Recital 41

(41)As major providers of funding for businesses and households in the Union, institutions have a relevant role to play in promoting sustainable development across the Union. For the Union to deliver on its overall objective of achieving climate neutrality by 2050 as set out in Regulation (EU) 2021/1119, institutions need to integrate into their policies and activities the role of promoting sustainable development. To cater for that process of integration, institutions’ business models and strategies must be tested against the relevant Union regulatory objectives for a sustainable economy, including, for example, against the measures prescribed by the European Scientific Advisory Board on Climate Change, to identify ESG risks arising from misalignments. Where institutions disclose their sustainability objectives and commitments under other mandatory or voluntary sustainability frameworks, such as under Directive 2013/34/EU of the European Parliament and of the Council ¹⁵ , those objectives and commitments should be consistent with the specific plans to address the ESG risks they face in the short, medium and long term. Competent authorities should assess through their relevant supervisory activities the extent to which institutions face ESG risks and have accompanying management policies and operational actions reflected in the targets and milestones set out in their prudential plans that are consistent with their disclosed sustainability commitments in the context of the process of adjustment towards climate neutrality by 2050. To promote sound and effective risk oversight as well as managerial behaviour aligned with their long-term strategy on sustainability, the risk appetite of institutions in relation to ESG risks should be an integral part of their remuneration policies and practices.