As the world faces the increasing impact of environmental, social, and governance (ESG) issues, financial institutions are under growing pressure to integrate these factors into their risk management frameworks. While environmental factors have received regulatory attention in risk-context (with the primary focus on climate-related factors), social and governance factors are mostly left to the willingness of financial institutions to incorporate them into their risk management frameworks. Therefore, the integration of social and governance risks is still in its early stages. Throughout this blog, we will take a closer look at the current landscape, specifically focusing on the regulatory developments around environmental- and social-related risks that are guiding this shift.
Moving from a narrow Climate-focus…
The integration of environmental and social factors into risk management is mainly driven by regulation, with maturity varying significantly across themes. Integration of climate risks has progressed substantially, supported by extensive regulatory focus and supervision. The ECB Guide on climate-related and environmental risks has been a key driver, compelling banks to integrate climate considerations into their strategies, governance and risk management. Mandatory frameworks like the Corporate Sustainability Reporting Directive (CSRD) have further advanced this integration by standardizing and expanding the scope of climate risk reporting obligations. In this context, the EU Taxonomy has also played a significant role in accelerating the introduction of climate-related regulation in Europe.
It provides clear criteria for sustainable activities, thereby guiding businesses and financial institutions toward sustainable decision-making. Moreover, the disclosure framework published by the Taskforce on Climate-related Financial Disclosures (TCFD), while voluntary, has informed regulatory frameworks like the ECB Guide and the CSRD, thereby pushing organizations to enhance transparency regarding climate-related risks. Looking ahead, the integration of climate risks into CRR3/CRD6 will further enhance the incorporation of climate risks into financial institutions’ risk management frameworks. Similarly, the EBA Guidelines on the management of ESG risks, published on 9 January 2025, and the recently published EBA Draft Guidelines on ESG Scenario Analysis, currently open for consultation until 16 April 2025, are both anticipated to take effect on 11 January 2026, providing additional support for this progression.
…to a broad Nature-focus
While climate risks have seen the most regulatory development, progress is being made toward integrating nature-related risks. Regulatory initiatives, such as the ECB Guide on climate-related and environmental risks and the disclosure framework developed by the Taskforce on Nature-related Financial Disclosures (TNFD), are encouraging financial institutions to incorporate nature-related risks into their strategies. Although the TNFD framework is currently voluntary, its adoption is gaining traction, over 500 companies and financial institutions have committed to begin nature-related corporate reporting based on its recommendations, as announced by the TNFD at the COP16 Biodiversity Conference. The EBA Guidelines on managing ESG risks are expected to provide additional guidance on integrating these factors into risk management. Furthermore, the increased awareness of the interconnectedness of climate- and nature-related risks is contributing to a new level of understanding about the topic for both companies and supervisors. This will most likely result in future amendments in the regulatory landscape.
Social factors are lagging behind
Whereas nature-related risks are gaining attention, the focus on social risks remains less advanced. Following the publication of the EU (‘Green’) Taxonomy, the European Commission (EC) was mandated to assess the potential of incorporating social objectives. In response, the EC established the Platform on Sustainable Finance, which published a technical report on the Social Taxonomy in February 2022. This report proposes a structure for a social taxonomy and outlines recommendations for developing a framework to identify socially sustainable activities. However, a formal Social Taxonomy has not yet been established, as its development was postponed until at least the end of the previous parliamentary term, which concluded on 31 October 2024.
The postponement was primarily due to the complexity of establishing common definitions and metrics for social investments, along with a lack of political consensus. As the new parliamentary term progresses, there are opportunities to revisit discussions around the Social Taxonomy, but achieving tangible progress will likely take considerable time given the ongoing challenges. Despite this, other frameworks are gradually pushing financial institutions to consider social risks, such as the CSRD reporting requirements for social factors. Additionally, the recent launch of the Taskforce on Inequality and Social-related Financial Disclosures (TISFD), following the TCFD and TNFD, marks an important first step toward developing guidelines for addressing social risks.
From Climate to Nature and Social: Preparing for the Next Wave of ESG Regulation
The timeline above shows a clear trend: regulatory progress on climate risks has paved the way, with nature and social risks following similar trajectories. The first step in this trajectory is the launch of taskforces such as the TCFD, TNFD, and more recently the TISFD. As a second step, these taskforces introduce voluntary disclosure frameworks, outlining a methodology to not only report, but also think and talk about the topic. These frameworks either directly inform regulatory guidelines, or gain traction through voluntary adoption by institutions, as seen with the TNFD framework. As a third step, these developments ultimately result in concrete requirements through regulatory publications. This 3-step pattern indicates that, while climate risks have seen the most regulatory attention so far, the integration of nature and social risks is expected to follow a similar trajectory and expand into regulatory frameworks in the coming years.
However, at this stage, supervisory priorities remain solely focused on climate risks. In Q4 2024, the DNB published its supervisory strategy for 2025-2028, outlining that it will prioritize further embedding of climate risks into regular supervision, with little attention given to other ESG-related risks. This prioritization is not unexpected, given the maturity of climate-related regulation compared to the limited guidance available for nature, social, and governance risks. Nonetheless, the observed trend indicates that institutions would benefit from proactively incorporating these emerging risks into their frameworks to be ready for the inevitable adoption into regulation. Early adoption already positions organisations ahead of the curve, ensuring efficient compliance and potentially mitigating future audit findings, penalties, and reputational risks.
Prepare for the expected developments on nature and social risk management.
At ACE, we can help you successfully prepare your organisation for the expected developments on nature and social risk management. Our expertise in ESG risk management and experience with the integration of climate risk factors into risk management frameworks equips us to support your organisation in navigating this future regulatory change.
At ACE, we’re continuously monitoring and analysing emerging trends in ESG and risk management. While major ESG deadlines are still on the horizon, our dedicated experts are already exploring the evolving landscape to help our clients navigate future challenges. Discover our insights and let’s discuss how our expertise can enhance your risk management strategy today (and for tomorrow’s regulatory changes) by reaching out to Bas Beerkens or Kiki Hajer.