The ECB, acting as the single supervisor within the euro area banking union, on Wednesday 2 November set out an inventory of good and bad practices on how banks are integrating the climate factor into their activities.
“The glass is gradually filling up, but it is far from being half full”, said Frank Elderson, a member of the ECB’s Executive Board, recalling in a blog that the EU institution had asked the banking sector to be fully able to manage the related risks by the end of 2024.
Among the poor practices identified from a group of 186 financial institutions, Mr Elderson noted that 96% of the banks analysed struggle to identify the true extent of climate risks, in particular because they do not collect enough relevant data from their counterparties. In addition, banks making commitments to climate neutrality do not define precisely how they intend to achieve this over time, due to a lack of quantified targets. And although credit institutions have made climate commitments, some still exempt clients, including known polluters, from these commitments, sometimes ignoring the warnings of their own experts.
Among the good practices, the ECB notes that banks are already using planning tools to align their investment portfolios with the objectives of the Paris Climate Agreement. Some financial institutions have clearly defined their data requirements for financial reporting and/or risk management. And some banks are already setting aside capital specifically to deal with any climate contingencies.
See the ECB manual: https://aeur.eu/f/3we (Original version in French by Mathieu Bion)