Bridging the ESG asymmetry: lessons from climate risk for the integration of social and governance risks in banking supervision

This study analyses the integration of Environmental, Social and Governance (ESG) risks into banking regulation and supervision, focusing on the persistent imbalance between the advanced treatment of environmental risks and the limited development of social and governance frameworks. While climate-related risks have rapidly been incorporated into supervisory tools and disclosure requirements, social and governance risks remain affected by definitional ambiguity, data constraints and methodological shortcomings. The research identifies regulatory, informational and methodological gaps that hinder the effective incorporation of these risks into prudential frameworks. It reviews recent European and international regulatory developments, examines the potential contribution of ESG rating agencies, and proposes a stress-testing approach tailored to social and governance risk factors. An empirical application based on existing environmental data illustrates the feasibility of the framework and supports its future extension. The study contributes to the literature by highlighting the need for a more comprehensive prudential approach to ESG risks in order to ensure banking stability in the medium to long term.