---
title: New York Department of Financial Services and European Banking Authority Publish ESG Guidance
description: "The New York State Department of Financial Services  (\"DFS\") and the European Banking Authority (\"EBA\") have published guidance relating to Environmental, Social, and Corporate Governance (\"ESG\") prac"
---

[Member News | CGCCUSA ](https://www.cgccusa.org/en/news)

# [New York Department of Financial Services and European Banking Authority Publish ESG Guidance](https://www.cgccusa.org/en/news/new-york-department-of-financial-services-and-european-banking-authority-publish-esg-guidance)

 Written by [CGCC](https://www.cgccusa.org/en/news/author/cgcc) | November 17, 2020

**Source:** [Jones Day](https://www.jonesday.com/en/insights/2020/11/new-york-department-of-financial-services-and-european-banking-authority-publish-esg-guidance)  
**Published:** November 2020

**In Short**

**The Situation:** The New York State Department of  
 Financial Services  ("DFS") and the European Banking Authority  
 ("EBA") have published guidance relating to Environmental, Social,  
 and Corporate Governance ("ESG") practices.

**The Result:** The guidance reflects a heightened interest  
 on the part of domestic and foreign regulators regarding ESG issues. While the  
 guidance does not direct regulated entities to take specific actions relating  
 to ESG, it signals an intent to put companies on notice of future regulatory  
 involvement in the ESG space.

**Looking Ahead:** As ESG-related investing  
 continues to grow and greater attention is paid to ESG issues more broadly,  
 market participants could see an uptick in regulator involvement in this area.  
 Financial institutions should assess the extent to which their current  
 corporate governance frameworks reflect ESG principles and what proactive steps  
 they can take to keep ahead of the industry curve.

**Background**

Recent announcements regarding ESG practices have  
 highlighted the increased demand on the part of investors for financial  
 institutions to incorporate ESG principles into their business operations. On  
 October 25, 2020, Bloomberg reported that inflows into ESG exchange-traded  
 funds ("ETFs") have increased to $22 billion this year, three times  
 the total in 2019, and research from PricewaterhouseCoopers indicates that ESG  
 funds could experience a threefold increase in assets by 2025.

Domestic and foreign regulators have taken notice  
 of these investor trends and the impact of ESG issues more broadly. On October  
 29, 2020, the DFS issued a letter ("DFS Letter") to its regulated  
 entities regarding ESG climate risk issues, and on November 3, 2020, the EBA  
 published a Discussion Paper on ESG risk management and supervision ("EBA  
 Discussion Paper"). As the market trend toward ESG principles becomes  
 apparent, financial institutions should be cognizant of the DFS Letter and the  
 EBA Discussion Paper because both are potential indicators of an increased  
 governmental role in the ESG space. 

**DFS Letter**

The DFS Letter focuses on the  
 "environmental" aspect of ESG, i.e., the effect of climate risks on  
 the financial system broadly and regulated entities' assets and operations  
 specifically. Linda A. Lacewell, the Superintendent of DFS, writes that DFS  
 expects regulated entities to begin "integrating the financial risks from  
 climate change into their governance frameworks, risk management processes, and  
 business strategies" and "developing their approach to  
 climate-related financial risk disclosure." Ms. Lacewell also mentions  
 that DFS expects that, in adopting climate principles, regulated entities will  
 "take a proportionate approach that reflects [their] exposure to the  
 financial risks from climate change."

The DFS Letter is an important legal development for  
 at least three reasons. First, DFS is a major regulator. It regulates about  
 1,500 banking and other financial institutions, with assets totaling more than  
 $2.6 trillion—a larger number of entities than the Office of the Comptroller of  
 the Currency ("OCC"), one of the principal federal banking  
 regulators. Second, the DFS is a leading voice on financial issues of national  
 importance, such as fintech charters, cybersecurity, and blockchain. And third,  
 the DFS Letter appears to be among the first attempts by the DFS to engage with  
 ESG principles. While the DFS Letter does not provide specific guidance on how  
 regulated entities should adopt ESG principles, it is a clear indicator that  
 important banking regulators plan to have their voices heard on the matter.

**EBA Discussion Paper **

In Europe, the EBA Discussion Paper identifies for  
 the first time common definitions of ESG risks, and it provides an overview of  
 current evaluation methods as well as recommendations for incorporating ESG  
 risks into business strategies. In contrast to the DFS Letter, the EBA  
 Discussion Paper addresses not only climate risk, but also other ESG  
 principles. It addresses, for example, social objectives, including diversity  
 and equal opportunity issues, and governance issues, such as shareholder rights  
 and executive pay.

The EBA Discussion Paper is the start of a public  
 consultation period, open until February 3, 2021. During the three-month  
 period, the EBA will collect comments from market participants so it can  
 fulfill its mandate of issuing a final report under the Capital Requirements  
 Directive (EU) 2019/878 and the Investment Firms Directive (EU) 2019/2034,  
 setting forth uniform definitions, appropriate criteria for the identifying,  
 assessing, and managing of the impact of ESG-related financial risks, and the  
 potential inclusion of ESG risks in regulatory reviews. That ESG report is  
 expected to be published in June 2021.

The EBA Discussion Paper is another indicator that  
 regulators are serious about ESG issues. Its breadth reflects the progress that  
 European financial institutions have made toward adopting ESG principles, and  
 it could be a telltale sign of the direction that U.S. regulators may be  
 heading towards.

**Looking Forward**

Market participants should expect other regulators  
 to follow the lead of the DFS and EBA. On November 5, 2020, for example, SEC  
 Commissioner Allison Herren Lee spoke at a PLI Conference; she called on the  
 SEC and market participants to work "toward a disclosure regime  
 specifically tailored to ensure that financial institutions produce  
 standardized, comparable, and reliable disclosure of their exposure to climate  
 risks." Commissioner Lee emphasized that she was speaking on her own  
 behalf, not on behalf of the SEC, but her remarks suggest that senior officials  
 at the SEC and likely other regulators are actively considering these issues.

As the ESG legal framework  
 continues to develop, market participants should consider keeping ahead of the  
 curve and consulting with their legal counsel and local regulators regarding proactive  
 steps that can be taken to start integrating ESG principles into their  
 corporate governance structures now.

**Three Key Takeaways**

1. Investment in ESG funds is increasing at a dramatic  
    rate.
2. Domestic and foreign regulators are taking an increased  
    interest in ESG issues.
3. Financial institutions should consider proactive steps  
    to stay ahead of the industry curve on ESG matters. 

*Jones Day publications should  
 not be construed as legal advice on any specific facts or circumstances. The  
 contents are intended for general information purposes only and may not be  
 quoted or referred to in any other publication or proceeding without the prior  
 written consent of the Firm, to be given or withheld at our discretion. To  
 request reprint permission for any of our publications, please use our “Contact  
 Us” form, which can be found on our website at www.jonesday.com. The mailing of  
 this publication is not intended to create, and receipt of it does not  
 constitute, an attorney-client relationship. The views set forth herein are the  
 personal views of the authors and do not necessarily reflect those of the Firm.*

For any questions regarding this  
 article, kindly contact Lanier Saperstein (lsaperstein@jonesday.com)

[View full post](https://www.cgccusa.org/en/news/new-york-department-of-financial-services-and-european-banking-authority-publish-esg-guidance)

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