Quo vadis ESG risk management? The EBA guidelines and the need for epistemic governance in an uncertain world

Abstract

This opinion piece examines the regulatory divergence in the European sustainability agenda as of late 2025 and its implications for environmental, social, and governance (ESG) risk management in the banking sector. While the European Union’s Omnibus package reduces the administrative burden on the real economy, the new European Banking Authority (EBA) guidelines mandate a significant intensification of risk oversight for the financial sector. The paper analyses the ‘horizon mismatch’ between short-term capital planning and long-term climate and environmental risks, evaluating the role of new instruments such as CRD-based transition plans and resilience analysis. This demonstrates that the EBA’s move towards forward-looking methodologies represents a continued shift away from approaches that rely solely on retrospective data. The analysis highlights that the EBA already acknowledges the necessity of expert judgment and institutional discretion, particularly by allowing institutions to define their own most likely scenario as a reference within resilience analysis, even as it avoids the explicit term ‘subjectivity’ in the regulatory vocabulary. The author concludes that effective ESG risk management must transcend the mere expansion of data lakes. Instead, it requires a robust framework of epistemic governance, a system designed to manage the generation, validation, and communication of knowledge under deep uncertainty, effectively transforming ‘subjectivity’ into a structured and transparent institutional process. Rather than relying on closing data gaps through technical granularity alone, the paper emphasises the need for a risk culture rooted in intellectual humility and the systematic integration of expert-based insights to ensure the long-term resilience of the financial system. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.