Artur Mika, Expert in the Commercial Banking Department, UKNF

According to the data from the EU Earth observation programme, Copernicus, 2024 was the hottest year in the history of global temperature records. Moreover, it was the first year in which the average global temperature on Earth increased by more than 1.5°C above the pre-industrial level, namely 1850–1900¹. 

This is in contrast to the Paris Agreement of 2015, aiming at the capping an increase in the global average temperature at below 2°C above the pre-industrial level and limiting the increase to 1.5°C above the average value for this period². Therefore, the Paris Agreement was supposed to prevent human life expectancy from declining and the quality of human life from deteriorating. Indeed, the objectives of the Agreement create favourable conditions for the reduction in air pollution and for the increased availability of potable water. According to the data of the European Environmental Agency (EEA)³, in the group of 372 European cities under research, 7 out of 20 most polluted cities of Europe are located in Poland. Additionally, our country has one of the scarcest resources of potable water per inhabitant in Europe⁴. In the context of such data, the provisions of the Paris Agreement are of vital importance from Poland’s perspective.

Human-induced global warming leads to extreme weather conditions, i.e. droughts and strong winds, which in early 2025 caused, for instance, large-scale wildfires that affected Los Angeles⁵. It is estimated that in 1980–2022 such events in the EU Member States caused 220 000 fatalities and the economic losses of EUR 650 billion⁶. Moreover, the estimated scale of losses in GDP in 2031–2050 arising from inaction in terms of preventing climate change and the resulting global warming will amount to EUR 2.4 billion in comparison to the scenario in which the Paris Agreement 1.5°C objective is achieved⁷. 

On the other hand, a global trend of departing from earlier commitments in the area of climate protection is being witnessed. A symptomatic example is the notification submitted by the United States on 27 January 2025 to the United Nations regarding the United States’ withdrawal from the Paris Agreement with the effect from 27 January 2026⁸. Additionally, at the turn of 2025, American banks: JPMorgan, Citi, Bank of America, Morgan Stanley, Goldman Sachs and Wells Fargo withdrew from the Net Zero Banking Alliance, an alliance formed under the auspices of the UN to bring together global banks that committed to support activities aiming at balancing human-induced GHG emissions by removing them from the atmosphere by 2050 (net-zero greenhouse gas emissions). 

The question arises: what lesson can be learnt from confronting the trend of withdrawing from commitments with the need to protect the planet and people who leave on it?

EU regulations on climate risk management that are in force with respect to banks aim to ensure proper management of such risks, including by means of disclosures and mandatory reporting that support transparency in the ESG area, and to boost banks’ engagement in the financing of investment projects that have a positive impact on mitigating adverse climate change. 

Irrespective of the unquestionable validity of this idea, it is good to notice that such regulations also cause a material burden for banks and contribute to higher costs of their activity. Against this backdrop, concerns are raised regarding decreased competitiveness of European financial institutions (and more broadly – other businesses) at global markets. This concern is reflected, for example, by the fact that 41% of businesses surveyed perceive regulatory burdens as the main risk factor that negatively affects the attractiveness of the EU as the target location for foreign direct investments⁹. The EU has acknowledged validity of those concerns, which has been reflected in the Budapest Declaration on the New European Competitiveness Deal¹⁰. One of the priorities of the declaration is to take actions aimed at considerably simplifying the regulatory framework for businesses and reduce administrative, regulatory and reporting burdens imposed on businesses, in particular SMEs. The European Commission has been urged to immediately present concrete proposals thanks to which in the first half of 2025 reporting obligations would be reduced by 25% and to take the issue of competitiveness into account to a larger extent in the impact assessments of legal regulations that are proposed by the European Commission. Moreover, in January 2025, the need to make ESG regulations more liberal by easing the requirements under, in particular, CSDDD and CSRD, and postponing their timelines were communicated to the European Commission by France¹¹ and Germany¹².

Validity of these efforts cannot be questioned given the extensive, and still growing, scope of EU regulations in the area of ESG. For instance, in ‘The future of European competitiveness’ report, Mario Draghi indicated that the current number of mandatory datapoints required to be disclosed under European Sustainability Reporting Standards (ESRS) amount to 783¹³. This imposes an extreme burden of reporting obligations on entities that are subject to mandatory sustainability reporting.

Balancing climate targets and strengthening competitiveness of European businesses is supposed to be achieved by means of consolidating the requirements set forth in CSRD, CSDDD and the EU Taxonomy Regulation  into a single ‘Omnibus’ package. It is worth noting that one of the goals of the Polish Presidency in the EU Council will be ‘fight against the causes and effects of climate change first and foremost through incentives and support, rather than bans and excessive burdens that could undermine public support for green transition’¹⁴.

It is rightly stated in the Poland’s Presidency Programme that ‘the climate transition is also triggering profound changes in business models, creating new opportunities but also undermining the competitive position of traditional industries’¹⁵.

When making ESG regulations applicable to banks (but also to other types of entities) more flexible, it should be taken into account, however, that business entities have already incurred material costs of adjusting to climate regulations, in particular in relation to adapting their IT systems. If making regulations more liberal is to mean a simplified ‘back to the past’ scenario, this could turn the cost incurred into sunk costs. 

Besides, on 17 January 2025, major players in the European market (incl. Nestlé, Unilever, Ferrero, Primark) and the association they form addressed a letter, to the President of the European Commission Ursula von der Leyen among others, in which they expressed their support for EU regulations on sustainability reporting and due diligence. They emphasised that competitiveness is based to a large extent on certainty and predictability and they warned against those values being undermined by the Omnibus package¹⁶. They also pointed to the fact that European businesses have already invested significant resources to adjust to climate regulations. The signatories called for making sure that the Omnibus package does not undermine the essential foundations of these provisions, in particular CSRD and CSDDD.

Based on those considerations and based on the presentation of different viewpoints, it can be concluded that it is equally unwelcomed in regulatory policy in the area of climate to see the dogmatism of deregulation, ignoring the expenses already incurred by banks to ensure compliance with climate regulations, and the climate fundamentalism, imposing a burden on European banks to the extent that considerably increases their costs of activity and diminishes their ability to compete on global financial markets. 

It is reasonable to make regulations in this area rational and ease regulatory burdens while upholding the general philosophy of protecting the climate and taking care of the condition of our planet. The amended regulations should be an incentive for banks to finance pro-ecological projects. Moreover, banks can compete in being pro-ecological, which means climate protection does not preclude competitiveness. Environmentally-friendly business models of banks and their contribution to climate protection are still an important value from the perspective of both investors and consumers and a factor which make a specific bank standing out from its competitors.

How to shape regulatory policy aimed at making sustainability regulations more liberal? Definitely, when determining the scope of such liberalisation, it is necessary to take into consideration, at the EU level, positions expressed by all stakeholders. Additionally, it should be taken into account that even the most rationalised liberalisation of regulations, which is optimised in terms of competitiveness, may not be enough to increase banks’ engagement in financing ‘green transition’ projects. Additional incentives will be necessary. A proposal worth considering, which may support the banking sector in financing the ‘green transition’, is the introduction of ‘European Green Guarantees’ for loans granted by banks to finance investment projects aimed at transitioning towards sustainable economy¹⁷. As noted by E. Letta in his report, the framework for this type of support could be developed by the European Commission together with the European Investment Bank. 

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¹https://climate.copernicus.eu/copernicus-2024-first-year-exceed-15degc-above-pre-industrial-level 
²https://unfccc.int/process-and-meetings/the-paris-agreement
³https://www.eea.europa.eu/en/topics/in-depth/air-pollution/european-city-air-quality-viewer
⁴https://www.gov.pl/web/susza/najnowszy-raport-gus--polska-na-24-miejscu-w-unii-europejskiej-pod-wzgledem-odnawialnych-zasobow-wody-slodkiej
⁵https://www.nbcnews.com/weather/wildfires/what-fueled-la-fires-dry-conditions-wind-rcna186801
⁶E. Letta, „Much More Than A Market. Speed, Security, Solidarity. Empowering the Single Market to deliver a sustainable future and prosperity for all EU Citizens”, kwiecień 2024, str. 30
⁷jw.
⁸https://www.reuters.com/business/environment/us-withdraw-climate-deal-jan-27-2026-says-un-2025-01-28/
⁹https://single-market-economy.ec.europa.eu/document/download/e566634a-29cf-4adf-a98d-1e708c873af8_en?filename=COM_2025_26_F1_COMMUNICATION_FROM_COMMISSION_TO_INST_EN_V10_P1_3877708.PDF, str.9
¹⁰https://www.consilium.europa.eu/en/press/press-releases/2024/11/08/the-budapest-declaration/
¹¹https://www.esgtoday.com/france-calls-on-eu-to-delay-water-down-sustainability-reporting-and-due-diligence-requirements/
¹²https://www.esgtoday.com/germany-pushes-to-delay-csrd-sustainability-reporting-requirements-for-smaller-businesses/
¹³https://commission.europa.eu/document/download/ec1409c1-d4b4-4882-8bdd-3519f86bbb92_en?filename=The%20future%20of%20European%20competitiveness_%20In-depth%20analysis%20and%20recommendations_0.pdf, str. 318
¹⁴https://orka.sejm.gov.pl/Druki10ka.nsf/0/DD581D948390E1A2C1258BF6004311FA/%24File/904.pdf, str. 49
¹⁵jw., str. 6
¹⁶https://media.business-humanrights.org/media/documents/Omnibus_Business_Statement_17_January_2025.pdf
¹⁷E. Letta, op.cit, str. 31