2025 ESG Outlook for European Banks: Internal Governance and Operational Resilience Will Remain a Key Focus

In this commentary, we provide an ESG outlook for 2025 in addition to a review of how Environmental, Social, and Governance (ESG) factors affected the credit ratings or credit rating trends assigned to European banks in the Morningstar DBRS coverage universe in 2024.

Key highlights include:
-- The Governance factor remains the most common ESG factor affecting banks' credit profiles. Meanwhile, we expect geopolitical tensions globally to persist in 2025, potentially adding further concerns to this factor.
-- ESG Factors identified in 2024 reflected either Data Privacy and Security issues or Product Governance issues, falling under the Social factor, or Corporate Governance issues.
-- None of our rated banks' ESG factors were affected by the Environmental factor; however, full compliance with European supervisory expectations on banks' management of climate related and environmental risks remains a priority.

"In 2025, European banks' efforts to strengthen operational resilience will remain a key focus." notes Vitaline Yeterian, Senior Vice President, Global FIG at Morningstar DBRS. "We note geopolitical tensions will continue to require special attention as they contribute to rising operational risks."