Both terms – “RBC” and “ESG” – refer to environmental, social and governance considerations, which drive and define sustainable finance approaches and activities.
“ESG” is commonly used to discuss environmental, social and governance issues which pose financial risks. “RBC” risks refer specifically to the risks of adverse impacts with respect to issues covered by the OECD Guidelines for Multinational Enterprises — impacts on society (including human rights and labour) and the environment, independent of financial impact to the company itself. In practice, RBC risks can also have financial implications (negative or positive) for the company concerned.
RBC standards play an important role in the context of sustainable finance as they provide authoritative and widely accepted recommendations for identifying, managing and reporting on environmental, social and governance impacts associated with clients or investments. They have been enshrined in sustainable finance regulation and leading standards and initiatives.
Examples of RBC integration into key sustainable finance regulations:
The EU Taxonomy Regulation and South Africa Green Finance Taxonomy both establish a list of environmentally sustainable economic activities and mandate compliance with the MNE Guidelines as minimum social safeguards
The EU Sustainable Finance Disclosure Regulation (SFDR) introduces transparency rules for financial institutions on the integration of sustainability risks and impacts in their processes and financial products, including reporting on adherence to internationally recognized standards for due diligence, especially those from the OECD.
The European Central Bank’s guide on supervisory expectations related to climate risk management and disclosure, includes recommendations on carrying out due diligence and ensuring compliance with the OECD MNE Guidelines.