The Austrian Financial Market Authority’s new Guide on Managing Sustainability Risks

• On 31 March 2025, the Austrian Financial Market Authority published its fundamentally revised Guide on “Managing Sustainability Risks”.
• The Guide aims to establish a mutual approach how to adequately map sustainability risks as part of risk management in the financial sector.
• In addition to updates reflecting current regulatory and methodological developments, the Guide expanded to include biodiversity risks and transition planning, and puts a stronger focus on greenwashing and litigation risks. 
• The Guide provides a very user-friendly overview of specific tools and methods to evaluate sustainability risks.

On 31 March 2025, the Austrian Financial Market Authority (FMA) published its updated Guide on “Managing Sustainability Risks” (Leitfaden zum Umgang mit Nachhaltigkeitsrisiken, the Guide). The Guide, which was first published in 2020, has been fundamentally revised in recent months following a public consultation. This article provides an overview of selected features of the Guide. 

The Guide is directed at all companies supervised by the Austrian FMA pursuant to § 2 of the Financial Market Supervisory Authority Act (Finanzmarktaufsichtsbehördengesetz) across all sectors. It is not legally binding, but intends to assist supervised entities by presenting an fulsome overview of the applicable legal framework, including related materials, and to establish a common understanding of how to manage sustainability risks as part of an organisation’s risk management, strategy and governance, as well as its related transparency obligations. 

The Guide was updated on account of many regulatory developments and an increased focus on the impact of environmental risks (for instance, the European Climate Risk Assessment Report published by the EEA in 2024 concluded that the European financial system is at substantial risk from the impact of climate change). The Guide presents a summary of the applicable legal provisions regarding sustainability risks and its terminology. It may be used by companies as a source of information when seeking a holistic overview of relevant sustainability risks and when monitoring, documenting and managing such risks. The substantial number of real-world examples throughout the Guide and its Annex creates practical relevance.

The legal framework presented in the Guide reflects the status quo at the time of the Guide’s publication and is subject to ongoing developments and changes. For example, the currently proposed sustainability-related EU Omnibus simplification package (the Omnibus proposal) aims to reduce the burden of sustainability reporting and due diligence rules by, among others, simplifying and streamlining sustainability disclosure and transition planning requirements through amended legislation. The related Omnibus Stop-the-Clock proposal, as adopted by the European Parliament on 3 April 2025, postpones in particular the application of the Corporate Sustainability Reporting Directive (CSRD) for two years (except for public-interest entities) and the Corporate Sustainability Due Diligence Directive (CSDDD) for one year (see here for further information).

What is new?

Biodiversity risks: In addition to climate risks (which were already included), the Guide now addresses nature-related risks or biodiversity risks as a further category. Nature and ecosystem services (as defined in the Taxonomy Regulation), including biodiversity, have a crucial impact on our economies and financial systems, especially in the construction, agriculture, and food and beverages sectors. Biodiversity risks address the negative effects resulting from (i) the degradation of nature, including biodiversity, and the loss of ecosystem services (i.e. physical risks such as natural disasters or crop failure due to pest infestation) or (ii) the misalignment of economic participants aiming at protecting, restoring, or reducing negative impacts on nature (i.e. transition risks such as restrictions on land use or the prohibition of certain products). As with climate risks, the principle of double materiality (as provided for in CSRD) applies when determining a biodiversity risk: (1) financial materiality includes risks that could have a negative impact on assets or companies (e.g. a company’s assets might be destroyed due to extreme weather conditions), and (2) social or environmental materiality refers to the negative impact caused by companies (e.g. the company’s impact by emitting greenhouse gas or on biodiversity).The Guide primarily focuses on the management of financially material risks. 

The Guide refers to various external sources that provide guidance for companies exploring their dependence and impact on nature and biodiversity. For example, the Guidelines on the Integration of Biodiversity and Nature into the Core Business of Financial Companies of the Green Finance Alliance of the Environment Agency Austria (Umweltbundesamt) summarises the relevant legal framework and describes practice-oriented processes for integrating biodiversity into corporate strategy. The Guide references, among others, the Supervisory Framework for Assessing Nature-related Financial Risks, published by the OECD in 2023, to illustrate and categorise ecosystem services and the associated biodiversity risks, with a view to supporting the identification and navigation of biodiversity risks and their transfer into financial risks.

Due to the inter-relationship between climate risks and biodiversity risks, which could lead to compounding, the Guide recommends an integrated and holistic approach to managing sustainability risks. 

Legal and reputational risks: In addition, the Guide focuses on legal and reputational risks arising from environmental risks. Strategic nature-related litigation aims at changing the behaviour of economic operators or authorities. Further, there is an increase in traditional nature-related litigation, aiming at compliance with the applicable legal framework and addressing the damages caused by environmental pollution or the protection of biodiversity. The ongoing expansion and specification of the applicable legal framework regarding sustainability-related obligations (also by extending them across the entire value chain, as currently provided for in the CSDDD) increases the potential basis for claims for legal disputes, which may translate into legal and reputational risks for companies. 

Greenwashing risks: The Guide dedicates a separate section to the risks associated with greenwashing (i.e. sustainability-related statements, actions, or communications that do not clearly and adequately reflect the underlying sustainability profile of a company, financial product or financial service and, therefore, may be misleading), referring to sustainability broadly, not just environment. The prevention of greenwashing, particularly by promoting transparency and disclosure, is one of the FMA`s supervisory and audit priorities for 2025. 

Materiality assessment: The newly included materiality assessment is the basis for a systematic evaluation of sustainability risks. The active management of sustainability risks by companies requires a sound understanding of the respective company-specific risks. All short-, medium- and long-term risks material to the company must be identified based on the entire scope of business. The identified risks must be documented, measured and evaluated, also considering the extent to which they could have an impact on existing risk categories. Finally, specific sustainability risks must be monitored and controlled by means of appropriate key risk indicators and reflected in the balance sheet. These processes must be integrated into existing processes in accordance with the company's business and risk strategy. 

Companies are responsible for conducting a materiality assessment of their sustainability risks. This is a prerequisite for the application of the principle of proportionality, which allows companies to consider the nature, scale and complexity of their business and the nature and range of services and activities undertaken in the course of their business when managing their material sustainability risks. Risk management processes must proportionally reflect the results of the materiality assessment. For example, small entities may, pursuant to their materiality assessment, have strong exposure in ESG-sensitive economic sectors and could therefore be subject to increased risk management requirements. This was already outlined in the Guidelines on the management of ESG risks published by the European Banking Authority (EBA) in January 2025, as mandated within the Capital Requirements Directive (CRD VI), applicable to credit institutions and investment firms as defined in CRD VI (see here for further information). The materiality assessment pursuant to CRD VI must be consistent with any other materiality assessments provided for in other legislation as well as disclosure requirements, such as pursuant to CSDDD and CSRD.

Transition planning: The description of how to manage sustainability risks in strategy and governance was supplemented by a new section on transition planning, i.e. the internal corporate strategy required to adequately manage sustainability risks and the company-specific alignment with a sustainable economy. Transition planning is linked to risk management and an integrated part of the business strategy. CSDDD and the CSRD provide for transition plans regarding the 1.5°C climate target and climate neutrality by 2050 for certain target groups. The CRD VI also requires specific plans with quantifiable targets and processes to monitor and address financial risks resulting from the adjustment process and transition trends in context of the relevant regulatory frameworks related to ESG factors, in particular the objective to achieve climate neutrality. In its Guide, the FMA points out that companies that are not legally obliged to prepare transition plans may also benefit from a structured approach to transition planning. 

Key risk indicators, methodologies and tools: In its updated Annex, the Guide provides exemplary information as to how to identify, measure, assess and manage climate and biodiversity risks. The Annex describes methods and key risk indicators for the assessment of various risk categories, also including examples of application as well as references to existing guidelines and standards for these methods and key risk indicators.