The Frankfurt-based institution wants the eurozone banks under its supervision to assess and disclose their climate risks. The ECB refuses to allow the Covid-19 crisis to be used as a pretext for postponing the integration of climate change into bank strategy.
Banks must communicate on environmental and climate risks
On May 22, the ECB published a guide detailing its expectations of banks in terms of climate and environmental risk management. The institution wants them to "understand" and "integrate" theimpact of these risks on their business in the "short, medium and long term". It would also like to see the subject taken up by bank management, responsibilities clearly defined, and their credit portfolios screened for climate risk.
Finally, the Central Bank recommends the development of in-house stress tests, reminding banks to be transparent about their risk exposure to the markets.
No penalties for players who fail to adapt their strategy
Banks are invited to comply with these new guidelines as soon as they are finalized, at the end of the year. They have until the end of September to send in their observations and comments, which will be taken into account in the discussions scheduled for 2021.
As a result, the ECB does not wish to impose any sanctions on players who fail to adapt their strategy in the immediate future. Indeed, there is no question of adapting to climate risk weighing on banks' ability to finance the economy in the current health crisis, explained Patrick Amis, Director General of Microprudential Supervision III, at a press conference.
Are banks ready to face climate risk?
Numerous studies by environmental NGOs regularly denounce the exposure of certain institutions to the fossil fuel sector through their financing. A note published by the Autorité de contrôle prudentiel et de résolution (ACPR) in April 2019 noted "progress in taking climate risk into account at the level of major banking groups", while emphasizing that they could do better.
The stress tests originally scheduled for 2020, but postponed for a year in view of the scale of the Covid-19 pandemic, should shed some light on the issue. Failing that, the European Banking Authority (EBA) will conduct an exercise this year to gather updated information on banks' exposures and asset quality. This decision should enable "banks to concentrate on their core business and ensure its continuity, including support for their customers", according to the EBA.