The ESM has defined clear risk management objectives and an established strategy to deliver them through appropriate governance and core risk management processes. The organisation’s approach to risk management derives from the ESM Treaty and the ‘High Level Principles for Risk Management', which in summary are to:
- follow a prudent approach to risk-taking to limit potential losses, ensure continuity in fulfilling the ESM’s mandate and meeting its commitments, and avoid unexpected capital calls;
- maintain minimum capital requirements to ensure the highest creditworthiness;
- preserve the ESM’s funding and, hence, lending capacity.
The ESM applies elements of its risk management framework to all aspects of its mandate. Some risks are accepted as part of the ESM Mandate. The primary example is counterparty risk on financial assistance the ESM grants to Members. The ESM aims at fully covering its financing and operating costs but not at generating profit on such financial assistance. Equally, it does not provide incentives for speculative exposures of its investment portfolio.