Thesis title: Bridging the ESG Asymmetry: Lessons from Climate risk for the Integration of Social and Governance Risks in Banking Supervision
Sustainability has become a structural dimension of banking regulation; nevertheless, despite the progress achieved on the environmental pillar (E), a significant lag persists in the definition, measurement, and management of social and governance risks (S and G). This article examines that gap along three dimensions, regulatory, informational, and methodological, proposing an operational pathway for integrating S and G profiles into the prudential architecture. On the regulatory plane, it reconstructs the European and international evolution, highlighting how the absence of a coherent conceptual and operational perimeter for S and G engenders implementation heterogeneity and scope for arbitrage, in contrast to the environmental pillar, already underpinned by common standards and harmonized disclosure obligations. Methodologically, it analyzes the feasibility of developing a stress-testing model specifically calibrated to social and governance risks—drawing on ESG rating practices yet adapted to supervisory purposes—with the definition of scenarios, key indicators, and transmission channels toward “canonical” risk categories; the analysis also shows that informational transparency alone is insufficient to strengthen trust in the absence of institutional verification safeguards. Empirically, the use of regulatory climate data (Pillar 3) serves as proof of feasibility and as a basis for extension to S and G, demonstrating that information standardization enables comparable and replicable assessments across intermediaries. The results suggest that, at present, a Pillar 1 treatment for social risks would be premature; in the near term, robust qualitative metrics, targeted due diligence, and sectoral heatmaps are recommended, channeling integration through transition plans and ICAAP processes. Overall, the contribution consists of an operational framework intended to bridge the S&G gap, steering authorities and banks toward a fit-for-purpose information set so as to avoid a reductionist approach to sustainable banking focused exclusively on climate considerations.