and CSRD disclosures.

Although prudential and non-prudential transition plans are interconnected, the EBA emphasises the importance of a single, comprehensive strategic planning process that integrates all applicable regulatory requirements. However, certain inconsistencies remain across the abovementioned frameworks and the ongoing revisions under the Omnibus proposal call into question whether full alignment will be achieved.

Further guidance on the content of transition plans has been provided by international organisations such as the NGFS and the FSB. 

Next steps and implementation timeline

Despite the current regulatory uncertainty, the new EBA Guidelines will take effect on January 11, 2026, for most credit institutions, while SNCIs have been granted an additional year to comply. This is particularly noteworthy as it has no basis in the underlying CRD, which mandates the implementation of ESG risk management rules for all institutions in national law by January 10, 2026, with application starting from January 11, 2026. While this can only concern the specifications set out in the EBA Guidelines, not the legal requirement as such, it adds another layer of proportionality in favour of SNCIs. Given the evolving EU regulatory environment, credit institutions should closely monitor developments in the EU framework while preparing to integrate ESG considerations into their risk management and strategic planning processes. 

Aligning with the EBA Guidelines ahead of their enforcement will not only facilitate compliance but also enhance institutions’ ability to manage risks effectively and contribute to the broader transition toward a sustainable financial system.