Finance Watch, a public interest organisation in the field of financial services, submitted proposals to the European Commission on Wednesday 5 May to take account of climate risk in EU legislation governing prudential requirements for banks (CRR Regulation 575/2003) and insurers (Solvency II Directive 2009/138).
“Time is running short, as 10 to 15 years remain before the planet’s carbon budget is exhausted. People should not have to live with the threat of another financial sector bail-out”, say Benoît Lallemand and Thierry Philipponat, on behalf of the organisation, in a letter to the relevant EU Commissioners.
In the European Union, current prudential regulation ignores the impact of climate change on financial stability, giving de facto favourable treatment to fossil fuel exposures, says Finance Watch. And notes that instead of targeting fossil fuels, it reduces capital requirements for ‘green assets’, “without any evidence that these assets are less financially risky than others and at the risk of creating a green asset bubble”.
The organisation therefore calls for the capital requirements applied to banks’ and insurers’ fossil fuel exposures to be aligned with basic risk management principles, based on the principle of ‘comparable risk, comparable regulatory treatment’.
See Finance Watch proposals: https://bit.ly/3vAjgYa (Original version in French by Mathieu Bion)