ECB: most European banks do not have climate strategies

The European Central Bank has warned that most of the lenders it oversees have yet to come up with concrete plans showing how they will change their business strategies to account for climate change.

While about half of the 112 institutions supervised by the Frankfurt-based central bank are “contemplating setting exclusion targets for some market segments, only a few mention active planning to steer their portfolios on a path consistent with the Paris Agreement“Said Monday Frank Elderson, member of the executive board of the ECB in a blog post.

Elderson noted that a proposal from the European Commission to introduce a legal requirement for lenders to develop transition plans for their businesses towards carbon neutrality was “welcome” and that ECB it would help monitor the banks’ progress in that transition. The ECB has previously criticized the industry for weak preparedness for risks linked to climate change.

The banks’ transition plans towards carbon neutrality “they should highlight the alignment of lenders and possible divergences from the relevant policy objectives through which the EU implements the Paris Agreement at any time from now until 2050″ Elderson said. “They should be part of the banks’ strategy setting and closely linked to their business model and plan”.

The supervisor plans to conduct a comprehensive stress test on banks’ climate risks next year, in which it will look at the carbon intensity of loan books and business operations, as well as the industry’s ability to cope with shocks. physical consequences of climate change on asset values.

Banks that perform poorly in next year’s weather stress test may face higher capital requirements, eroding their ability to return profits to shareholders.

The tighter regulatory environment comes amid mounting warnings that the world is sadly behind in reducing carbon emissions, increasing pressure on governments and companies to deliver more ambitious climate plans.