Recommendation No. 2/2026 (III.6.) of the Magyar Nemzeti Bank

on the management of environmental, social and governance risks and the implementation of environmental sustainability considerations in credit institution activities

I. Purpose and Scope of the Recommendation

The purpose of this Recommendation is to define the expectations of the Magyar Nemzeti Bank (hereinafter: MNB) regarding the identification, measurement, management, and monitoring of environmental, social and governance risks (hereinafter collectively: ESG risks), as well as the implementation of environmental sustainability considerations in credit institution business activities, thereby increasing the predictability of legal application and facilitating the uniform application of relevant legislation.

The addressees of this Recommendation are: credit institutions with their registered office in Hungary falling under the scope of Act CCXXXVII of 2013 on Credit Institutions and Financial Enterprises (hereinafter: Hpt.); branches in Hungary of credit institutions with their registered office in another Member State of the European Union or in a third country outside the European Economic Area; and investment firms as defined in Section 8/A (1) of Act CXXXVIII of 2007 on Investment Firms and Commodity Dealers, and on the Rules of Activities They May Perform (hereinafter collectively: Institution).

The Institution shall apply the provisions of this Recommendation at the level of application defined in Section 115 of the Hpt.

This Recommendation is not the only domestic supervisory and regulatory step in the series dealing with ESG risks and sustainable finance issues. The MNB Recommendation No. 7/2025 (VI. 23.) on the application of a minimum questionnaire serving to assess environmental, social and corporate governance information in the assumption, measurement, management and control of credit risk [hereinafter: MNB Recommendation No. 7/2025 (VI. 23.)] also assists in the management of sustainability issues and specific aspects of ESG risks and their integration into the processes of financial institutions. However, it is important to emphasize that the content of this Recommendation is more extensive than the previous MNB Recommendation No. 10/2022 (VIII. 2.) on climate change and environmental risks and the implementation of environmental sustainability considerations in the activities of credit institutions [hereinafter: MNB Recommendation No. 10/2022 (VIII. 2.)]: in addition to environmental aspects, it already includes social and governance considerations regarding risk management.

The reason for the revision of MNB Recommendation No. 10/2022 (VIII. 2.) was the need for harmonization due to legislative developments that occurred in the period since its entry into force. Between 2018 and 2024, the European Union developed the foundations of sustainable finance:

• Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (hereinafter: Taxonomy Regulation) 3,
• Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (hereinafter: SFDR),
• Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU as regards corporate sustainability reporting (hereinafter: CSRD), and
• prudential regulatory supplements regarding ESG aspects for all sectors, as part of which Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (hereinafter: CRR), and Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions (hereinafter: CRD) were also supplemented with provisions regarding ESG risks.

As part of its mandate, the European Banking Authority (hereinafter: EBA) evaluated the possibilities of integrating sustainability considerations into the prudential framework in Pillar 1 5, Pillar 2 6, and Pillar 3 7, processes to which the MNB also actively contributed.

As part of these processes, the modifications carried out during the review of MNB Recommendation No. 10/2022 (VIII. 2.) to support credit institution activities also implement the EBA Guidelines on the management of environmental, social and governance (ESG) risks (EBA/GL/2025/01) 8 dated January 8, 2025. The Recommendation also implements the sustainability-related parts of the EBA Guidelines on loan origination and monitoring (EBA/GL/2020/06; hereinafter: Loan Origination Guidelines). In developing the Recommendation, the MNB took into account the EBA Guidelines on internal governance (EBA/GL/2021/05) 10, which was under revision at the time of the development of this Recommendation, inter alia in light of the amendment to the CRD.

However, during the revision – where the frameworks permitted – the MNB retained the expectations transferred from the Guide on climate-related and environmental risks - Supervisory expectations relating to risk management and disclosure, issued by the European Central Bank (hereinafter: ECB) 11 in parallel with the initial publication of MNB Recommendation No. 10/2022 (VIII. 2.), which assisted the industry's preparedness, insofar as they remain relevant alongside the significantly supplemented ESG risk management framework.

This Recommendation defines the MNB's expectations regarding those reliable corporate governance systems that the Institution must possess in accordance with Section 107 and Section 108/A (1) of the Hpt., and which cover the following:

• minimum rules and reference methods for the identification, measurement, management and monitoring of ESG risks;
• qualitative and quantitative criteria for assessing the effects of ESG risks on the Institution's risk profile and solvency in the short, medium and long term;
• the content of plans to be prepared by the governing body in accordance with Section 109 (2a) of the Hpt., which plans must include specific temporal scheduling, as well as quantifiable intermediate targets and milestones for the supervision and management of financial risks arising from ESG factors, including those risks arising from transition trends related to the adaptation process and relevant EU and domestic regulatory objectives – particularly the objective of achieving climate neutrality by 2050 as defined in Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality (hereinafter: European Climate Law) – and, where relevant for institutions active internationally, third-country legal and regulatory objectives.

This Recommendation also details the Institution's processes aimed at managing ESG risks as part of the Institution's broader risk management framework. The provisions contained in the Recommendation must be applied in connection with those reliable strategies, policies, procedures and systems for the short, medium and long-term identification, measurement, management and monitoring of ESG risks, which the Institution must possess as part of its reliable corporate governance systems, including the risk management framework prescribed in Section 107 (1) of the Hpt.

The regulatory system related to the subject matter of this Recommendation is contained inter alia, but not exclusively, in sectoral legislation.

This Recommendation does not fully refer to legislative provisions when formulating principles and expectations; however, the addressees of the Recommendation remain obliged to comply with the relevant legislative requirements.

This Recommendation does not override related supervisory regulatory instruments, but supplements them, thereby aiming to detail the MNB's interpretation regarding the careful management of ESG risks and the implementation of environmental sustainability considerations in the Institution's activities, with respect to the general expectations formulated in the relevant legislation.

This Recommendation does not formulate guidance on data protection and privacy matters; it contains no expectations regarding the processing of personal data, and the requirements contained therein cannot be interpreted in any way as authorization for the processing of personal data. Data processing carried out in connection with the fulfillment of the supervisory expectations recorded in the Recommendation may only be performed in compliance with the data protection legislative provisions in force at any time.

II. Interpretative Provisions

1. In the application of this Recommendation:

a) sectoral legislation:

aa) CRD and regulations issued under its authorization, ab) CRR and regulations issued under its authorization, ac) Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (hereinafter: Accounting Directive), ad) Regulation (EU) 2018/842 of the European Parliament and of the Council of 30 May 2018 on the determination of Member States' annual greenhouse gas emission reductions to be achieved from 2021 to 2030 as contribution to climate and energy action in order to meet commitments under the Paris Agreement, and amending Regulation (EU) No 525/2013, ae) Taxonomy Regulation 12 and regulations issued under its authorization, af) SFDR and regulations issued under its authorization, ag) CSRD and regulations issued under its authorization, ah) Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability due diligence, and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859 (hereinafter: CSDDD), ai) Commission Implementing Regulation (EU) 2024/3172 of 29 November 2024 laying down implementing technical standards with regard to the application of Regulation (EU) No 575/2013 in relation to the disclosure by institutions of the information referred to in Titles II and III of Part Eight of that Regulation, and repealing Commission Implementing Regulation (EU) 2021/637 13; aj) Act CXX of 2001 on the Capital Market (hereinafter: Tpt.), ak) Hpt., al) MNB Regulation No. 40/2016. (X. 11.) on prudential requirements for customer and counterparty classification and collateral valuation;

b) related supervisory regulatory instruments:

ba) MNB Recommendation No. 12/2015. (VIII. 24.) on the measurement, management and control of liquidity risk [hereinafter: MNB Recommendation No. 12/2015. (VIII. 24.)], bb) MNB Recommendation No. 1/2022. (I. 17.) on the assessment of the suitability of members of the governing body and persons holding key functions [hereinafter: MNB Recommendation No. 1/2022. (I. 17.)], bc) MNB Recommendation No. 4/2022. (IV. 8.) on the application of remuneration policy under the Act on Credit Institutions and Financial Enterprises [hereinafter: MNB Recommendation No. 4/2022. (IV. 8.)], bd) MNB Recommendation No. 7/2022. (IV. 22.) on the general requirements for disclosure practice under the Act on Credit Institutions and Financial Enterprises and the CRR [hereinafter: MNB Recommendation No. 7/2022. (IV. 22.)], be) MNB Recommendation No. 12/2022. (VIII. 11.) on the establishment and operation of internal control lines and the governance and control functions of financial organizations [hereinafter: MNB Recommendation No. 12/2022. (VIII. 11.)], bf) MNB Recommendation No. 7/2024. (VI. 21.) on the assumption, measurement, management and control of credit risk [hereinafter: MNB Recommendation No. 7/2024. (VI. 21.)], bg) MNB Recommendation No. 7/2025. (VI. 23.) on the application of a minimum questionnaire serving to assess environmental, social and corporate governance information in the assumption, measurement, management and control of credit risk [hereinafter: MNB Recommendation No. 7/2025. (VI. 23.)], bh) Methodological Manual on the Internal Capital Adequacy Assessment Process (ICAAP), the Internal Liquidity Adequacy Assessment Process (ILAAP) and their supervisory review, and on Business Model Analysis (BMA) (hereinafter: MNB ICAAP-ILAAP-BMA Methodological Manual);

c) environmentally sustainable economic activity: economic activity as defined in Article 3 of the Taxonomy Regulation. In this context, it is essential to emphasize that not only those economic activities that are already (almost) carbon-neutral can fall into this category, but also those that contribute to the carbon-neutral transition but are not yet operating in a manner considered carbon-neutral ("transitional activity"), as well as those that facilitate the transition of other economic activities ("enabling activity").

d) universal credit institution: an institution that provides financial services and supplementary financial services under the Hpt., and provides investment services under Act CXXXVIII of 2007 on Investment Firms and Commodity Dealers, and on the Rules of Activities They May Perform, and also provides supplementary services.

2. In the absence of differing provisions, the concepts used and defined in sectoral legislation – primarily in the CRR and CRD – have the same meaning in this Recommendation as they do in those texts.

III. General Expectations

3. The Institution fulfills the supervisory expectations set out in this Recommendation taking into account the application of proportionality as stipulated in Section 108/A (2) of the Hpt.

4. It is expected of an Institution subject to consolidated supervision based on sectoral legislation that it applies the expectations of this Recommendation at group level. In this context, the MNB particularly expects that the Institution, within the general requirements regarding risk management established by legislation, also takes into account the requirements of group-level risk management regarding ESG risk management activities.

5. The MNB continues to consider it good practice if the Institution officially becomes a signatory to the UN Principles for Responsible Banking, explicitly undertaking the application of the related framework.

6. The MNB further expects that if the Institution's foreign parent company is already a signatory to the UN Principles for Responsible Banking, and therefore the Institution does not deem it necessary to sign the UN Principles for Responsible Banking separately, the Institution shall implement the principles, methods, and objectives undertaken by the parent company in its own operations along the deadlines determined by the parent company.

7. It is expected that the Institution applies the expectations recorded in the related supervisory regulatory instruments taking into account the expectations set out in this Recommendation.

8. The MNB expects that if the Institution implements any element of the measurement, management, and control of ESG risks with the involvement of an external service provider, it shall take into account the expectations detailed in paragraphs 180–186 of MNB Recommendation No. 12/2022. (VIII. 11.) and in MNB Recommendation No. 7/2020. (VI. 3.).

9. Furthermore, the MNB expects that the affected universal credit institution ensures the internal coordination of compliance with legislation relevant from the perspective of ESG risks.

10. The MNB draws attention to the fact that with regard to certain legislation, the MNB's position and expectations related to sustainability are contained in separate executive circulars (e.g., Executive Circular on Measures Expected Regarding the Disclosure of ESG Risks 21).

IV. Expectations on the Implementation of ESG Risks and Sustainability Considerations in Business Plans, Business Models, and Strategies

11. The MNB expects that, with regard to the business plan, business model, and strategy, the Institution takes into account its sustainability risks and their effects on long-term profitability, capital position, and risk profile. Risks arising from ESG factors can directly affect the effectiveness of the Institution's existing and future strategies and the resilience of its business model.

12. The MNB expects that the Institution's governing body ensures that the management of ESG risks is integrated into the Institution's strategy, risk appetite, business plans, and internal risk management framework. The Institution must pay particular attention in its strategy and business model to ESG risks appearing on short, medium, and at least 10-year long-term horizons.

IV.1. Plans for the Oversight and Management of ESG Risks

13. Pursuant to Section 109(2a) of the Hpt., the institution is obliged to establish and maintain a plan for the oversight and management of ESG risks.

14. The MNB expects that the plans developed for the oversight and management of ESG risks are established based on the results of the transition planning process described in Section IV.1.2. In this context, it is expected that they are based on forward-looking analysis of the business environment and a comprehensive strategic planning process within the institution. Plans developed along these principles must provide an overview of the strategic measures and risk management tools applied by the institution to demonstrate how they ensure reliability against ESG risks and preparedness for the transition to a more environmentally resilient and sustainable economy.

15. It is expected that the institution ensures that its plans cover the aspects of forward-looking management of ESG risks, while being consistent with other applicable requirements (e.g., requirements regarding due diligence, sustainability reporting, and strategic measures ensuring the compatibility of business models with the transition to a sustainable economy).

In the opinion of the MNB, the plans must contain, in particular, objectives, measures, and targets related to the institution's business model and strategy, which, where applicable, are consistent with plans published pursuant to Article 19a or 29a of the Accounting Directive, as well as with ESG-related objectives or commitments determined by the institution by law or voluntarily. If the institution publishes plans in accordance with Article 19a(2)(a)(iii) or Article 29a(2)(a)(iii) of the Accounting Directive, the MNB expects that, as a first step, it considers reusing relevant information already available.

16. It is expected that the institution ensures that its plans and targets are properly embedded in its business strategy and align with its risk and financing strategies, risk appetite, internal capital adequacy assessment process, and the risk management framework defined in Chapter VI. The corporate governance system, the scope of the transition planning process, and the sophistication of the objectives, targets, and metrics set out in the plans must reflect the nature, size, and complexity of the institution's activities, as well as the materiality assessment of ESG risks, in line with the principle of proportionality set out in Section 3.

17. Given the institution's obligation to ensure the consistent and appropriate embedding of systems, processes, and mechanisms related to its plans—including within subsidiaries established outside the European Union—and considering the obligation of said subsidiaries to be able to produce data and information relevant for the supervision of consolidated plans in accordance with Section 115(2) of the Hpt., the MNB expects that the parent institution, in the development and implementation of the consolidated plan—taking into account applicable laws and regulatory ESG objectives—considers the ESG risks to which subsidiaries established outside the European Union are significantly exposed. The MNB therefore expects that the parent institution is able to present a well-supported consolidated approach.

IV.1.1. Governance

Roles and Responsibilities

18. It is expected that the institution clearly defines the roles and responsibilities related to the development, approval, implementation, and monitoring of the plans. When assigning roles and responsibilities at appropriate management and decision-making levels, the institution must take into account the interconnection and impact of the transition planning process with other processes—for example, the broader business strategy and risk appetite.

19. The MNB expects that the approval of the plans and the monitoring of their implementation fall within the responsibility of the governing body. As part of the oversight of implementation, the governing body must receive regular information on relevant developments and results achieved compared to the institution's targets, and in case of significant deviations, it must implement decisions regarding corrective measures.

20. In order for ESG risks to be embedded in the three lines of defense in accordance with Section 53, the MNB expects that

a) the first line of defense is responsible for dialogue with partners 22 regarding the development of their own transition strategies, and for assessing the consistency with the institution's objectives and risk appetite based on the clear commitment policies defined in Section 39(e)(ea); To this end, the institution must ensure that affected employees have the appropriate expertise and capabilities to assess the extent to which partners' transition strategies—including their transition plans, if available—improve their resilience against ESG risks and align with the institution's targets;

b) the risk management department ensures that, as part of the risk management framework, the risk appetite limits defined in the risk appetite statement are consistent with all aspects of the institution's plan, including sectoral policies;

c) the internal audit department, as part of the risk management framework, reviews the institution's plan and assesses whether it complies with legal and regulatory requirements and is consistent with the institution's risk strategy and risk appetite regarding ESG risks. To this end, the internal audit department must consider whether the plan allows the institution to identify and manage changes in its risk profile, how the institution handles deviations from its targets, and whether the selection and application of underlying assumptions, methodologies, and criteria are consistent.

Internal Processes and Capacity

21. It is expected that the institution ensures substantive and regular communication and information exchange at all levels of the organization to ensure that the views and feedback of internal stakeholders are taken into account during the development, implementation, and review of the plans. To this end, the institution must involve at least the units, departments, and divisions responsible for strategic planning, risk management, sustainability disclosures, legal services, and compliance in the development of the plans, and assess which additional units, departments, and divisions may need to be involved.

22. The MNB expects that the institution—consistent with Chapter V—ensures that it has sufficient capacity, expertise, and resources for the development and implementation of their transition planning process, as well as for the regular assessment of the reliability of their plans and the monitoring of their implementation. In this context, the institution must map existing skill and expertise gaps and, if necessary, take corrective measures.

Data Management

23. The institution must have reliable governance procedures for the collection, validation, and aggregation of data necessary to support its transition planning efforts, as well as for monitoring the implementation of these efforts, including the use of available public information and partners' transition plans defined in Sections 71–77.

IV.1.2. Transition Planning

Scenarios and Pathways

24. The MNB expects that the institution is aware of its sensitivity to ESG risks, particularly the transition and physical risks arising under different scenarios—including scenarios assuming higher levels of physical risk or disorderly transition. The institution must be aware of how different scenarios may affect its transition planning efforts.

25. It is expected that the institution carefully selects scenarios for the monitoring and management of potential specific environmental risks arising from the process of adapting to the climate-related and environmental regulatory objectives of the jurisdiction where it operates, by taking all of the following steps:

a) it must assess the possible impacts of the transition pathway objectives of the European Union, Member States, and, where applicable, third countries, at least for the selected sectors determined based on the materiality assessment. In this process, the institution must take into account the likely pathways derived from the European Green Deal 23 and the European Climate Law, as well as the latest reports and measures prescribed by the European Scientific Advice Board on Climate Change;

b) it must take into account scientifically grounded and up-to-date scenarios from national, EU, or international organizations mentioned in Section 86;

c) it must take into account the objectives or commitments it has voluntarily undertaken or is required by law to undertake regarding climate change mitigation and adaptation.

26. It is expected that the geographical reference and level of detail (e.g., regional breakdown) of the scenarios and pathways used by the institution are relevant to the institution's business model and exposures.

23 https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal

27. In accordance with the principle of proportionality, it is expected that the scope and complexity of the scenarios used by the institution are proportional to the institution's size and complexity. Small and non-complex institutions and other non-large institutions may rely on a simplified set of main parameters and assumptions, risks involved, time horizons considered, and regionally broken-down impacts. Large institutions must compare their plans—which contain final and intermediate targets—with a scenario compatible with limiting warming to 1.5°C under the Paris Agreement, as well as with the objective set out in the European Climate Law to achieve climate neutrality by 2050.

28. The MNB expects that the institution ensures that the scenarios and pathways used in its plans are consistent throughout the organization and across all time horizons examined, for example, when developing business strategies and defining short-, medium-, and long-term targets. The institution must document the process of selecting scenarios, as well as the reasons for any changes or different usage. Decisions regarding the use of different scenarios for different purposes, as well as decisions to modify scenarios, must be clearly justified.

Time Horizons and Milestones

29. The MNB expects that the institution defines different time horizons in its plans, which must include short-, medium-, and at least 10-year long-term planning horizons. Measures developed for the monitoring and management of ESG risks at different time horizons must take into account the principles described in Section 67.

30. It is expected that the institution regularly defines milestones for the monitoring and management of ESG risks arising from the short-, medium-, and long-term regulatory objectives of the jurisdictions where it operates. These objectives include, among others, the European Union's objectives to reduce greenhouse gas emissions (hereinafter: GHG emissions) by 55% compared to 1990 levels by 2030, and to achieve net-zero emissions by 2050, other intermediate climate targets defined by EU or, where applicable, national laws, as well as objectives related to other environmental factors—for example, nature restoration 24 or deforestation 25.

24 Regulation (EU) 2024/1991 of the European Parliament and of the Council of 24 June 2024 on nature restoration and amending Regulation (EU) 2022/869 (OJ L, 2024/1991, 2024.7.29.).
25 Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on making deforestation- and forest-degradation-free products and products derived from them available on the Union market and/or exporting them from the Union, and repealing Regulation (EU) No 995/2010 (OJ L 150, 2023.6.9., p. 20.)

31. The MNB expects that the institution ensures that its short-, medium-, and long-term objectives and targets interact with each other and are sufficiently defined. This extends to ensuring that long-term objectives—for example, commitments to achieve net-zero GHG emissions—appear in medium-term strategies (e.g., medium-term sectoral policies or growth targets for business lines), and to ensuring that short-term financial metrics or targets [e.g., profitability ratios, risk costs, key performance indicators (hereinafter: KPI) and key risk indicators (hereinafter: KRI), risk appetite limits, pricing frameworks] are measurable, quantifiable, and trackable over time, and are consistent with and aligned with medium- and long-term objectives.

Basis of Materiality Assessment

32. The MNB expects that the institution's transition planning process aims to properly manage material ESG risks, particularly environmental transition, and physical risks identified based on a reliable, regularly updated materiality assessment of ESG risks in accordance with Section VI.1.1. The institution must establish targeted measures for the monitoring and management of material ESG risks arising from exposures, portfolios, and financed economic activities and production capacities that may be particularly sensitive to the process of aligning with the ESG factors of the economy and applicable legal and regulatory objectives.

Metrics

33. It is expected that the institution uses various metrics—including forward-looking ones—to support the determination of targets and to promote and monitor the implementation of its plans.

34. In this regard, it is expected that the institution selects metrics and indicators by weighing the metrics and indicators listed in Section 134 to determine targets. The institution must determine, taking into account its business strategy and risk appetite, what other risk-based and forward-looking metrics and targets it includes in its plans for the monitoring and management of ESG risks. This includes the assessment, calculation, and use of metrics necessary for the short-, medium-, and long-term assessment of the financial impacts of transition planning on the institution's business and risk profiles, including measuring the impact of transition planning on financial performance, revenue sources, profitability, and portfolio risk levels.

35. According to the MNB's expectations, if there is a lack of data necessary for the calculation of metrics and the support of target determination, the institution must follow the steps described in Sections 74, 75, and 77.

36. Small and non-complex institutions and other non-large institutions may rely on fewer indicators for the use of metrics and the determination of targets compared to large and complex institutions, and may have more flexibility in formulating qualitative objectives.

37. Although the MNB's minimum expectation of the institution is the application of a combination of metrics related to climate-related risks, it must take steps to gradually include metrics that support the risk assessment and strategic management related to the institution's exposure to and management of environmental risks other than climate-related risks—for example, risks arising from ecosystem degradation and loss of biodiversity, as well as the potential influence of these risks reflecting climate-related risks—and social and governance risks.

IV.1.3. Key Content Elements of the Plans

38. The MNB expects that the institution documents its plans, including methodologies, assumptions, criteria, targets, and planned measures to achieve targets, as well as implemented and planned reviews. The institution must define the scope of risks covered by each part of the plan, for example, whether it relates to environmental, social, or governance risks, and ensure that every aspect of the plan addresses at least environmental risks.

39. The MNB, however, expects that large institutions ensure that their plans contain at least the following aspects:

a) strategic objectives and timetable of the plans:

aa) a high-level overarching strategic objective aimed at the short-, medium-, and long-term management of ESG risks, consistent with the general business strategy and risk appetite;

ab) comprehensive long-term goals with intermediate milestones to ensure the resilience of the business model against ESG risks—within this, the consistency of the business structure and revenues with these milestones;

ac) fundamental assumptions, inputs, and background information relevant for understanding the institution's objectives and targets, including the selection of central or reference scenario(s), as well as institutional conclusions drawn from the results of the materiality assessment of ESG risks, portfolio adjustment assessment, and other scenario analyses;

b) targets and metrics:

ba) quantitative objectives defined to manage ESG risks—including risks arising from the adjustment process to achieve the legal and regulatory sustainability objectives of the jurisdiction where the institution operates, as well as from broader trends in the transition to a sustainable economy—and metrics used to monitor ESG risks and track progress in achieving targets;

bb) portfolios, sectors, asset classes, business lines, and, where applicable, economic activities (i.e., individual technologies) covered by the targets and monitoring metrics, ensuring that the targets and metrics appropriately reflect the nature, size, and complexity of the institution's activities, as well as the materiality assessment performed by the institution regarding ESG risks;

bc) the time horizons to which the targets and metrics apply;

c) governance:

ca) the governance structure of the plans, including roles and responsibilities related to the development, approval, implementation, monitoring, and updating of the plan, including escalation steps in case of deviation from targets;

cb) measures related to capacity and resources to be taken to ensure appropriate knowledge, skills, and expertise necessary for the effective implementation of the plan, including training and internal culture related to ESG risks;

cc) remuneration policies and practices aimed at promoting the reliable management of ESG risks, consistent with the institution's objectives and risk appetite.

in line with its willingness;

cd) the data and systems used for the transition planning process;

d) implementation strategy:
da) an overview of the short-, medium- and long-term measures taken or planned within core banking activities and processes to achieve the target values of the plan, also addressing how the institution integrates the plan's objectives into its decision-making process and standard risk management framework; supplemented by information on the observed effectiveness of individual measures or estimated contribution to relevant target value(s); db) alignment with policies and procedures regarding financial risk categories, as well as lending and investment policies and conditions regarding key economic activities, sectors, and locations; dc) changes introduced in the composition and pricing of services and products to support the implementation of the plan; dd) investments and strategic portfolio allocations supporting the institution's business strategy and risk appetite related to ESG risks, including information on products and services related to sustainability and transition, and on how potential changes in strategic financing decisions are accompanied by proportionate risk management procedures;

e) engagement strategy:
ea) policies on partner engagement, including information on the frequency, scope, and objectives of engagement, types of possible measures, and escalation processes or criteria; eb) processes, methodologies, and metrics for collecting and assessing information on partners' exposure to ESG risks and alignment with the institution's objectives and risk appetite; ec) results of engagement practices, including an overview of partners' adaptability and resilience against the transition to a more sustainable economy.

40. The MNB expects that small and non-complex institutions and other non-large institutions include in their plans at least the points set out in point 39 aa) and ab), b) ba) and bb), c) ca), d) da) and db), and e) ea) and eb).

41. For the development and shaping of the form of its plans – based on its consideration – the institution may use Annex 1 as a supporting tool.

IV.1.4. Monitoring, Review and Updating of Plans

42. The MNB expects that the institution – in accordance with the provisions in Sections IV.1.2 and VI.2.6 – monitors the implementation of its plans using monitoring processes and metrics. It is expected that the institution performs regular forecasts to assess its ability to achieve its target values.

43. It is expected that the monitoring framework enables the governing body to simultaneously monitor the development of metrics for tracking ESG risks, progress achieved regarding the fulfillment of the plan's milestones, with clear and detailed explanations regarding any failure to meet target values or objectives, and an assessment of the potential impacts on different types of financial risks over different time horizons.

44. The MNB expects that the institution regularly reviews and, if necessary, updates its plan, but at least when updating its business strategy in accordance with Section 108(1) of the Banking Act (Hpt.), taking into account updated information regarding further material assessments of ESG risks, developments in their portfolios and partners' activities, available new scenarios, reference values or sectoral pathways, and the impact of current or upcoming regulations.

IV.2. Further Implementation of Sustainability Aspects

45. Given that the implementation of business strategy affects the environment, which consequently may increase climate-related and environmental risks and eventually impact the resilience of business models, the MNB considers the following good practice:
    a) the institution takes steps to reduce its total carbon and ecological footprint, as well as its ESG risks, particularly regarding exposures that carry significant financial ESG risk based on its materiality assessment, Internal Capital Adequacy Assessment Process (ICAAP), and risk appetite framework, in line with the risk management tools defined in points 93 and 94; b) in the plan developed based on Chapter IV.1 for managing significant ESG, physical, and transition risks, the institution ensures that the management of sustainability and climate risks is integrated into the strategy and business model; it is good practice if the plan also addresses ESG risks arising from the institution's own operations, alongside measures regarding portfolios and client exposures, the management and monitoring of which are detailed in the recommendations' provisions on operational and reputational risks.

46. The MNB expects that, in compliance with current sustainable finance and relevant consumer protection regulations, the institution ensures that its clients receive appropriate, understandable, and non-misleading information regarding the environmental sustainability aspects of its products and services, their ESG risk characteristics, and their contribution to sustainability objectives. Depending on the nature of products and services, this information may specifically cover the energy characteristics of real estate collateral, their potential impact on loan terms, and – where reasonably estimable – the significant environmental and social impacts arising during the full life cycle of financed products and services.

V. Expectations Regarding Corporate Governance

47. The MNB expects that the governing body with managerial powers understands ESG risks so that the level of risks undertaken is consistent with the institution's risk appetite and strategy, internal rules and policies, and that the institution complies with applicable legal requirements and other obligations. It is expected that a reliable and consistent risk management culture considering ESG risks includes clear communication from the governing body in the form of a "top-level statement," contains appropriate measures promoting deeper knowledge of ESG factors and risks within the institution, and awareness of the institution's own ESG strategic objectives and commitments.

48. The MNB further expects that the governing body with managerial powers exercises effective supervision over the institution's ESG risks and their impacts on the business strategy's climate-related and environmental sustainability objectives (see point 11).

49. Based on Section 113(3) of the Banking Act (Hpt.) and in connection with Recommendation 1/2022 (I. 17.) of the MNB, the MNB expects that the institution's governing body possesses adequate collective knowledge, skills, and experience regarding ESG risks. In line with points 40 and 80 of Recommendation 1/2022 (I. 17.) of the MNB, the MNB expects that the institution:
    a) provides adequate human and financial resources for the training of governing body members and key position holders²⁶ on ESG risks; b) ensures that governing body members and key position holders become acquainted with the institution's ESG risks upon commencement of their legal relationship, within the framework of preparation and training for their roles; c) evaluates, in case of changes to the composition of the governing body or in cases defined in point 20 c) or d) of Recommendation 1/2022 (I. 17.) of the MNB, whether the governing body members with managerial and supervisory powers collectively possess the capacity to perform tasks extending to ESG risks as specified in point 67 of Recommendation 1/2022 (I. 17.) of the MNB and point 52 of Recommendation 12/2022 (VIII. 11.) of the MNB.

Procedures regarding managers must take into account that knowledge of ESG factors and ESG risks is relevant for assessing the suitability of governing body members and key position holders. The MNB considers it good practice if the institution provides customized further training for these employees to ensure adequate knowledge of ESG risks.

²⁶ Including the head of a separate organizational unit responsible for managing and controlling ESG risks, or the manager responsible for managing and controlling ESG risks, as per point 29.

50. In accordance with Section 109 of the Banking Act (Hpt.), the MNB expects that the governing body with managerial powers ensures adequate human and financial resources, as well as authority, for organizational units and areas involved in managing ESG risks – with particular attention to control function areas.

51. It is expected that the institution continuously develops its capabilities for identifying, assessing, monitoring, managing, and mitigating ESG risks as needed. In line with points 90 and 93 of Recommendation 12/2022 (VIII. 11.) of the MNB, the MNB expects that:
    a) as part of its training policy, the institution provides regular training for the governing body and employees on the consequences of ESG factors and risks, taking into account each employee's responsibility area in managing these risks; b) all employees within the institution are aware of their tasks related to the management of the institution's ESG risks; c) policies and procedures regarding training activities are kept up-to-date.

The MNB also considers it good practice if the institution considers the possibility of general environmental and climate-conscious mindset formation.

52. It is expected of the institution that, in connection with the general responsibility under Section 107 of the Banking Act (Hpt.) and Recommendation 12/2022 (VIII. 11.) of the MNB, and in line with general principles regarding internal defense lines, it clearly defines the responsibilities of each internal governance and internal control function provider regarding ESG risks. In this context, it is expected that the institution integrates ESG risks into its internal control framework along the three lines of defense. To this end, it is expected that the institution establishes an organizational structure and operating system that assists and supports the governing body in gaining better visibility and effective management of ESG risks affecting the institution or group. The task of the governing body with managerial powers is to ensure that relevant responsibility areas are transparent, clear, well-defined, consistent, sufficiently documented, and that compliance with the described responsibilities can be enforced.

53. It is expected that the responsibilities of function providers regarding the three lines of defense of the internal control framework are determined along the following lines.
    a) It is expected that the tasks of staff belonging to the first line of defense include identifying and recording relevant information arising from the nature of the client, product, or transaction related to ESG risks, applying the principles of materiality and proportionality, during client onboarding, lending and investment decisions, and review and monitoring of existing clients. The task of the first line of defense is not the qualification or final assessment of ESG risks, but rather forwarding them to the second line of defense and incorporating them into appropriate handling processes. To this end, staff of the first line of defense must have appropriate expertise and knowledge to identify potential ESG risks. b) Within the framework of the second line of defense:
    ba) the MNB considers the inadequate integration of ESG risks into existing processes to be included in compliance risks as defined in point 128 of Recommendation 12/2022 (VIII. 11.) of the MNB; bb) it is expected that the risk management function – independent of the first line of defense – performs methodologically sound assessment, monitoring, and aggregated management of ESG risks, including particularly the establishment and supervision of adherence to the risk appetite framework and limits regarding significant ESG risks, and professional review and challenge of the initial identification and assessment performed by the first line of defense, in line with point 124 of Recommendation 12/2022 (VIII. 11.) of the MNB; bc) it is expected that the compliance department supervises the compliance of the first line of defense's work with legal requirements, internal policies, and sustainability statements and commitments formulated by the institution regarding ESG risks; bd) the MNB expects that appropriate consultations take place regarding the approval of new products with ESG characteristics or the expansion of existing products with ESG criteria involving the compliance and risk management departments. c) It is expected that the Head of Risk Control provides comprehensive and understandable reporting to the governing body with managerial powers, also covering the institution's ESG risks. d) It is recommended that the summary evaluation prepared at least annually by the Compliance Officer, Compliance Manager, Head of Risk Control, or Internal Auditor for the governing body with supervisory powers extends to ESG risks.

54. The MNB further expects that the institution's internal audit system and audit trail extend to ESG risks emerging in the short, medium, and long term. It is expected that internal audit – as the third line of defense – regularly checks, using independent or combined application of audit types as specified in point 156 of Recommendation 12/2022 (VIII. 11.) of the MNB, whether the internal control systems established and operated by the institution effectively ensure preparedness for managing the institution's short, medium, and long-term ESG risks and fulfillment of risk management objectives regarding these risks. In this context, it must provide independent review and objective assurance extending to the first and second lines of defense and the framework for managing ESG risks.

55. The MNB expects that a separate organizational unit or function responsible for managing and controlling ESG risks – "ESG Center" or dedicated "Chief Sustainability Officer" – is created at the institution, or a manager responsible for managing and controlling ESG risks is appointed, who regularly reports on this activity to the governing body with managerial powers – the MNB considers quarterly or semi-regular frequency good practice, considering the principle of proportionality – Taking into account the principle of proportionality defined in point 10 of Recommendation 12/2022 (VIII. 11.) of the MNB, in institutions conducting smaller and less complex activities, a member of the governing body with managerial powers may also be appointed to perform the above tasks, provided there is proper separation of tasks and responsibilities. If the institution creates a separate organizational unit or function regarding ESG risks, it is expected that the integration of the separate organizational unit or function into existing processes and its connection with other functions (division of authority and tasks, cooperation and reporting obligations, etc.) is clearly defined.

56. In accordance with Sections 117–121 of the Banking Act (Hpt.) and Recommendation 4/2022 (IV. 8.) of the MNB, it is expected that remuneration policies and practices contribute to the long-term approach to managing ESG risks. In this context, the MNB considers it good practice if the institution defines performance indicators related to sustainable financing in its remuneration policy.

57. In line with Recommendation 12/2022 (VIII. 11.) of the MNB, the institution is expected to integrate ESG risks into its internal data reporting systems to support executive-level decision-making. The MNB is aware that relevant metrics and tools are evolving and available data may be incomplete. Nevertheless – in line with Section 109 of the Banking Act (Hpt.), point 295 of Recommendation 7/2024 (VI. 21.) of the MNB, and point 42 of Recommendation 12/2022 (VIII. 11.) of the MNB – the MNB expects that:
    a) the institution's governing body has appropriate information about the institution's ESG risks and any potential changes through the executive information system; b) the area(s) defined according to points 52 and 53 of the institution fulfill(es) its reporting obligations regarding ESG risks at the frequency defined by law or MNB recommendation; c) reports on ESG risks are regularly reviewed and, together with the continuous expansion of available data on ESG risks, improve in terms of data content and quality.

58. In accordance with Sections 108 and particularly 108/A of the Banking Act (Hpt.), it is expected that the governing body with managerial powers ensures that the institution has efficient and reliable data reporting, disclosure, and communication systems capable of aggregating ESG risk data. In this context, the MNB expects the institution to:
    a) assess its data needs vis-à-vis strategy-forming and risk management units, identify data gaps, and outline plans to eliminate them and overcome any deficiencies; b) examine the need for potential transformation of information and IT systems to enable collection and aggregation of necessary data for assessing its exposures to these risks, with particular regard to data to be published under Article 8 of the Taxonomy Regulation and – where relevant – under SFDR, as well as aggregated energy characteristics of real estate collateral; c) build the data taxonomy for these risks.

If the requirements in subpoints b) and c) cannot be realized due to lack of completeness of common definitions, taxonomies, and data gaps, the MNB considers it good practice if the institution considers establishing reporting processes and procedures based on internal qualitative data or external risk metrics. This ensures that the governing body with managerial powers receives appropriate reports on ESG risks. In such cases, it is expected that the governing body with managerial powers is aware of the limitations of the reports obtained thus.

VI. Expectations Regarding Risk Management

VI.1. Reference Methodology for Identification and Measurement of ESG Risks

VI.1.1. Materiality Assessment

59. The MNB expects that, as part of the reference methodology for the institution's identification and measurement of ESG risks to be incorporated into its strategy and internal procedures, the institution regularly performs a materiality assessment of ESG risks. It is expected that the materiality assessment of ESG risks is conducted at least annually, and for small and non-complex institutions, every two years. Alongside regular review, all institutions – including small and non-complex institutions – must update their assessment if significant changes related to ESG factors occur in their business environment. The MNB expects the update of the materiality assessment of ESG risks, for example, in cases where significant new public policies emerge, or changes occur in the institution's business model, portfolios, or operations.

60. The MNB expects the institution to perform the materiality assessment of ESG risks as an institution-specific assessment that provides an overview of the financial materiality of ESG risks related to the institution's business model and risk profile, supplemented by mapping the channels of ESG factors and their spillover into traditional financial risk categories. A fundamental requirement is that the materiality assessment of ESG risks is consistent with other materiality assessments performed by the institution, particularly for the purpose of disclosing significant sustainability risks under the Accounting Directive and – where applicable – the (EU) 2023/2772 empowerment

based on the Commission Regulation implementing Article 27 (hereinafter: ESRS), and it must be incorporated into the materiality assessment of the ICAAP.

61. The MNB also expects that in the materiality assessment of ESG risks, the institution applies a risk-based approach that takes into account the probability of occurrence of ESG risks and the possible magnitude of their financial impact in the short and medium term, as well as in the long term extending to at least 10 years.

62. It is expected that, for the purpose of a comprehensive assessment of the materiality of ESG risks, the institution ensures that the scope of the materiality assessment adequately reflects the nature, size, and complexity of its activities, portfolio, services, and products. It is also expected that the institution takes into account how ESG risks affect all traditional financial risk categories related to its exposures, including among others credit risk, market risk, liquidity risk, operational risk – including the risk of litigation – reputational risk, risk inherent in the business model, and concentration risk. When determining significant ESG risks, the impact on financial risk categories, as well as the amount and proportion of exposures and revenues and profits exposed to risks, must be taken into account.

63. The MNB expects that, with regard to the materiality assessment of environmental risks, the institution uses both qualitative and quantitative information. The institution must take into account a sufficiently wide range of environmental factors – at least climate-related factors, ecosystem degradation, and loss of biodiversity. It is expected that the institution also assesses transition and physical risk factors, taking into account at least the following.

a) With regard to transition risks:

aa) the main economic sectors supported by the financed assets, or in which the main activity of the institution's partner falls;

ab) ongoing and possible future significant changes in public policies, technologies, and market preferences (e.g., new environmental regulations or tax incentives, development of innovative low-carbon technologies, changes in consumer or investor demand);

ac) with regard to climate-related risks:

1. exposures to sectors that contribute significantly to climate change as defined in recital (6) of Commission Delegated Regulation (EU) 2020/1818 28 – i.e., sectors listed in Sections A–H and L of Annex I to Council Regulation (EU) No 1893/2006 29, particularly organizations in the fossil fuel sector;

2. the degree of alignment or misalignment between the regulatory objectives relevant to portfolios and the jurisdictions in which they operate – for small and non-complex institutions and other non-large institutions, at least based on a high-level qualitative assessment;

b) With regard to physical risks:

ba) the geographical areas where the partners' key assets (e.g., manufacturing plants) and – particularly in the case of real estate-related exposures – the physical collateral are located;

bb) the level of vulnerability to environmental hazards (e.g., hazards related to temperature, wind, water, solid mass) in relation to different climate scenarios and transition pathways, or – for small and non-complex institutions and other non-large institutions – in relation to at least one adverse scenario.

64. The MNB expects that the institution appropriately supports and documents the materiality assessment of ESG risks as part of the ICAAP, including the methodologies and thresholds applied, the inputs and factors considered, as well as the most important results achieved and the most important conclusions drawn, including non-material conclusions.

65. The institution must develop and introduce measurement methods proportional to and based on the results of the materiality assessment, in accordance with point VI.1.2, risk management measures in accordance with point VI.2, and transition planning processes in accordance with point IV.1. For this purpose, it is expected that the institution has broader and more sophisticated measures for ESG risks identified as material. The MNB also expects that the methods used by the institution to measure ESG risks and the metrics used to monitor ESG risks support the regular updating of the materiality assessment and provide information for it. It may be that smaller institutions with less complex activities apply less broad and sophisticated measures, but in this regard, it is expected that they are proportional to the results of the materiality assessment of ESG risks.

VI.1.2. Identification and measurement of ESG risks

General principles

66. The MNB expects that, as part of the minimum rules for the identification and measurement of ESG risks, the institution's internal procedures include tools and methods by which – including prospectively – ESG risk factors can be assessed, as well as the channels through which ESG risk factors affect the institution's exposures in different prudential risk categories and financial risk metrics. As stated in the EBA/REU/2021/18 report 30, the transmission channels are the causal chains through which factors triggering ESG risks affect the institution via customers and invested assets and ultimately transform into financial risks (e.g., credit risk, market risk, liquidity and funding risk, operational risk).

67. The MNB expects that, to ensure the proper identification and management of ESG risks, the institution takes into account the possible short, medium, and long-term impacts of these risks. The level of detail and accuracy of the data points, quantification tools, methods, and indicators used by the institution must take into account the institution's materiality assessment, the size and complexity of the institution, and generally must be more detailed and accurate in the short and medium term than in the long term. It is expected that the institution takes into account long-term time horizons at least qualitatively, and they must support strategic assessments and decision-making.

68. The MNB expects that, with regard to environmental risks, internal procedures and methods enable the institution to:

a) quantify climate-related risks, for example by estimating the probability and magnitude of financial impacts arising from climate-related factors;

b) properly understand financial risks arising from other types of environmental risks, such as nature degradation – including loss of biodiversity and loss of ecosystem services – or financial risks arising from the lack of alignment of activities with measures aimed at protecting nature, restoring nature, or reducing negative impacts on nature;

c) establish KRIs covering at least the short and medium-term time horizons and the scope of exposures and portfolios determined in line with the results of the materiality assessment.

69. With regard to social and governance risks, it is expected from the MNB that, if quantitative information is not initially available, the institution's internal procedures prescribe methods that first qualitatively assess the possible impacts of such risks on the institution's operations and the financial risks faced by the institution, and then the institution must gradually develop more advanced qualitative and quantitative indicators. The MNB expects that the institution gradually improves its approaches in this regard, in line with the development of regulation, scientific knowledge, data availability, and methodology.

70. With regard to the interactions between different categories of environmental, social, and governance risks, it is expected that the institution's internal procedures ensure that each risk category is first assessed taking into account its specific characteristics, before considering possible touchpoints and mutual dependencies during the measurement of these risks.

Data-related processes

71. The MNB expects that the institution's internal procedures ensure the introduction of reliable information management systems for the identification, collection, structuring, and analysis of data necessary to support the assessment, management, and monitoring of ESG risks. It is expected that these systems are implemented throughout the institution as part of the general data governance and IT infrastructure. It is expected that the institution regularly reviews its practices to ensure that it can keep pace with public sector (e.g., increased data availability due to regulatory initiatives) and market developments, and must also have rules aimed at assessing and improving data quality.

72. It is expected that the institution's internal procedures ensure that the institution collects and appropriately uses information necessary for the assessment, management, and monitoring of current and expected ESG risks that may affect it through its partners, striving for appropriate detail in the collection of customer- and asset-level data.

73. The MNB expects that the institution's internal procedures are based on ESG data available within and outside the organization – including the regular review and use of sustainability information published by partners – in particular in line with European sustainability reporting standards developed on the basis of the Accounting Directive or voluntary reporting standards for non-listed small and medium-sized enterprises (SMEs), according to the Commission Communication COM(2023) 535 on the SME Support Package 31.

74. It is expected that the institution examines and evaluates which other data sources would effectively support the assessment, management, and monitoring of ESG risks, for example information obtained through communication with customers and partners as part of new and existing business relationships, or data from third parties. When the institution uses the services of external providers to access ESG data, it must ensure that the external providers are sufficiently aware of the sources, data, and methods used by data providers, including their possible limitations.

75. If the quality or availability of data is initially insufficient to meet risk management needs, the MNB expects that the institution assesses these shortcomings and their possible impacts. The institution must take corrective measures and document them, including using estimates or proxy variables, for example based on industry or regional characteristics, and, if feasible, make adjustments to take partner-specific considerations into account. The institution must strive to gradually reduce the use of estimates and proxy variables in parallel with the improvement in the availability and quality of ESG data over time.

76. For corporate partners qualifying as large undertakings as defined in Article 3(4) of the Accounting Directive 3 (hereinafter: large undertaking), the MNB expects that the institution considers collecting or obtaining the following data points in each case:

a) with regard to environmental risks:

aa) the geographical location of key assets (e.g., manufacturing plants) and exposure to environmental hazards (e.g., hazards related to temperature, wind, water, solid mass), with the necessary detail for appropriate physical risk analysis, and the availability of insurance;

ab) the absolute value of greenhouse gas (GHG) emissions currently and – if available – targeted emissions in Scope 1, 2, and 3, expressed in absolute terms and, if applicable, in intensity terms;

ac) dependence on fossil fuels, whether in terms of economic factors used or revenue base;

ad) energy and water demand and consumption, whether in terms of economic factors used or revenue base;

ae) the level of energy efficiency in the case of real estate-related exposures, as well as the partner's debt servicing capacity;

af) the current and expected financial impacts of environmental risks and opportunities on the partner's financial position, financial performance, and cash flow;

ag) transition-related strategic plans, including the transition plan published in accordance with Articles 19a or 29a of the CSRD, if available;

b) with regard to social and governance risks:

ba) compliance with the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, and the ILO Declaration on Fundamental Principles and Rights at Work;

bb) significant negative impacts on own employees, employees within the value chain, affected communities, and consumers/end-users, including information on due diligence efforts or procedures aimed at avoiding and remedying such impacts.

77. The MNB expects that, with regard to exposures to partner types that do not qualify as large undertakings, the institution:

a) determines the data points necessary for the identification, measurement, and management of ESG risks, taking into account the list in point 76 to support the assessment;

b) if necessary to address data gaps, applies expert opinion, qualitative data, portfolio-level assessments, and proxy variables in accordance with point 75. The MNB draws attention to the fact that ESG risks cannot be excluded from risk assessment because they are difficult to quantify or because relevant data is not available.

Main characteristics of reference methods for identifying and measuring ESG risks

78. It is expected that the institution's internal procedures prescribe the combination of risk assessment methods as set out in points 79–90, including the application of exposure-based, sector-based, portfolio-based, and scenario-based methods. The methods must be combined in such a way as to enable the institution to conduct a comprehensive assessment of ESG risks on all relevant time horizons. Thus, the institution must apply at least exposure-based methods to obtain a short-term overview of how ESG risks affect the risk profile and profitability of its partners; it must apply sector-based, portfolio-based, and scenario-based methods to support medium-term planning processes and the determination of risk appetite limits and risk tolerance, to strive to achieve its strategic objectives, and it must assess its sensitivity to ESG risks using scenario-based methods on different – including long-term – time horizons.

Exposure-based methods

79. It is the expectation of the MNB that, in line with the provisions set out in points 123 and 143 of the Lending Guidelines 32, the institution has exposure-based internal procedures to assess the extent to which the activities and key assets of its partners are exposed to ESG factors – particularly environmental factors – and the impact of climate change, as well as to assess the adequacy of measures aimed at mitigating climate change. For this purpose, the institution must ensure that ESG factors – particularly environmental factors – are adequately reflected in its internal risk classification procedures, that these factors are taken into account in the comprehensive assessment of the borrower's default risk, and, if their materiality justifies it, are incorporated into risk indicators, scoring credit assessment, internal models for credit rating, and collateral valuation.

80. With regard to the exposure-level assessment of environmental risks, the MNB expects that the institution's internal procedures include risk factors and criteria that take into account both physical and transition risk factors. The MNB expects that, at large institutions, this – if applicable – includes at least the following:

a) the degree of vulnerability to environmental hazards, taking into account the geographical location of the partners' and guarantors' key assets or the physical collateral covering the exposures, also considering on-balance-sheet and off-balance-sheet exposures;

b) the degree of vulnerability to transition risks, taking into account relevant technological developments, the impact of current or future environmental regulations affecting the partner's activity sector, the partner's current and possibly planned GHG emissions expressed in absolute terms and – if applicable – in intensity terms, the impact of changing market preferences, and in the case of residential or commercial real estate-related exposures, the level of energy efficiency, as well as the partners' debt servicing capacity;

c) the exposure of the partner's business model or supply chain to critical disruptions caused by environmental factors such as the impact of loss of biodiversity, water scarcity, or water pollution;

d) the partner's exposure to reputational risk and litigation risk, taking into account closed, ongoing, or impending legal cases related to environmental issues;

e) the maturity or yield curve of the exposure or asset (planned);

f) risk-reducing factors similar to private or public insurance coverage, for example based on applicable national civil protection systems or similar frameworks, as well as the partner's resilience to transition and physical risks, including forward-looking transition planning.

81. If data necessary to assess certain criteria is not yet available, for example for smaller corporate partners, the MNB expects that the institution follows the steps described in points 74, 75, and 77.

82. With regard to the exposure-level assessment of social and governance risks, it is the expectation of the MNB that the institution introduces due diligence processes to assess the financial impacts arising from the partners' business models and the partners' vulnerability to social and governance factors, taking into account, for example, the compliance of corporate partners with the social and governance standards mentioned in point 76 b) aa), the partner's exposure to the risk of litigation related to social or governance issues, and the laws applicable in the jurisdiction where the partner operates.

Sector-based, portfolio-based, and portfolio adjustment methods

83. The MNB expects that the institution's internal procedures prescribe sector and portfolio-based methods, in particular heat maps that – according to points 127 and 149 of the Lending Guidelines – graphically represent the ESG risks of each economic (sub)sector and

In the scale system, they are highlighted. It is expected that the methods applied by the institution enable it to map its portfolios according to ESG risk factors and identify any concentration of one or more ESG risk types.

84. For non-climate-related ESG factors, the MNB expects large institutions to develop the following:
    a) methods for identifying sectors that are significantly dependent on or have a significant impact on ecosystem services, and tools for measuring the financial impact of nature degradation, as well as measures aimed at nature conservation, restoration, or reducing negative impacts on nature; b) approaches aimed at measuring the positive or adverse effects of portfolios on the achievement of the UN Sustainable Development Goals, and assessing the potentially related financial risks.

85. It is expected that, with regard to climate-related risks, the institution's internal procedures prescribe the application of at least one portfolio alignment methodology to evaluate the extent to which the institution's portfolios align with climate-related pathways or reference scenarios. The institution should also consider assessing partner-level alignment, for example, by comparing a specific partner's GHG emission intensity with an applicable sectoral reference value.

86. In applying point 85, it is expected that the institution applies scenarios that are scientifically grounded, relevant to economic activity sectors and their geographical location, and up-to-date, originating from national, EU, or international organizations – such as national environmental agencies, the European Commission's Joint Research Centre, the International Energy Agency, the Network for Greening the Financial System, or the Intergovernmental Panel on Climate Change –. Sectoral decarbonization pathways must be consistent with applicable policy objectives, such as the EU's objective of reaching net-zero GHG emissions by 2050, or the 55% emission reduction target compared to 1990 levels by 2030, or any relevant national objectives.

87. In applying point 85, it is expected that the institution determines the appropriate extent of portfolio alignment assessments and the level of sophistication of the applied methods based on the characteristics of its portfolios, the results of its materiality assessment, as well as its size and complexity. Large institutions holding securities traded on regulated markets within the European Union must take into account the list of sectors included in Section 21, Table 3, Annex I of Commission Implementing Regulation (EU) 2024/3172. The MNB accepts if small and non-complex institutions and other non-large institutions use representative samples of exposures in their portfolios for portfolio alignment assessment.

88. The MNB expects the institution to justify and document its methodological decisions, including the selection of scenario(s) and base year, the selection of sectors, and – for small and non-complex institutions and other non-large institutions – the identification of representative samples of exposures, as well as any significant methodological changes over time. In the absence of data necessary for measuring alignment, the institution must follow the steps defined in points 74, 75, and 77.

89. The MNB expects the institution to take into account the experience gained from portfolio alignment methodologies aimed at implementing climate considerations in order to:
    a) assess and monitor transition risks arising from climate change, that partners and portfolios do not align with EU, member state, or third-country regulatory objectives and pathways consistent with applicable climate goals, and to assess and monitor potentially related financial risks; b) provide information for the decision-making process regarding the development and implementation of its risk appetite, business strategy, and transition plan, including prioritizing cooperation with certain partners.

Scenario-based Methods

90. The MNB expects that, in addition to exposure-based, sector-based, portfolio-based, and portfolio alignment methods, the institution's internal procedures prescribe the application of scenario-based analyses to examine resilience to ESG risks – primarily climate-related risks – under different scenarios 33.

VI.2. Minimum Rules and Reference Methods for the Management and Monitoring of ESG Risks

VI.2.1. Principles of ESG Risk Management

91. The MNB expects that, in order to integrate ESG risks into the institution's comprehensive risk management framework, the institution considers, in accordance with point 92 of Recommendation 12/2022. (VIII. 11.) MNB, what role ESG risks play as potential triggering factors in all traditional financial risk categories – including credit risk, market risk, operational risk – including litigation risk, reputational risk, liquidity risk, business model risk, and concentration risk.

92. The MNB expects the institution to incorporate ESG factors and related ESG risks into its standard risk management systems and processes, ensuring consistency with its general business and risk strategies, including plans defined in more detail in point IV.1. It is also expected that the institution ensures it has a fully integrated approach in which ESG risks are appropriately captured and considered as part of the risk management strategy, policy, and limits. If the institution has specific rules regarding ESG risks, it must ensure that these are reflected in the standard risk management framework and contribute to it.

93. It is expected that the institution – taking into account the principles described in point 67 – develops a solid and reliable approach to the short- and medium-term management and mitigation of ESG risks, as well as long-term management of at least 10 years.

94. It is expected that the institution determines which combination of risk management and mitigation tools would contribute most effectively to this, considering a wide range of tools, including the following:
    a) cooperation with partners to better understand partners' risk profiles and ensure consistency with the institution's risk appetite and strategic objectives, particularly through:
    aa) defining the pool of future cooperating partners, taking into account the results of the materiality assessment and the risk measurement process; ab) establishing dialogue with specific partners to review their resilience to ESG risks, taking into account sectoral legislation affecting those partners and their transition plans; ac) providing relevant information and advice to clients, where appropriate and possible, regarding the assessment or mitigation of ESG risks related to their exposures; and ad) considering a wide range of partner-specific measures, such as adjusting the product offering, agreeing on a plan and corrective measures aimed at supporting transition efforts and enhanced partner resilience, or, as a last resort, terminating the relationship if maintaining it is deemed incompatible with the institution's planning and risk appetite. b) adjustment of financial terms (e.g., maturity), lending, and legal terms (e.g., contractual collateral), as well as pricing, based on ESG-risk-relevant criteria and the institution's risk strategy and internal capital policy; c) consideration of ESG risks in the development of sectoral policies, as well as in determining global, regional, and sectoral risk appetite limits, exposure limits, and deleveraging strategies; d) diversification of lending and investment portfolios based on ESG-risk-relevant criteria, such as economic sectors or geographical areas; e) other risk management tools deemed appropriate in line with the institution's risk appetite, such as the possible reallocation of financing among and within sectors, prioritizing exposures more resilient to ESG risks.

VI.2.2. Strategies and Business Models

95. The MNB expects the institution to consider ESG risks in the development and implementation of its comprehensive business and risk management strategies, which must include at least the following:
    a) understanding and evaluating its business environment, and assessing how it is exposed in the short, medium, and long term to structural changes in the economy, financial system, and competitive environment due to ESG factors; b) understanding and evaluating how ESG risks – particularly environmental risk factors, including transition and physical risks – may adversely affect the viability of its business model and the sustainability of its business strategy in the short, medium, and long term, including profitability and revenue sources; c) considering how these ESG risks – particularly environmental risk factors, including transition and physical risks – may affect the achievement of strategic objectives and the ability to remain within its risk appetite; d) formulating, implementing, and monitoring plans and targets as set out in point IV.1.

96. In applying point 95 and ensuring sufficiently grounded strategies, it is expected that the institution takes into account knowledge gained from a combination of the following forward-looking risk assessment methods:
    a) portfolio alignment methods described in point VI.1.2; b) analysis of environmental risk scenarios, taking into account the (potential) business environment(s) in which the institution may operate in the short and medium term, and long term of at least 10 years; c) climate or environmental stress tests conducted by the institution.

97. The MNB expects the institution to have a detailed understanding of its business model, strategic objectives, and risk strategy with regard to ESG risks, and must ensure that its governance, transition planning process, and risk management framework – including its risk appetite – are adequate for their implementation.

VI.2.3. Risk Appetite

98. The MNB expects the institution to ensure that its risk appetite clearly defines and manages those ESG risks that appear in the risk register following the materiality assessment. It is expected that the risk appetite determines the level and type of ESG risks the institution is willing to take in its portfolio, including regarding portfolio concentration and diversification objectives. It is also expected that the integration of ESG risks into the risk appetite is consistent with the institution's strategic objectives and commitments, as well as the plans and targets defined in point IV.1.

99. The MNB expects the institution to validate its risk appetite using ESG-related KRIs – including, for example, possible limits, thresholds, or exclusions. It is expected that, to determine relevant and appropriate KRIs, the institution takes into account the results of its materiality assessment and the specifics of its business model, considering affected business lines, activities, products, as well as exposures to economic sectors and geographical areas – including jurisdictions and smaller geographical areas. The institution must take into account the metrics listed in point VI.2.6 when determining which selected KRIs are used in their risk appetite framework.

100. The MNB expects the institution to ensure that all affected group-level legal entities, business lines, and units bearing risks properly understand and validate the institution's risk appetite with regard to ESG risks. It is expected that risk appetite limits are established at different levels, particularly within large institutions, ensuring consistency with the overall risk appetite, and that considerations regarding ESG risks are recorded for products or financial instruments issued, derived, or held by the institution, customer segments, collateral types, and risk mitigation tools.

101. It is expected that the institution's risk appetite and related KRIs are subject to the monitoring and escalation processes defined in point 131.

VI.2.4. Internal Capital Adequacy Assessment Process and Internal Liquidity Adequacy Assessment Process

102. The MNB expects the institution to incorporate material ESG risks and their impact on financial risk categories into the Internal Capital Adequacy Assessment Process (ICAAP) in order to continuously assess and maintain the amount, types, and distribution of internal capital that it deems appropriate to cover the nature and level of ESG risks, taking into account short, medium, and long-term risks.

103. When the institution considers longer time horizons for covering ESG risks, the MNB expects these time horizons to be used as a source of information to ensure that the institution adequately understands the potential impact of ESG risks on capital planning within the institution's standard ICAAP time horizons. It is expected that the time horizons considered for determining adequate internal capital to cover ESG risks are consistent with the time horizons applied within the institution's general ICAAP process. It is expected that the Internal Capital Adequacy Assessment Process is sufficiently forward-looking. If the institution determines that risks should not be covered by capital but reduced by other tools or measures, the MNB expects a properly documented explanation for this.

104. The MNB expects the institution to use, among other things, the experience gained from the identification and measurement of ESG risks and its risk assessment methods to identify and measure the internal capital requirements for exposures or portfolios deemed more sensitive to ESG risks. In doing so, it is expected that the institution takes into account the different levels of availability and maturity of methods for quantifying environmental risks compared to social and governance risks.

105. It is also expected that, with regard to environmental risks, as part of the ICAAP, the institution prospectively examines capital adequacy under adverse scenarios containing defined environmental risk elements. With regard to adverse scenarios, the MNB suggests that the institution assumes extreme but plausible processes that are sufficiently significant in terms of their impact on capital adequacy. Furthermore, the institution must, in accordance with the EBA Guidelines on institutions stress testing (EBA/GL/2018/04) 34 point 90, determine the modifications to the institution's business plan resulting from climate or environmental stress testing, or reverse stress testing, or other necessary measures resulting from these same stress tests.

106. It is expected that the institution incorporates material environmental risks and their impact on liquidity into the Internal Liquidity Adequacy Assessment Process (ILAAP), within the scope of application of the ILAAP, at appropriate time horizons.

107. The MNB expects the institution to include in its ICAAP and ILAAP frameworks the description of risk appetite, thresholds, and limits defined with regard to material ESG risks and material environmental risks, as well as their impact on solvency and liquidity, and the description of the procedures applied to keep these thresholds and limits up to date. The institution must provide sufficient background information to understand the capital and liquidity implications of ESG or environmental risks, including by ensuring the clarity of the applied methodologies and underlying assumptions.

108. When incorporating ESG risks into the ICAAP, or environmental risks into the ILAAP, the complexity of the procedures applied by the institution and the level of sophistication of the methods must take into account the institution's size and complexity, as well as the results of its materiality assessment.

VI.2.5. Policies and Procedures for Financial Risk Categories

109. The MNB expects the institution – through the application of forward-looking analyses, among other things – to understand and manage the current and possible future impacts that ESG risks pose to its credit risk exposures, positions exposed to market risk – particularly for the purpose of prudent operation – liquidity risk profile and buffers, operational risks – including litigation risk – and reputational risks.

Credit Risk

110. It is expected that, in accordance with what is stipulated in point 92, the integration of ESG risks into credit risk policies and procedures results in the manifestation of ESG-risk-reflecting lending sectoral policies at the lower levels. To this end, it is expected that these expectations are manifested in clear lending criteria available to staff in business lines and decision-makers on lending. It is also expected that the institution ensures the appropriate integration of ESG risks into the credit risk monitoring framework.

111. In accordance with points 71–77 and 110–115, the MNB expects the institution to act as defined in Recommendation 7/2025. (VI. 23.) MNB in the acceptance, measurement, management, and control of credit risk, and to apply the minimum questionnaire for assessing ESG information in its procedures. However, the MNB draws the institution's attention to the fact that compliance with the provisions of Recommendation 7/2025. (VI. 23.) MNB does not result in the complete fulfillment of the expectations of this recommendation.

112. To operationalize the strategic tools stipulated in points 94 and 95, the MNB continues to expect that the institution's internal customer and partner rating systems, as well as credit risk decision support processes and collateral valuation frameworks, reflect risk differences arising from ESG risks, in line with the institution's risk appetite and business strategy. The MNB considers it good practice if the institution considers and records in its own records the location, technical, and energy characteristics of commercial or residential real estate during real estate collateral valuation.

113. It is expected that, with regard to environmental risks, the institution incorporates both qualitative and quantitative aspects into its policies and procedures. Based on its materiality assessment and risk appetite, the institution must define quantitative credit risk indicators covering the most significant customer segments, collateral types, and risk mitigation tools.

114. The MNB expects that the institution, which conducts or plans to conduct environmentally sustainable lending activities, develops an environmentally sustainable lending policy and internal regulation – part of the credit risk policy – with its general objectives, strategy, and policy regarding sustainable financing, and point 5

33 Under the empowerment of Article 87a(5)(d) of the CRD, supplementary EBA guidelines on scenario analysis examining institutions' resilience to environmental, social, and governance factors will be available.

34 https://www.eba.europa.eu/documents/10180/2537426/9abe6910-f1a0-4311-b3abe8bd5b8aef0a/Guidelines%20on%20institutions%20stress%20testing%20(EBA-GL-2018-04)lCORlHU.pdf

in line with its objectives. The MNB expects the institution to define – where quantifiable – targets for the development of its environmentally sustainable lending activities, to ensure its integrity, and to regularly assess their implementation and their contribution to the objectives set out in point 5.

a) It is expected that the environmentally sustainable lending policy includes:
aa) a list of projects and activities, and criteria, which the institution considers as environmentally sustainable financing objectives, or ab) refers to standards for environmentally sustainable lending, which define which loans qualify as environmentally sustainable.

b) Furthermore, regarding environmentally sustainable lending activities, procedures and methods are needed through which the institution can verify that the loan was actually used to finance sustainable activities. For loans granted to corporations, the loan origination and management process is expected to include the following:
ba) collection of information on the borrowers' climate-related and environmentally or otherwise sustainable business objectives; bb) assessment of whether the borrowers' financing projects meet the conditions and related criteria for environmentally sustainable projects or activities; bc) ensuring that borrowers are willing and able to appropriately monitor and report on the use of revenues for environmentally sustainable projects or activities; bd) regular monitoring of the appropriate use of revenues, which may include requesting updated information from borrowers on the use of revenues until the relevant loan instrument is repaid.

c) The MNB expects that, in line with the provisions of point 79, the documentation of the loan origination decision regarding environmentally sustainable lending activities includes the results of the client's ESG risk due diligence and contractual/disbursement conditions for mitigating this risk.

115. In line with the above, it is expected that the institution structures its general lending practice such that the results of the clients' ESG risk due diligence are included among the information revealed during the decision preparation process as per point 84 aa) of Recommendation No. 7/2024 (VI. 21.) of the MNB.

Market Risk

116. The MNB expects that, with regard to market risk, the institution considers how ESG risks may affect the value of financial instruments in its portfolio. In this context, it must assess the potential risk posed by losses to its portfolio and increased volatility of its portfolio value, and develop effective procedures within its market risk management framework to regulate or mitigate these effects. As part of this, it must, where necessary, review its trading book risk appetite and define internal limits for positions or client exposures.

117. With particular regard to the credit spread risk component of banking book positions, the MNB expects the institution to assess the significance of credit spread risks associated with ESG risks among all determinants of general market risk.

Liquidity and Funding Risk

118. The MNB expects that, with regard to liquidity and funding risk, the institution considers at least how ESG risks may affect net cash outflows (e.g., increased drawdowns of credit lines) or the value of assets forming its liquidity buffer, and where appropriate, incorporates these effects into the calibration of its liquidity buffer or liquidity risk management framework.

119. If liquidity and funding risks are considered significant, it is expected that the institution takes steps to integrate ESG risks as significant factors affecting liquidity risk into the following processes, within the framework of legal provisions on the measurement and management of liquidity risk and Recommendation No. 12/2015 (VIII. 24.) of the MNB:
     a) identification, measurement, management, and monitoring of liquidity risk over appropriate time horizons, adapted to each business line, currency, and legal entity belonging to the group, as well as maintaining appropriate liquidity reserves; b) measurement and management of all significant sources and effects of market liquidity risk, and management of the risk of liquidity shortage arising from the maturity of short positions preceding long positions.

120. If ESG risks are significant from a liquidity risk perspective, in addition to integrating these factors into the processes described in point 119, the MNB expects this to be documented in writing and traceable in other relevant internal regulations.

121. With regard to environmental risks, the institution must also consider how these risks may affect the availability and stability of its funding sources, and take them into account when managing funding risk. For this purpose, the institution must consider various time horizons, as well as normal and adverse conditions, which must reflect, among other things, the potential impact of environmental risks on reputational risks, restricted or more expensive access to market funding, and accelerated deposit withdrawals.

Operational and Reputational Risks

122. The MNB expects that, with regard to operational risk, the institution assesses how ESG risks may affect the institution's own operations and the various types of regulatory operational risk events mentioned in Article 324 of the CRR. It is further expected that the institution assesses its ability to continue critical operations and incorporates significant ESG risks into its operational risk management framework.

123. The geographic location where the institution operates may make it more susceptible to physical risks. This is particularly relevant for outsourced services and computing activities, especially if providers are located in areas with a higher likelihood of extreme weather events or other negative environmental events. From the perspective of operational risks, climate change can also increase the institution's operational costs through the transition risk channel, for example, through higher energy prices or increased emission reporting obligations. With regard to environmental risks, it is expected that the institution:
     a) identifies losses related to environmental risks in accordance with the risk taxonomy and the methodology for classifying loss events defined in the regulatory technical standards adopted by the Commission under Article 317(9) of the CRR, and marks these in its record of operational losses; b) develops processes for assessing and managing the probability and impact of risks related to environmental litigation; c) determines how physical risk factors may affect business continuity through scenario analysis; d) takes significant environmental risks into account when developing business continuity plans.

The MNB expects that, in this context, the institution develops risk mitigation procedures for events related to climate change and environmental risks affecting operational risks.

In particular, when evaluating critical functions, the institution is advised to consider the impacts of climate change on service provision. If the results of this assessment are significant for any business line or the entire operation of the institution, it is expected that this is reflected in the institution's business continuity plan.

124. The MNB considers it important that the institution itself strives to reduce its ecological and carbon footprint, as insufficient knowledge or lack of effective reduction, beyond hindering constructive contribution to the efforts required by international agreements and the objectives in point 5, also carries legal and reputational risk.

With regard to its own operational risks, the MNB expects the following from the institution:
a) measurement of direct emissions from activities (Scope 1); b) measurement of indirect emissions related to purchased energy (Scope 2); c) measurement of other indirect emissions – excluding financed emissions (Scope 3).

The MNB therefore considers it good practice if the institution operates an environmental management system according to internationally accepted standards, measures its environmental performance within this framework, and strives for its continuous improvement.

Regarding other environmental impacts of operations and measures to reduce them, the MNB recommends the following:
d) introduction and promotion of cash-saving payment methods; e) implementation of paperless or paper-saving administration; f) other initiatives regarding its own operations, guided by certified environmental performance indicators.

Regarding the ecological footprint, the MNB recommends the following:
g) development of plans for further reduction of the ecological footprint; h) neutralization or compensation of remaining emissions that cannot be further reduced technically or economically after emission reduction, preferably through the implementation of certified, verified, primarily domestic habitat rehabilitation projects that serve biodiversity improvement in addition to GHG neutrality, and secondarily through the purchase of carbon credits.

125. With regard to reputational risks, it is expected that the institution considers and manages the impact of ESG risks on its reputation, including by considering potential risks associated with lending to and investing in companies potentially exposed to disputes with ESG relevance – such as social or human rights violations.

126. The MNB expects the institution to consider the extent to which the nature of its operational and business activities increases future reputational damage or legal risks related to losses due to physical or transition risks of climate change [legal liability risk or litigation risk].

The institution must, where appropriate, consider reputational risks related to the failure to fulfill sustainability commitments or transition plans, or the (perceived) lack of credibility of such commitments and plans.

127. In the context of managing behavioral, reputational, and litigation risks, the institution must have reliable processes for identifying, preventing, and managing risks arising from greenwashing or perceived greenwashing practices, taking into account the high-level principles defined in point 2.1 of the final EBA report on the monitoring and supervision of greenwashing. The MNB expects that, for this purpose, the institution takes all necessary steps in an integrated and verifiable manner within its risk management processes to ensure that sustainability-related communication is fair, clear, and not misleading, and that sustainability-related claims are accurate, well-founded, up-to-date, fairly reflect the institution's general profile or product profile, and are presented in an understandable manner. This must be done at both the institutional level (e.g., in relation to sustainability commitments, including forward-looking targets) and at the product or activity level (e.g., in relation to products and activities marketed as sustainable), including by monitoring legal changes, market practices, and disputes surrounding potential greenwashing practices.

Concentration Risk

128. It is expected that the institution considers and manages risks posed by concentrations of exposures or collateral with individual partners potentially more vulnerable to ESG risks, mutually dependent partners, or in certain industries, economic sectors, or geographic areas (hereinafter: ESG-related concentration risk).

129. To identify ESG-related concentration risks, the institution must consider the size and proportion of exposures potentially affected by ESG risks relative to total exposures and Core Tier 1 capital. It is expected that the institution takes into account multiple ESG factors, including at least GHG emissions, industry characteristics, vulnerability of geographic areas to physical risks, as well as social or governance deficiencies or contradictions established in the jurisdictions where exposures or collateral are located, and the availability of risk mitigation factors.

130. The institution must assess whether and to what extent ESG-related concentration risk increases and how the existing vulnerability of exposures.

VI.2.6. Monitoring

131. The MNB expects the institution to monitor ESG risks using effective internal reporting frameworks that provide appropriate information and aggregated data to senior management and the governing body, in connection with the governance expectations set out in Chapter V. As part of this, acceptable solutions may include, for example, the integration of ESG risks into regular risk reports, or the development of scorecards containing metrics supporting effective supervision.

132. It is expected that the institution continuously monitors ESG risks and maintains a comprehensive overview of the institution's vulnerability to ESG risks. In this context, it must ensure that:
     a) the overview and monitoring appropriately take into account the nature, size, and complexity of its activities; b) it maintains portfolio-level overviews for the most significant portfolios determined based on materiality assessment; c) it monitors partners, exposures, and portfolios assessed as significantly exposed to ESG risks in detail and frequently.

The MNB considers it good practice, among other things, if this monitoring is implemented by incorporating ESG risk considerations into the credit risk monitoring process for retail partners, as well as into the regular credit reviews of medium and large non-retail partners, or by making these reviews more frequent and detailed due to ESG risks.

133. The MNB expects the institution to define early warning indicators and thresholds, and to have appropriate procedures for escalating alerts, deviations, and violations to higher levels. It is also expected that, in case of threshold breaches, procedures are in place for adopting corrective or mitigation measures, including adjusting business strategy and risk management tools.

134. As part of monitoring, the institution must track numerous backward-looking and forward-looking ESG risk metrics and indicators. The MNB expects large institutions to track at least the following metrics.

a) The amount and proportion of exposures and revenues (interest, fees, and commissions) arising from business relationships with partners operating in sectors that significantly contribute to climate change – i.e., sectors listed in Sections A–H and L of Annex I to Regulation (EC) No 1893/2006 of the European Parliament and of the Council – in accordance with Recital (6) of Commission Delegated Regulation (EU) 2020/1818. It is expected that the institution applies the most detailed industry differentiation possible. The level of detail must enable the institution, in particular, to track the amount and proportion of exposures and revenues arising from relationships with specific partners – such as organizations in the fossil fuel industry or companies excluded from EU reference benchmarks aligned with the Paris Agreement.

b) Portfolio alignment metrics, which indicate at the industry level to what extent or expectedly to what extent exposures and production capacities operated by clients – based on selected industry alignment metrics and using the methods described in points 83–89 – align or are expected to align with applicable legal and regulatory climate targets, such as the goal of achieving net-zero GHG emissions by 2050. The institution must supplement these metrics with information on the assessment of potential financial risk impacts arising from lack of alignment.

c) Financed GHG emissions, broken down by absolute values according to Scope 1, 2, and 3 emissions, and:
ca) – where applicable – broken down by intensity relative to production or revenue units; cb) detailed by industry, applying the most detailed industry differentiation possible, at least for selected industries determined based on materiality assessment.
It is expected that the institution supplements these metrics with qualitative or quantitative information and criteria supporting the interpretation of their temporal development, including, for example, temporary increases due to transition financing provided to GHG-intensive partners, and which specify the triggering factors behind emission changes. [Examples of metrics include the Global GHG Accounting and Reporting Standard for the Financial Industry developed by the Partnership for Carbon Accounting Financials, as well as the Carbon Disclosure Project.]

d) The level of progress achieved in implementing key financing strategies defined by the institution to ensure its resilience to ESG risks and readiness to transition to a more sustainable economy. For example, by tracking financial flows towards financial instruments or partners that share relevant common characteristics with the institution's targets or its risk appetite regarding ESG risks.

e) Client engagement metrics providing information on:
ea) the percentage of partners for whom ESG risk assessment has been conducted, including regarding their transition strategies and – where available – transition plans, and their alignment with the institution's targets, specifying the scope of selected industries, products, and business lines covered by the assessments; eb) the results of client engagement, such as the positive – or any sub-rating within the category – or negative – or any sub-rating within the category – assessment of these partners' adaptability and resilience to the transition to a sustainable economy, in relation to the institution's targets and

37. In accordance with Article 12(1)(d)–(g) and Article 12(2) of Commission Delegated Regulation (EU) 2020/1818.

alignment with its objectives, as well as the monitoring measures taken by the institution. f) Breakdown of real estate-backed portfolios by the energy efficiency level of the collateral. g) The proportion of financing for low-carbon energy supply technologies compared to the financing of fossil fuel-based energy supply technologies. h) The proportion of environmentally sustainable exposure financing activities that contribute to or enable the achievement of the environmental objective related to climate change mitigation mentioned in Article 9(a) of the Taxonomy Regulation in the context of GHG-intensive exposures. i) The level of physical risks associated with the institution's exposures, and the impact of these risks on financial risks, taking into account multiple scenarios and all relevant hazards from the perspective of the institution's activities, with supplementary information on progress in implementing risk reduction measures. j) Measurement of concentration risk related to physical risk factors (e.g., measurement of exposures or collateral in areas with high flood risk, water scarcity, or forest fire risk) and transition risk factors (e.g., exposures to sectors exposed to high transition risks), using a sufficiently detailed geographical breakdown of exposures. k) The amount of past losses related to ESG risks, as well as forward-looking estimates of risk exposures and potential future financial losses related to ESG risks – based on scenario-type methods. l) Measurement of ESG-related reputational risk, which tracks how regulation, communication, commitments, or public debates related to current and future business activities directly or indirectly affect the institution, taking into account interactions with operational risk, as well as risks related to the strategic and business model – such as the loss of business opportunities or strategic partnerships. m) Any ESG-related legal claims in which the institution was or may become involved, based on available information. n) The state of capacity building related to ESG risks, for example, the percentage of employees who have received specialized training. o) Metrics related to non-climate factors (e.g., portfolio-level dependencies and impacts on ecosystem services, or exposures to partners with significant dependencies or negative impacts on biodiversity), also taking into account industry and geographical location information. p) Progress towards all targets set by the institution regarding ESG risks and ESG objectives, including within the framework of the plan mentioned in point IV.1 of the institution or other sustainability commitments made by the institution.

135. It is expected that small, non-complex institutions and other non-large institutions follow a wide range of indicators selected based on the results of the materiality assessment as per point 134, and take steps to expand the list of monitored indicators later.

136. The MNB expects that the institution has clear and well-documented methodologies for its monitoring metrics and indicators. In case of initial lack of data required to calculate the metrics, the institution must follow the steps defined in points 74, 75, and 77.

VII. Final Provisions

137. The Recommendation is a regulatory instrument issued without binding force for supervised institutions, pursuant to Section 13(2)(i) of Act CXXXIX of 2013 on the Magyar Nemzeti Bank. The content of the Recommendation issued by the MNB expresses the requirements imposed by laws, principles and methods recommended for application based on the MNB's practice of applying the law, as well as market standards and conventions.

138. The MNB monitors and evaluates compliance with the Recommendation among the institutions under its supervision during its supervisory and monitoring activities, in line with general European supervisory practice.

139. The MNB draws attention to the fact that the institution may incorporate the content of the Recommendation into its regulations. In this case, the institution is entitled to state that the provisions contained in its relevant regulation correspond to the relevant Recommendation issued by the MNB. If the institution wishes to include only certain parts of the Recommendation in its regulations, it should avoid referencing the Recommendation, and apply it only with respect to the parts taken from the Recommendation.

140. The MNB expects the application of the Recommendation – with the exception of points 141 and 142 – from July 1, 2026.

141. The MNB expects the application of the Recommendation for small, non-complex institutions from January 1, 2027.

142. The MNB expects the application of recommendations related to the plans according to point IV.1:
     a) for large and complex institutions from January 1, 2027, b) for small, non-complex institutions from July 1, 2027.

143. On July 1, 2026, Recommendation No. 10/2022 (VIII. 2.) MNB on climate change and environmental risks, and on the incorporation of environmental sustainability considerations in the activities of credit institutions, shall cease to be in force.

Mihály Varga signed
President of the Magyar Nemzeti Bank

Annex to Recommendation No. 2/2026 (III.6.) of the MNB
This annex serves as a supporting tool for the institution in developing plans prescribed in Section 109(2a) of the Hpt., which are defined in more detail in Chapter IV.1 of this Recommendation. The annex does not introduce new requirements, but contains examples, references, and possible metrics for each of the key content elements prescribed in the Recommendation, which the institution may consider when designing the structure and form of its plans. The institution may adjust the format of this common approach, provided it ensures that its plans contain all prescribed key content elements. Given the need for consistency with point IV.1 and especially other applicable requirements according to point 15, the institution must ensure that information used for compliance with the Recommendation is consistent with information published in accordance with the Accounting Directive and Commission Delegated Regulation (EU) 2023/2772 (hereinafter: ESRS).

IV.1.3. Key Content Elements of the Plans

Keywords or prescribed key content elements | Examples of qualitative and quantitative outputs and possible supporting metrics | References to other EU frameworks | Clarifications and references to the Recommendation --- | --- | --- | --- Possible (qualitative) output | Possible (quantitative) output |
3. Pillar CSRD/ESRS | How to interpret this tool? |
Direct excerpt from point 39 of the Recommendation | Keywords or sub-element | Clarifying guidance with reference to the relevant point of the Recommendation | Possible qualitative description of the output related to the requirement in the Recommendation: - with examples or reminders, - e.g., recalling that a key performance indicator may cover various aspects. All examples for key performance indicators / key risk indicators serve only for illustration. | Clarifications and references to the relevant point of the Recommendation

IV.1.3. Key Content Elements of the Plans

Keywords or prescribed key content elements | Examples of qualitative and quantitative outputs and possible supporting metrics | References to other EU frameworks | Clarifications and reference to the relevant point of the Recommendation --- | --- | --- | --- Possible (qualitative) output | Possible (quantitative) output |
3. Pillar CSRD / ESRS | a) Strategic objectives and roadmap of the plan |
aa) High-level overarching strategic objective for the short, medium, and long-term management of ESG risks, consistent with the general business strategy and risk appetite. | Overarching objective: | This refers to the overarching strategic objective that the institution intends to achieve regarding ESG risks, consistent with integrating ESG risks into business and risk strategies, as well as risk appetite, in accordance with points VI. 2.2 and VI.2.3 of the Recommendation.

Qualitative description of strategies ensuring compatibility of business models with the transition to a climate-neutral and sustainable economy, especially if subject to CSDDD or CSRD requirements, and description of how these strategies influence the direction and priorities of initiatives aimed at managing ESG risks.

Overarching objectives may relate to targets of selected key performance indicators or key risk indicators.

Cross-references to other parts of the plan, e.g., point a) aa) sub-point or point b), may be considered.

Qualitative: | Table 1 a), b) row; Table 2 a), b) row; Table 3 c), d) row Quantitative: | ESRS-E1-1; ESRS 2 - BP1; ESRS-E1-MDR-P; ESRS-E1-2 Short, medium, and long-term: | This refers to how the strategic objective should be applied on different time horizons considered in accordance with points 29–31 of the Recommendation.

ab) Overarching long-term goals with intermediate milestones to ensure the resilience of the business model against ESG risks – including consistency of business structure and revenues with these milestones. | Long-term goals: | Long-term goals that, in accordance with the Hpt. and point 29 of the Recommendation, support the achievement of the overarching objective over a time horizon of at least 10 years.

Long-term goals aimed at managing risks arising from the EU objective of achieving net-zero GHG emissions by 2050, with an intermediate milestone for 2030, taking into account the EU objective of reducing emissions by 55% compared to 1990 levels.

Long-term goals and intermediate milestones aimed at managing risks arising from EU objectives related to deforestation or nature restoration.

How does the institution ensure that its business structure and revenue streams align with its long-term goals and intermediate milestones?

Financial exposures to different economic sectors | Portfolio adjustment metrics | Profitability metrics: reported appropriately broken down (e.g., by sectors, portfolios, products, etc.), yield metrics, and risk-adjusted yield metrics | Metrics related to business strategy: forward-looking key indicators describing how the institution's strategy relates to pricing, capital, liquidity, and balance sheet allocation | Percentage of ESG milestones achieved on time | Qualitative: | Table 1 b), j) row; Table 2 b), k), l) row; Table 3 c), d) row Quantitative: | Sample Document No. 1; Sample Document No. 3 ESRS-E1-1 | Targets for GHG emission reduction: | ESRS-E1-4 Intermediate milestones: | Intermediate milestones measuring progress towards achieving long-term goals, in accordance with point 30 of the Recommendation. Consistency of business structure and revenues with milestones: | How will the institution ensure it can generate adequate profitability along the way?

ac) Fundamental assumptions, inputs, and background information relevant to understanding the institution's objectives and targets, including the selection of central or reference scenario(s), as well as institutional conclusions drawn from the results of the materiality assessment of ESG risks, portfolio adjustment assessment, and other scenario analyses. | Key assumptions and selection of reference scenario(s): | This refers to documenting key methodological criteria and assumptions according to point 38 of the Recommendation, including reference scenario(s) selected by the institution in accordance with points 24–28 of the Recommendation.

Identification and justification of selected scenario(s) from, for example, national environmental agencies, the European Commission Joint Research Centre, the International Energy Agency, the Network for Greening the Financial System (NGFS), or the Intergovernmental Panel on Climate Change.

Degree of alignment or deviation from climate-related pathways or reference scenarios for selected industries or partners.

Quantitative measurement of the impact of environmental risks on financial risk categories.

Qualitative description of significant ecological transition and physical risks affecting the institution.

Quantitative results of the materiality assessment of ESG risks.

Qualitative: | Table 1 j), k), l) row; Table 2 h), i), j) row; Table 3 d) row Quantitative: | Sample Document No. 3 ESRS-E1-SBM3; ESRS-E1-IRO; ESRS-E1-9 | Results of materiality assessment, portfolio adjustment assessment, and scenario analyses: | Findings and conclusions based on the materiality assessment, portfolio adjustment methods, and scenario analyses performed in accordance with point VI.1 of the Recommendation.

b) Targets and metrics | ba) Quantitative targets defined for the management of ESG risks – including risks arising from the adjustment process to achieve the legal and regulatory sustainability objectives of the jurisdictions where the institution operates, as well as from broader trends in the transition to a sustainable economy – as well as metrics used for monitoring and managing ESG risks and tracking progress towards targets. | Targets and metrics for managing ESG risks: | This refers to the metrics and targets used by the institution in accordance with points 33–37 and VI.2.6 of the Recommendation. Not applicable | Exposures to high-risk sectors or partners | Portfolio adjustment metrics and targets | Financed emissions in relevant breakdowns | Progress in key financing strategies | Specific energy efficiency levels of real estate portfolios | Ratio of bank financing for carbon-poor vs. fossil fuel-based energy supply (ESBR) | Level of physical risks associated with the institution's exposures | Portfolio risk disclosure in relevant breakdowns (e.g., non-performing exposures) | Qualitative: | Table 1 b), c) row; Table 2 b) row Quantitative: | All Sample Documents ESRS-E1-1 | Targets for GHG emission reduction: | ESRS-E1-4 Risks arising from the process of alignment with regulatory sustainability objectives: | This refers to monitoring ESG risks arising from the process of alignment with relevant regulatory objectives – such as those included in the European Climate Law in accordance with Section 109(2a) of the Hpt. – and the transition, and specific metrics and targets for tracking and managing them.

bb) Portfolios, sectors, asset classes, business lines, and in some cases economic activities (i.e., specific technologies) covered by targets and monitoring metrics, ensuring that targets and metrics adequately reflect the nature, size, and complexity of the institution's activities, as well as the materiality assessment performed by the institution regarding ESG risks. | Scope of coverage: | This refers to information on the scope of application of targets and metrics and their significance from a risk and financial perspective.

Which activities, asset classes, sectors, and business lines are covered for each objective?

Institutional-level targets broken down into more specific sectoral targets.

Targets applied to specific portfolios, exposures, asset groups, or investments with similar characteristics or risks.

Specific, achievable targets for specific projects, technologies, or business activities.

On-balance sheet and off-balance sheet activities considered.

Percentage of identified ESG risks actively monitored and managed by the institution.

Percentage of business units whose ESG-related targets are incorporated into the institution's operational plan.

Percentage of activities with ESG-related targets and initiatives across different regions.

Percentage of sectors that have developed specific action plans aligned with group-level ESG-related targets.

Achievement of sectoral targets |

Qualitative: | Table 1 b), c), j) row; Table 2 h), i) row Quantitative: | All Sample Documents ESRS-E1-1; ESRS 2 - MDR-T | Current revenues by sector: | ESRS 2 - SBM-1 Targets for GHG emission reduction: | ESRS-E1-4

Exclusion from coverage or planned coverage |

bc) Time horizons to which targets and metrics relate. | Time horizons: | This refers to the short, medium, or long-term time horizons to which metrics and targets are linked, in accordance with points 29–31 of the Recommendation.

Qualitative description of targets and metrics applied in the short, medium, and long term.

Justification for short-term increases in metrics and targets, if applicable.

Development, e.g., increase/decrease in the level of target(s) to be achieved on different time horizons.

ESRS-E1.IRO1_10_AR12a; ESRS-E4-1_04 13d |

c) Governance | ca) Governance structure of the plans, including roles and responsibilities related to the development, approval, implementation, monitoring, and updating of the plan, including escalation steps in case of deviation from targets. | Governance structure: | The governance structure of the plan in accordance with points 18–22 and IV.1.4 of the Recommendation.

The governing body, possible sub-committees, and the three lines of defense.

Frequency of governing body meetings dealing with the plan.

Escalation protocol defining the process for handling deviations – including persons to be notified and steps to be taken.

Delays in plan approval.

Number of internal audits of the plan.

Percentage of implemented recommendations from audits.

Number of processed or unresolved escalations.

Qualitative: | Table 1 e), g), h), q) row; Table 2 d), f) row; Table 3 a) row ESRS 2 GOV-1_AR | Deviation and escalation procedure: | In case of significant deviations, the governance system for making decisions on corrective actions in accordance with points 19 and 133 of the Recommendation.

cb) Measures regarding capacities and resources necessary for the effective implementation of the plan, including training and internal culture related to ESG risks, to ensure adequate knowledge, skills, and expertise. | Capacity and resources: | Measures regarding capacities and resources necessary for the effective implementation of the plan, including potential shortcomings and needs related to internal culture and capabilities concerning ESG risks, based on the initial assessment performed by the institution in accordance with Chapter V.

Training and development programs for ESG risks.

Labor leasing and recruitment plans.

Knowledge sharing and collaboration platforms.

Management commitment.

Percentage of ESG-related training completed.

Identified shortcomings in skills and knowledge related to ESG risks.

Frequency and quality of internal communication regarding ESG-related objectives and progress.

Qualitative: | Table 1 f), m) row
ESRS 2-GOV-1-23rd paragraph; ESRS G1 GOV-1-5th paragraph, b) point |

c) Remuneration policies and practices aimed at facilitating reliable management of ESG risks, consistent with the institution's objectives and risk appetite. | Remuneration policies and practices: | This refers to how the institution takes into account its risk appetite related to ESG risks within the framework of its remuneration policy and practice according to Section 107(1)(f) of the Hpt.

Qualitative description of how remuneration policies and practices have aligned, currently align, or will align in the future with the overarching strategic objective for managing ESG risks and risk appetite.

Metrics used for integrating ESG-related risk appetite into remuneration policies.

Percentage of employees whose remuneration includes metrics related to ESG risks.

ESG-related |

Qualitative: | Table 1 i) row; Table 2 g) row; Table 3 a) row ESRS 2-GOV-2-29th paragraph; ESRS-E1-GOV-3 |

Metrics

Weighting in total remuneration

cd) Data and systems used for the transition planning process Data and systems: This refers to the data and systems used for the preparation, implementation, and monitoring of the plans in accordance with paragraphs 23 and 71-77 of the Recommendation.

• Database containing the identification of all relevant data points related to ESG risks, as well as the assessment of their availability and quality.
• Policies and procedures aimed at ensuring data quality.
• Percentage of collected and available relevant data points.
• Percentage of systems and processes integrating ESG data.

Qualitative:
Table 1, row p)

References:
ESRS 1, Appendix B
ESRS 2 AR 2
ESRS 2 SBM-1_42a
ESRS-E2-4_30c
ESRS-S1-6_50d
ESRS-S1-7_55b

d) Implementation strategy
da) Measures taken or planned within core banking activities and processes to achieve the plan's targets: This refers to how the institution will realize its objectives and targets through its core activities.

• New tools for assessing ESG risks.
• Percentage of activities affected by implementation measures.

Qualitative:
Table 1, row n)
Table 2, row a)
Table 3, row Kiemelt (Key)

Key measures:
ERSR-E1-1_16b
ESRS-E1

Short, medium, and long-term overview of measures, including information on how the institution integrates the plan's objectives into its decision-making processes and standard risk management framework; with additional information on the observed effectiveness of individual measures or their estimated contribution to relevant target(s).

Changes to the standard risk management framework: This refers to how the institution will integrate the targets into existing various risk management tools (e.g., Internal Capital Adequacy Assessment Process, Internal Liquidity Adequacy Assessment Process, early warning systems, risk appetite limits, capital/portfolio allocation, budget planning procedures, strategic plans, financing plans) in accordance with paragraph VI.2 of the Recommendation.

• Introduction into current portfolios.
• Integration of ESG risk-related objectives into medium- and long-term strategic planning and decision-making processes.
• Integration of ESG risks into the risk management framework.
• Percentage of business decisions aimed at implementing the plan's targets.
• Acceptance rate of tools for managing ESG risks.

c) row
MDR-A
ESRS 2
MDR-A
ESRS-E1-2
ESRS-E1-3

---

ESRS-E2-E5
ESRS-S1-S4
ESRS-G1
MDR-A
ESRS-E3
MDR-A
ESRS-E4
MDR-A
ESRS-E5
MDR-A

db) Policies and procedures related to financial risk categories, as well as policies and conditions related to key economic activities, sectors, and locations: Policies and conditions for activities, sectors, and locations: The policies and the conditions governing them, including the updating of existing policies and the creation of new policies, in line with paragraph 94 b) and c) of the Recommendation.

• Listing of current policies and original ESG risk status.
• Details of the policies and conditions, as well as their scope.
• Policy adoption rate, e.g., the percentage of branches or departments that have adopted new ESG risk policies.

Qualitative:
Table 1, row d), o)
Table 2, row c), e)
Table 3, row c), d)

References:
ESRS-E1-1_16b
ESRS-E1-2
ESRS-E1-3

Regarding biodiversity:

Adjustment of lending and investment policies and conditions related to activities, sectors, and locations to financial risk category policies and procedures: This refers to the adjustments of policies and procedures in accordance with paragraph VI.2.5 of the Recommendation.

• Schedule for updating or creating policies, including the method and timing of the update or creation, and the persons responsible for carrying them out.

For each policy, the following aspects may be listed:

• Objective: How it reflects the strategic objective, risk strategy, and supports the implementation of the plan.

• Scope: Precise repetition of the directed and affected business activities, locations, sectors, etc.

• Conditions: Clear conditions ensuring flexible applicability and traceability.

• Number of reviews and updates of policies aimed at managing ESG risks within a given period.

• Percentage of activities compliant with updated policies aimed at managing ESG risks.

• Results of internal and external audits focusing on the framework for managing ESG risks.

Activities related to locations sensitive to l e (likely 'highly') sensitive areas or locations near them: ESRS E4.IRO-1_19a

Exclusions: Any exclusions consistent with risk appetite.

dc) Changes introduced in the composition and pricing of services and products to support the implementation of the plan. Composition and pricing of services and products: This refers to how the institution aligns its service and product offerings and their pricing with ESG risk-related criteria, as well as its risk strategy and internal capital policy, in accordance with paragraph 94 b) of the Recommendation.

• Risk-based pricing: Adjustment of pricing based on the borrower's or project's ESG risk profile.
• Risk reduction incentives: Providing incentives for customers implementing ESG risk reduction strategies.
• Frequency and magnitude of pricing adjustments based on ESG risk profiles.
• Number of customers benefiting from incentive pricing.

Qualitative:
Table 1, row r)
Table 2, row j)
Table 3, row d)

Activities incompatible with the transition: ESRSE1.IRO-1 AR12

dd) Investments and strategic portfolio allocation supporting the institution's business strategy and risk appetite related to ESG risks, including sustainability and transition-related products and services, and information on how strategic financing decisions are accompanied by proportionate risk management procedures. Sustainability and transition-related products and services: Types of financial instruments (green and sustainability-related loans, bonds, mortgages, funds, etc.) and advisory services offered or managed by the institution.

• Strategy, policies, and criteria for green, transition-related, or ESG-related mortgages, loans, and bonds.
• Growth of sustainable financing: Year-on-year increase in the volume and share of sustainable financing.
• Non-performance rate of green or transition-related or ESG-related mortgages or loans.

Qualitative:
Table 1, row m), r)
Table 2, row e)

Quantity:
Documents No. 06–10

Results for affected communities:
ESRS-S3-4 AR 34 b

Alignment between strategic financing decisions and risk management procedures: This refers to how the institution ensures that changes in its business structure and strategy decisions comply with risk management rules to be introduced in accordance with paragraph VI.2 of the Recommendation.

• Diversification of lending and investment portfolios based on criteria relevant to ESG risks, e.g., economic sectors or geographic areas.
• Credit risk policies for green loans and mortgages.
• How institutions financing renewable energy projects ensure that projects comply with environmental regulations to avoid legal and reputational risks.
• Percentage of newly financed projects subject to comprehensive ESG risk assessment.
• Percentage of lending decisions explicitly considering ESG risks.
• Margin of ESG-related products: Comparison of the margin of ESG-related products and traditional products.

e) Engagement strategy
ea) Policies on partner engagement, including information on the frequency, scope, and objectives of engagement, types of possible measures, and escalation processes or criteria. Engagement policies: Clear policies that the institution will follow to engage identified partners to achieve strategic and risk management objectives, considering the results of the materiality assessment and risk measurement methods, in accordance with paragraph 94 a) of the Recommendation.

• Objective and general goal, e.g., understanding the risk profile, or checking alignment with risk appetite and targets.
• Solutions available to the partner.
• Escalation and validation process.
• Percentage of partners with whom dialogue has been conducted or is planned.
• Percentage of partners subject to ESG risk assessment.
• Share of covered sectors, products, and business lines.

Qualitative:
Table 1, row d), o)
Table 2, row c)
Table 3, row b), c)

References:
ESRS 2-SBM

eb) Processes, methodologies, and metrics for collecting and assessing information on partners' exposure to ESG risks and alignment with the institution's objectives and risk appetite. Process, methods, and metrics for assessing ESG risks: This refers to the application by the institution of exposure-based, sector-based, portfolio-based, and portfolio adjustment methods in accordance with paragraphs 78–91 of the Recommendation.

• Identification of high-risk partners based on predefined criteria.
• Internal or external scores, ratings, or ESG risks reflected in credit ratings.
• Percentage of partners subject to ESG risk due diligence.
• Change in credit rating of partners considering the impact of ESG risks.
• Methods for measuring the alignment of selected partners with climate policies.
• Concentration of exposures within certain sectors exposed to high transition or physical risks.
• Involvement in ESG-related disputes or incidents.

Qualitative:
Table 1, row k), l)
Table 2, row i), k)

References:
ESRSE1.IRO-1
ESRS-E4-1.AR-1a

ec) Results of partner engagement practices, including an overview of partners' adaptability and resilience against the transition to a more sustainable economy. Results: This refers to the results of partner engagement, allowing for a substantive interpretation of the partners' risk profile and the measures taken by the institution in accordance with paragraph 134 e) bb) of the Recommendation.

• Criteria used to identify partners with significant ESG risks requiring immediate attention.
• Adjustment of loan conditions, e.g., interest rates or collateral requirements, based on ESG risk assessment.
• Enhanced due diligence, e.g., stricter due diligence processes for high-risk partners.
• Positive ratings (or any sub-classification within the category) or negative ratings (or any sub-classification within the category) regarding the resilience of these customers, as well as their alignment with the institution's targets and risk appetite.
• Number and type of monitoring measures taken by the institution.

Qualitative
Table 1, row o)
Table 2, row m)
Table 3, row c), d)

References:
ESRS-E1
ESRS 2 - SBM-2_45a
AR 16

• Targeted engagement, e.g., developing specific partner engagement plans to manage identified ESG risks, such as defining development goals or offering new financial products tailored to partners' needs.