Although European banks have taken some steps to integrate climate and environmental risks, they need to accelerate their efforts in this area, as none of them currently meet all supervisory expectations, concludes a European Central Bank (ECB) assessment published on Monday 22 November.
“Only a handful of them mention actively planning to steer their portfolios on a Paris (Agreement) -compatible trajectory”, said ECB Executive Board member Frank Elderson.
The ECB’s analysis of 112 banks shows that banks are particularly weak in the following areas: internal reporting; market and liquidity risk management; and stress testing.
Half of the banks surveyed have not planned any concrete action to integrate climate and environmental risks into their business strategies and less than a fifth have developed key risk indicators to monitor.
While almost all banks have developed plans to improve their practices, the ECB estimates that only a third have “at least broadly adequate” plans in place. In addition, half of them will not have completed the implementation of their plans by the end of 2022.
The analysis nevertheless highlights some good practices.
Two thirds of the banks analysed have made significant progress in integrating climate-related risks into their credit risk management. This includes enhanced due diligence procedures or new phase-out criteria to limit financing activities with high climate risk.
The ECB also welcomes the fact that banks are starting to take energy label certifications into account when assessing property collateral.
In order to address these shortcomings, the ECB sent individual comments to banks. It will also conduct a comprehensive review, in the first half of 2022, of how banks are prepared to manage climate and environmental risks.
See the report: https://bit.ly/30SRXP5 (Original version in French by Damien Genicot)