This whitepaper examines how Risk Accounting can support financial institutions and regulators in addressing the rapidly expanding landscape of ESG (Environmental, Social, and Governance) regulations, including initiatives such as the Corporate Sustainability Reporting Directive (CSRD) and the Climate Standard Disclosure Directive (CSDD).

The paper outlines the growing challenges posed by ESG compliance, including data quality issues, fragmented methodologies, regulatory complexity, and the difficulty of integrating ESG considerations into existing risk management frameworks. It argues that traditional qualitative and narrative-based approaches are insufficient to meet regulatory, supervisory, and public expectations for transparency and comparability.

Risk Accounting is presented as a standardized, auditable, and forward-looking methodology that quantifies ESG and other non-financial risks using Risk Units (RUs). By extending traditional Risk and Control Self-Assessments (RCSAs) with objective numerical measures, the method enables automated processing, aggregation, and meaningful comparison of risk exposures across institutions and sectors.

The paper also explores the potential role of tokenized Risk Units (TRUs) in providing liquidity for risk mitigation and enhancing supervisory monitoring, while maintaining market discipline and financial stability.

Benefits are analysed from the perspectives of regulators, regulated institutions, and the public, highlighting improved oversight, operational efficiency, transparency, and trust. The paper concludes by emphasizing the importance of a collaborative, multi-stakeholder approach involving regulators, financial institutions, academia, consultancies, and technology providers to support the effective adoption and continuous improvement of Risk Accounting.

This document is intended for regulators, financial institutions, policymakers, risk professionals, and ESG practitioners seeking a practical and scalable approach to ESG risk management and reporting.