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ECB steps up climate pressure.


 The European Central Bank has warned banks that failing to tackle their financial risks from climate change in the next two years will result in higher capital requirements and fines. All large eurozone banks have been sent letters by the ECB identifying 25 areas, on average, where it believes they fall short in addressing climate risks and setting the deadline to address them. The central bank said yesterday it had raised the capital requirements of a "small number" of banks because of concern about their failure to address climate risks sufficiently. It said 30 banks were set "binding qualitative requirements", such as to improve governance or assessment of climate risks, in the latest annual review.

The warning intensifies pressure on lenders to do more to detect, manage and disclose climate risks in their balance sheets. The ECB published the results of its latest "thematic review" into how the 186 lenders are tackling climate and environmental risks. It found "blind spots" at 96 per cent of the banks in "key sectors, regions and risk drivers" of which 60 per cent had "major gaps". Banks are expected to "adequately categorise" climate risks and assess how they affect their activities by March 2023.

The ECB wants them to include climate risks in their "governance, strategy and risk management" by the end of next year, and to incorporate climate risks into their internal capital adequacy assessment process and stress tests by the end of 2024. These included linking executive pay to managing climate risks, allocating capital to account for specific climate risks or ditching clients that rely on coal for more than a quarter of their energy. The top 41 estimated they could suffer €70bn of losses from these risks over three years but the ECB warned this "significantly underestimates the actual climate-related risk".
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  1. Annie4 November 2022 at 19:16

    It's incredible that blind spots were found at 96% of the banks! I think some people are just not doing their jobs well enough. The world is upside down, climate problems are seen in every country and are starting to affect most areas and industries and we still have so many blind spots?!

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