The principles and processes described in the Guidance Notice are to be understood as non-binding good practice guidelines which entities can refer to when addressing their individual sustainability risks. The Guidance Notice does not, however, aim to stipulate specific inspection requirements.

The Guidance Notice defines the term sustainability on the basis of ESG (environmental, social and governance) criteria, and illustrates physical and transition risks that may unfold with increasing intensity through existing risk types. “We expect supervised entities to incorporate the relevant risks into their strategic planning”, explains Frank Pierschel, BaFin’s Chief Sustainable Finance Officer.

Risk management is the central focus of the Guidance Notice

The Guidance Notice provides a detailed description of possible risk identification, management and control processes together with traditional methods and procedures related to sustainability risks. It is based on the structure of the Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement – MaRisk), the Minimum requirements on the system of governance of insurance undertakings (Mindestanforderungen an die Geschäftsorganisation von Versicherungsunternehmen – MaGo) and the Minimum requirements for the risk management of asset management companies (Mindestanforderungen an das Risikomanagement für Kapitalverwaltungsgesellschaften – KAMaRisk).

In addition, the Guidance Notice deals with stress tests including scenario analyses, with the focus on entity-specific tests. It also describes transition and impact scenarios. However, external stress tests are not covered.

The Guidance Notice is addressed to all credit institutions, insurance undertakings, pension funds, asset management companies and financial services institutions supervised by BaFin.

BaFin invited consultation on the draft Guidance Notice from the end of September to the beginning of November 2019.