The Danish Financial Supervisory Authority (Finanstilsynet) has published a new report on the management of ESG-related credit risks in smaller financial institutions (October 2025). The report sets a clear direction for how banks and financial institutions are expected to identify and integrate environmental and climate-related risks into their credit processes going forward.

ESG as a Material Financial Risk

According to the Danish FSA, ESG factors - particularly climate risks - are not merely reputational or sustainability concerns but real financial risks that must be treated on par with traditional credit risks. The report finds that many smaller institutions are still in the early stages of integrating ESG-related risks into credit assessment and risk management.

At the same time, supervisory expectations are moving toward a systematic and data-driven approach, where ESG factors must be identified, analyzed, and reported at both the customer and portfolio levels. This calls for new methodologies, better data access, and internal expertise to understand the interplay between climate, economics, and credit quality.

From Regulation to Implementation

This development aligns with a broader European trend. With CRR III, CRD VI, and the EBA guidelines moving toward implementation, it is increasingly clear that climate risks must be embedded throughout the credit lifecycle—from client screening and credit assessment to portfolio management and reporting.

For many smaller institutions, the question is no longer whether to integrate climate risks, but how. The need now is for practical tools, reliable data, and operational frameworks that turn regulatory expectations into tangible action.

A Practical Approach to Climate Risk in Credit Management

At Envira, we already work with the methods and data foundations that the Danish FSA highlights as essential. Our whitepaper, Integrating Climate Risks in Credit and Risk Management, presents a practical, step-by-step model for how banks can integrate climate risks into credit and risk management in line with European regulatory requirements.

The model combines geospatial data, sector-specific exposure analyses, and regulatory alignment to help institutions build a consistent and decision-relevant overview of climate risks across their credit portfolios.

Ready for the Next Step

The Danish FSA’s new report sends a clear signal: managing ESG and climate risks is not a future priority—it is a current and integral part of risk management.

Envira supports financial institutions in turning regulatory requirements into practical, data-driven solutions that strengthen both risk management and strategic resilience.

Read the Danish FSA report here:
Management of ESG-related Credit Risks in Smaller Financial Institutions (October 2025)

Read our whitepaper:
Integrating Climate Risks in Credit and Risk Management

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