letters that the committee received focused on credit risk and the minimum standards in the first pillar. respondents identified as one of the most important issues the proposed treatment of credit - related losses. as you know, with respect to the internal ratings - based treatment of credit losses, the cp3 calibrated regulatory capital on the basis of both unexpected and expected credit losses – or “ ul ” and “ el ” in basel terminology. this was intended as a practical compromise to account for differences in national accounting practices and supervisory authority regarding provisioning. many respondents – including quite a few here in the u. s. – cautioned against this approach, as they believed that it departed from the traditional view that unexpected losses should be absorbed by capital, while expected losses are best managed through provisioning. based on those comments, and following additional research, the committee now intends to align regulatory capital more closely to economic capital by calibrating it on the basis of unexpected credit losses alone. a supplementary mechanism will help to encourage banks to provide sufficiently for expected credit losses. details on our proposal can be found on the website of the bank for international settlements, and the committee has invited public comment on the approach through the end of this year. in recommending this revision, the committee seeks to ensure that risk management systems distinguish between losses that can be anticipated versus those that cannot. moreover, the new framework would include explicit incentives for banks to address each kind of loss appropriately ensuring strong incentives for banks to provision properly against expected losses. since the proposal would require only modest revisions to the text of cp3 and would not alter the underlying system and data requirements for banks wishing to adopt an advanced approach to credit risk, we expect that the revised treatment will conform closely to the work that banks have already completed to prepare for implementation. the work plan to improve the framework discussed during our last meeting identified several areas in addition to this important el - ul issue. we think that this work plan is perfectly compatible with the original time schedule to implement the new accord by yearend 2006. other issues ahead : complexity beyond the “ el / ul ” issue, the committee has put at the top of its work plan for the next few months several other credit - risk related issues that emerged in consultations. of these matters, i ’ d especially like to highlight three, namely complexity, conservatism, and competition. certainly, the complexity of the proposals continues to draw the public ’ s attention. it is no secret : the new accord offers a

ability to measure impacts. with this in mind, i will now address certain key aspects that concern all sectors, and not just the financial sector. main regulatory initiatives we authorities, regulators and supervisors have been shaping the regulatory framework for appropriate management of this risk. this is still an ongoing task, but important progress has been made. at the european level, i would highlight the following : first, the eu taxonomy regulation, 13 which establishes the bases for determining when an investment or economic activity may be considered environmentally sustainable, and lays the groundwork for other european sustainable finance regulations ; and second, directive ( eu ) 2022 / 2464 ( csrd ) 14 on corporate sustainability reporting, published on 14 december 2022, which updates and reinforces the rules on environmental and social reporting by the companies concerned, which are large undertakings ( defined as those that meet at least two of the following requisites : balance sheet total over €20 million, net turnover over €40 million or average number of employees over 250 ), along with listed small and mediumsized undertakings. 15 regulation ( eu ) 2020 / 852 https : / / eur - lex. europa. eu / legal - content / en / txt /? uri = celex : 32022l2464 article 19 bis of directive 2013 / 34 / eu amended by the csrd. the reporting requirements established in the new directive will be phased in, from 2025, for these undertakings, which according to european commission estimates number some 50, 000 across the eu and which include credit institutions. for this purpose, the commission will determine, through delegated acts to be published no later than 30 june 2023, the specific information to be reported, which will have to be based on standards published by efrag, 16 the european commission ’ s financial reporting advisory group. the considerable amount of information to be reported includes an analysis of each firm ’ s business model and its resilience to sustainability - related risks and a description of the specific sustainability targets with a concrete time horizon. it also includes a description of how their management bodies operate and their expertise on these matters, and information on sustainability - linked incentive systems. importantly it also includes the transition plans needed to ensure that firms ’ business models are compatible with the transition towards a sustainable economy and the aim of restricting global warming to 1. 5°c. all the information should reflect not only firms ’ own activity, but also that of their value chains,