Featured Product

    ECB Report Elaborates on Focus Areas for Climate Risk Work

    April 14, 2021

    ECB published a report that details the policy work done in 2020, the year in which the financial sector faced a major crisis in the form of COVID-19 pandemic. The report observes vulnerabilities in the non-banking financial intermediation sector as well as initial signs of a deterioration in asset quality of banks during 2020, which is expected to eventually translate into credit losses and non-performing loans. The report also notes that ECB is exploring all possible ways in which it could contribute to limiting risks from climate change within its mandate. The report highlights the work ahead and the main challenges that ECB will focus on over the coming years to address climate change risk.

    Regarding financial stability, ECB is working with the Financial Stability Committee of the European System of Central Banks (ESCB), in close collaboration with ESRB, on state-of-the-art climate risk monitoring and assessment. The project team aims to develop a risk monitoring dashboard for financial intermediaries as well as to explore new modeling approaches to capture the long-term trade-offs of climate risks. ECB is also developing a top-down, economy-wide climate stress test, based on extremely granular information on firms’ vulnerability to climate risks and banks’ exposures. This exercise will inform the public debate on the materiality of transition and physical risks over a 30-year horizon based on forward-looking scenarios and will also lay the foundations for eventual macro-prudential policy measures in this field. ECB is also reflecting on how to address climate change considerations within the Eurosystem monetary policy implementation and risk management frameworks. This analysis hinges on improving the available information on the exposure of economic agents to climate change-related risks and opportunities. Therefore, ECB has been calling for more standardized and widespread disclosures of climate-related information.

    In this context, the ECB, as a user of credit ratings, is also interested in understanding how climate change risks are incorporated into the respective rating processes. High-quality climate-related statistics and data are a necessary precondition to allow an informed analysis of climate change topics and the related risks relevant for central banking purposes. To address those needs, the ESCB Statistics Committee prepared a systematic overview of the existing data sources, user needs, methodological challenges, and data gaps that need to be filled. In an environment of evolving user needs, statistical work will first focus on developing a set of indicators, initially on an experimental basis, covering the amount of green financial instruments, the carbon footprint of financial institutions, and their exposures to climate-related physical risks. Work is also underway to investigate the macroeconomic risks stemming directly from climate change and from policies aiming at climate risk mitigation and adaptation. ECB is increasingly pursuing research projects in the field of climate change. A number of research papers have already been published in the ECB Working Paper Series and the research work in progress includes analyses of the risk exposures of large banks, the role banks play in fueling climate change, the pricing of green bonds, the effect of the EU Emissions Trading System on firms’ pollution, the climate change insurance gap, the impact of climate change on equity pricing, and the effect of carbon taxes on decarbonization. 

    ECB pursues a broad sustainable and responsible investment (SRI) policy based on selective exclusion and proxy voting guidelines that incorporate environmental, social, and governance standards. Going forward, ECB aims to explore the possible expansion of low-carbon indices to fixed- income asset classes. In its own funds portfolio, ECB applies a thematic SRI strategy that targets an increase of the share of green securities. This strategy is being progressively implemented by means of direct purchases of green bonds in secondary markets, to be complemented by exposures obtained through other investment vehicles. Looking ahead, ECB will set even more ambitious environmental targets, in line with the leading international efforts to fight climate change, while continuing the refinement of its methods to account for carbon emissions and the compensation of its residual carbon emissions jointly with a growing number of European institutions. Finally, from 2022, ECB plans to report in a holistic manner on its overall sustainability, thus going beyond its environmental performance.

     

    Related Links

    Keywords: Europe, EU, Banking, Annual Report, COVID-19, Climate Change Risk, Credit Risk, ESG, Stress Testing, Disclosures, Sustainable Finance, Financial Stability, ECB

    Featured Experts
    Related Articles
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    News

    IOSCO Welcomes Work on Sustainability-Related Corporate Reporting

    The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)

    September 15, 2022 WebPage Regulatory News
    News

    BoE Allows One-Day Delay in Statistical Data Submissions by Banks

    The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.

    September 14, 2022 WebPage Regulatory News
    News

    ACPR Amends Reporting Module Timelines Under EBA Framework 3.2

    The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.

    September 14, 2022 WebPage Regulatory News
    News

    ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies

    The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)

    September 13, 2022 WebPage Regulatory News
    News

    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.

    September 12, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8514