Acute physical risks (storms, hurricanes) have immediate and destructive impacts, while chronic risks (sea level rise) lead to gradual degradation. The analysis requires the use of IPCC scenarios to assess asset exposure.

Among the mandatory environmental indicators are total GHG emissions (Scope 1, 2, and 3), carbon footprint per million euros invested, and GHG intensity of companies. These indicators measure the adverse environmental impact.

The definition of sustainability risk under Article 2(22) of the SFDR focuses on ESG events or conditions that could adversely affect financial performance. This includes physical risks (acute and chronic) and transition risks (policy, technological, market, and reputational).

Annex I of the SFDR RTS establishes 14 mandatory indicators, divided into environmental and climate indicators (1-9) and social and governance indicators (10-14). These indicators measure the adverse impact of investments on sustainability.

The statistics indicate that Article 8 funds represent approximately 51% of the market at end-2024, while Article 9 funds represent only 2%. This shows the relative dominance of 'light green' products in the market.

The 2021 EBA report indeed indicates that 80% of banking institutions still use qualitative approaches to assess sustainability risks, highlighting the need for more quantitative methods.

Transition risks include four dimensions: policy/regulatory (shifts towards a low-carbon economy), technological (disruption by new technologies), market (changing consumer preferences), and reputational (negative perception). The 2020 ECB/EBA Guide details these dimensions.

The 2022 ECB climate stress test reveals that 60% of interest income of European banks comes from high carbon-intensity sectors. This underscores the significant exposure of banks to climate risks.