Agefi Luxembourg - avril 2026

Avril 2026 19 AGEFI Luxembourg Économie & Tax E SGrisks have decisivelymoved from themargins of sustainability repor- ting into the core of prudential supervision.Whatwas once perceived primarily as a disclosure or reputational topic shouldbe nowfirmly embedded into governance, riskmanagement and capital planning frameworks across the Europeanbanking sector. The revised EU Banking Package encompassing CRR III and CRD VI in combination with granular technical standards and guidelinesmandated to the EBA is envisaging ESG risks inte- gration across three pillars of pruden- tial banking supervision: - Pillar 1 – so called “minimum” requirements for capital and liquidity adequa- cy: primary focus is on internal models-based approaches and how they could factor a broader rangeoffactorssensitivetoclimateandenvironmen- tal events and changes; - Pillar 2 – so called “additional” requirements for capital and liquidity adequacy: stressing the impor- tance on integration of ESG risks into governance frameworks,riskmanagementpractices,capitalplan- ning and stress-testing, supervisory reviewandeval- uationprocess and capital buffers calibration; and - Pillar3 –socalled“transparency”requirements:deal with the integration of ESG risks related datapoints intoprudential reporting andpublic disclosures. ThismeansthatclimateandbroaderESGrisksareno longer treated as emerging or ancillary concerns, but as fully-fledged risk drivers that must be identified, measured,managedandmonitoredinthesameway as traditional financial risks. Key prudential framework elements and their implementation inLuxembourg Across EU the integration of ESG risks into prudential supervision is progress- ing rapidly and Luxembourg is taking steps to ensure alignment. Key frame- work elements and the respective imple- mentation dates are as follows: - CRR III (Regulation (EU) 2024/1623) Entered into force in all EU member- states as of 1 January 2025 and intro- duced definitions of ESG risks and extended scope of application for ESG public disclosures to all institutions. - CRDVI (Directive (EU) 2024/1619) The transposition in Luxembourg began with the submission of Bill n°8627 to the Parliament in October 2025, amending the Law of 5 April 1993 on the financial sector. The parliament published draft law on 13 February 2026. The final adoption is expected soon considering the (overdue) January 2026 deadline attributed to the legislative process.CRDVIrepresentsadecisivestepincement- ingESGriskswithintheprudentialrulebook.Forthe firsttime,climateandenvironmentalrisksareexplic- itly incorporated into requirements relating to risk identification,measurement,managementandmon- itoring as well as internal capital adequacy assess- ment process, governance, strategy and transition planning,supervisoryreviewandevaluationprocess and stress testing. - EBA Guidelines on the management of envi- ronmental, social and governance (ESG) risks (EBA/GL/2025/01) These guidelines supplement CRD VI, making requirementsmore granular and targeted. The orig- inal EBAGuidelines entered into force andare appli- cable toECB-supervisedbanks as of 11 January 2026. TheCSSFadopted theEBAGuidelines onESGRisks ManagementthroughdedicatedCSSFCircular26/905 applicable to Less Significant Institutions other than Small non-complex institutions (SNCIs) from1April 2026. The CSSF Circular 21/773 is also amended to reflect its narrowed scope of application, as it will remain applicable to SNCIs until 10 January 2027, as well as to third-country branches. - EBA Guidelines on environmental scenario analysis (EBA/GL/2025/04) TheseguidelinessupplementEBAGuidelinesonESG risk management with the specific focus on the sce- nario analysis and stress testingmethodologies. The original EBA Guidelines entered into force and will be applicable to ECB-supervised banks as of 11 January 2027. The CSSF has not yet fully adopted these guidelines. - Other EBA technical standards and guidelines expected There is also a number of technical stan- dards andguidelines currentlyunder con- sultationprocess (for example, technical standard on ESG Pillar III disclo- sure templates and guidelines on supervisory review and evaluation process and supervisory stress testing). Some other guidelines may be further revised to ensure coherencewith the evolving prudential framework (for example when it comes to internal governance and remuneration). Where banks still need to enhance their practices Despite significant progress, ESG risk management isinherentlyiterativeandwide-ranginginitsimpacts. Observing the evolving framework and supervisory feedback, the following are areas that banks should seek to enhance: - ESGrisks assessmentmaturity Assessment of ESGrisk impacts shouldbe gradually upgradedintermsofscope(e.g.natureandbiodiver- sity), data feeds, sophistication ofmethodologies, etc. Consideringthatthisisastartingpointforapplication ofproportionalityprinciples,robustanalysisandcom- prehensive justification is amust. - Information availability, quality andusability To adequately navigate complex notions of ESG risks and make informed decisions, Banks need to solve their data gaps, and do so in the Omnibus- adjustedenvironment. Spendingmore time onana- lytics rather than collection / quality assurance should be the end goal. - Scenario analysis and stress testing methodologies Scenarioanalysis andstress testingrepre- sent another frontier. While frameworks andguidancearenowinplace,translating climatescenariosintoquantitativeimpacts onportfolios,capitalandliquidityremains complex. Integrating these results mean- ingfullyintoICAAPandILAAPprocess- es requires furthermethodological devel- opment and close collaboration between risk, finance andbusiness functions. - Business model evolution and tran- sition plans Translating ESG risk assessments into concrete changes in credit lifecycleman- agement, pricing, supply chain decisions and ICT infrastructure requires organisational alignment and sustained investment. Prudential transition plans, linking risk assessments to forward-looking financial impacts andstrategic choices, are emerging as a critical tool in thisprocess.Moreover, suchplans will forma part of SREP package. Enforcement signals and supervisory pressure RecentenforcementactionsatEuropeanlevelunder- line the seriousness with which supervisors now treat climate and environmental risks. As of 2025 and early 2026, the ECBhas begun issuing penalties linkedspecificallytodeficienciesinclimateriskman- agement, marking a new phase in supervisory enforcement. For example, ABANCA and Crédit Agricolewerefined€188,000and€7.6mrespective- ly. These actions send a strong signal to the market: ESGriskmanagement failures are no longer tolerat- ed as transitional shortcomings. InLuxembourg, theCSSFhas reaffirmed in its latest supervisory priorities that ESG risk management remainsacoreprudentialfocusforbanks.Thesuper- visor will continue targeted inspections on gover- nance and credit risk — increasingly embedding ESGaspects—andmayconductinspectionsspecifi- cally focused on ESG risks. Looking ahead: beyond compliance towards the competitive advantage Climate and environmental risks are now firmly embedded in the European prudential framework. For Luxembourg banks, the coming years will be characterised by continued supervisory scrutiny, evolving methodologies and increasing expecta- tions around integration and effectiveness. The direction of travel is clear: ESG risk management is no longer about preparing for future regulation; it is about operating effectively within an already transformed regulatory landscape. Institutions that invest early in robust governance, data-driven methodologies and strategic integration will not only meet supervisory expectations but also strengthen resilience and position themselves to support the economic transition. Indeed,Europe’stransitiontowardsaNetZeroecon- omy is driving profound changes across industries, requiringsubstantialinvestmentandtransformation. Banks play a critical role in financing this transition, supporting clients as they adapt business models, investing in new technologies and managing transi- tion risks. Institutions that develop robust ESG risk assessment and pricing capabilities are better posi- tionedtoidentifyopportunities,structuresustainable financeproductsandengageproactivelywithclients. In Luxembourg, this strategic dimension is already visible. Growth in sustainability-linked lending and sustainablebondissuancereflectsbothclientdemand andbanks’increasingcapacitytoalignfinancialprod- ucts with environmental objectives. However, realis- ing the full potential of sustainable finance requires strong risk management foundations, ensuring that transitionopportunitiesareassessedconsistentlywith prudential soundness. ElenaKAZMINA, DirectorBankingRisk,Regulatory&Compliance,PwCLuxembourg RyanDAVIS, Partner,Regulatory,RiskandCompliance,PwCLuxembourg Navigating integration of the ESG risks into the prudential framework for banks T he PwCBusiness Barometer registered a sharpdecline in March, falling to – 6 from+8 in February. The reversal points to a reneweddeterioration inbusi- ness confidence as tensions in the Middle East continue toweigh on sentiment, despite recent signals of de-escalation. This weakening in confidence is sup- ported by a declining consumer senti- ment. BCL confirmed that the consumer confidence indicator fell drastically, re- flecting growing concerns about the cost of living. Inflation almost doubled in March, reaching 2.4% according to STATEC, placing the Grand Duchy among the economies with the sharpest inflationaryupticks. The acceleration has been largely driven by the Middle East conflict, with the en- ergy sector particularly exposed. Brent crude oil price surged to almost $120 per barrel, the highest level since 2022, push- ing diesel and petrol prices up by over 20% and 10%, respectively. Prices later eased closer to $90 per barrel following a two-week ceasefire, but uncertainty re- mainselevated,pointingtoamorefragile macroeconomic environment. These pressures are increasingly filtering through into domestic activity; even be- fore the recent tensions, Luxembourg’s economy had entered a more delicate phase withGDP growing by just 0.6%at the end of 2025, well below historical norms.Shouldtheconflictpersistanden- ergy prices remain under pressure, an- nual inflation could exceed STATEC’s current expectations of 2.5%, increasing the likelihood of earlier wage indexation in Q2 2026 and further weighing on do- mestic demand. Across the eurozone, economic momen- tumcontinues toweaken,withPMI indi- catorspointingtotheslowestgrowthpace inninemonthsasofMarch.Thecompos- ite index edged closer to the contraction territory, reflecting stagnation in the ser- vicessectoralongsidepersistentweakness in industrial production. This slowdown is occurring while increasingly uneven economic performance across member statesisbeingobserved.Spainemergedas the fastest-growing economy in March despite inflation reaching 3.3%. In con- trast, Germany, the bloc’s largest econ- omy, continued to expand towards the end of Q1 2026, but growth slowed to its weakest pace so far this year, with infla- tionat 2.8%.Meanwhile, bothFranceand Italy slipped into contraction, recording inflation rates of 1.9% and 1.5%, respec- tively. At the same time, inflation across the bloc rose to 2.5% in March, moving above the ECB’s target and signalling early spillovers fromhigher energy costs linkedtothegeopoliticalbackdrop.While marketexpectationsaroundpotentialrate hikehasintensified,thepolicyoutlookre- mainsuncertaingiventhevolatilegrowth environment. In the US, inflationary pressures remain persistent,withheadlineinflationrisingto 3.4% in March and projected to rise to- wards 4% by the end of the year, driven inpartbyhigherenergyandlogisticscosts linked to the situation in theMiddle East. Thiswasquicklyreflectedinglobalfinan- cial markets, where a sharp deterioration in risk sentiment triggereda broad-based sell off as investors repriced geopolitical risk andpotential oil supplydisruptions. Thesubsequentannouncementofatem- porary ceasefire provided a short-lived relief, prompting a rebound in the S&P 500.However,therecoveryhasremained tentativeamidlingeringuncertainty,with ongoingconcernsoverpotentialrenewed disruption weighing on sentiment. Against this backdrop, the IMF has sig- nalled plans to downgrade its global growthforecasts,warningof lastingeco- nomic damage even in the most opti- mistic scenario. Whether this marks a turningpointinthecurrentcycleremains an open question. The monthly PwC barometer, in collaboration with AGEFI Luxembourg, is an economic confi- dence indicator that is intended to be a simple and pragmatic tool aimed at capturing the economic atmosphere of the Grand Duchy each month. The indicator is based on a number of sentiment indices published monthly by Eurostat and Sentix, which are based on surveys (businesses, consumers or investors/ analysts). The indicators used are: consumer confidence (EA for euro area and LUX for Luxembourg), indus- trial confidence (EA and LUX), construction con- fidence (EA and LUX), financial confidence (EA), retail confidence (EA), services confidence (EA) and the Sentix Index (EA). The evolution of the barometer over the past four years is displayed on the graph below. PwCMarketResearchCentre, IHSMarkit,Sentix,STATEC The monthly PwC Barometer