French banks and insurance companies will undergo climate stress tests in 2020. In the first quarter of the year, the Banque de France will publish three scenarios on the impact of climate change on the economy, enabling banks to prepare for the tests. See details.
An unprecedented exercise in France
The Governor of the Banque de France announced on November 29 at the fifth Climate Finance Day: in 2020, the first climate stress test of French banks and insurance companies will be launched. This is a first for France, since until now the only stress tests carried out by the institution were designed to ensure that these players were in a position to cope with a financial crisis.
The Banque de France is one of the first central banks to embark on this exercise, considered a "real technical challenge". In 2019, De Nederlandsche Bank in the Netherlands proposed its first climate tests, while the Bank of England will do so in 2021.
Results to be published in late 2020
Last year, the Dutch central bank based its scenarios on four hypotheses: a regulatory shock, a technological shock, the two shocks combined, and a confidence shock. In France, a report produced jointly by the Autorité de contrôle prudentiel et de résolution (ACPR), the Banque de France and the Direction du Trésor, offers an initial definition of climate risks and possible scenarios. This report was supplemented in October 2019 by a note from the ACPR that identifies two categories of climate risk: physical risks corresponding to the consequences of climate change that affect goods and people, and transition risks that refer to the adjustments needed to develop a climate-friendly economy.
The scenarios proposed as part of the climate stress tests should enable banks to adjust their capital requirements to cope with transitional climate risks, and to measure the impact of physical risks. The results are expected by the end of the year.
A controversial subject
Several NGOs, including Oxfam France and Friends of the Earth, have published a study highlighting the "colossal" carbon footprint of French banks, which represents more than 4 times the greenhouse gas emissions of the whole of France. The report states that Crédit Agricole, BNP Paribas and Société Générale alone are jeopardizing the goal of keeping global warming below 1.5°C. The study's methodology has nevertheless been challenged by several institutions, including Société Générale. In April 2019, the ACPR observed the progress made by banking groups in taking climate risk into account.