ECB Consults on Guide for Managing Climate and Environmental Risks
ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy. The guide also outlines how ECB expects banks to become more transparent by enhancing their climate-related and environmental disclosures. The consultation on this guide ends on September 25, 2020. ECB expects that comments on this consultation document will provide valuable input for the finalization of the guide, which it then intends to also use in the supervisory dialog.
The guide aims to raise industry awareness of climate-related and environmental risks and to improve the management of such risks. The guide explains that ECB expects significant banks to use (stress) scenarios to assess if climate-related and environmental risks are material with regard to their business strategy and to inform their decisions. Furthermore, ECB expects institutions with material climate-related and environmental risks to evaluate whether their bank-internal stress testing is appropriate, with a view to incorporating those risks in their baseline and adverse scenarios. ECB wants banks to account for these risks, given that they drive existing prudential risk categories and can substantially impact the real economy and banks. Banks are expected to assess whether their current practices are safe and prudent in the light of the expectations and, if necessary, to start adapting them.
The guide was drafted in close cooperation with the national competent authorities to ensure that high supervisory standards are applied consistently across the euro area. It also draws on the experience gained from assessing banks’ current practices and their approaches to climate-related and environmental risks. The guide is designed to fit within the boundaries of applicable EU and national law. It aims to foster banks’ preparedness for managing climate-related and environmental risks under current prudential rules, in accordance with the EC Action plan on financing sustainable growth and the EBA Action plan on sustainable finance. ECB acknowledged that banks face significant challenges as a consequence of the COVID-19 pandemic. While the immediate attention of ECB is on the pandemic, it remains committed to further advancing the management and disclosure of climate-related and environmental risks in the banking sector.
Related Links
Keywords: Europe, EU, Banking, ESG, Sustainable Finance, Climate Change Risk, Disclosures, Stress Testing, CRD, Basel, ECB
Featured Experts
Amnon Levy
Financial researcher; authority in credit portfolio management and AI/ML, risk-based pricing, climate and credit, CECL/IFRS 9; credit and ALM
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Nihil Patel
Data scientist; SaaS product designer; credit portfolio analyst and product strategist; portfolio modeler; correlation researcher
Previous Article
EBA Assesses Interlinkages Between Recovery and Resolution PlanningRelated Articles
PRA Publishes Q&A on Property Valuation Requirements Under CRR
PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.
IOSCO Consults on Outsourcing Principles for Operational Resilience
IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.
MAS Consortium to Develop AI Fairness Metrics for Credit Scoring
MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.
BoE Updates Definitions for BTL Data Collection
BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.
FSI Examines Financial Stability Implications of Payment Deferrals
FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.
PRA Finalizes Policy on Prudent Person Principle Under Solvency II
PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.
EBA on Extending Large Exposure Limits for French Systemic Banks
EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).
ECB Highlights NPL Resolution as Key Policy Issue in Post-COVID Europe
As part of a Research Bulletin on the recent policy-relevant work, ECB published an article that examines the lessons learned from past crises for nonperforming loan resolution in the post COVID-19 period.
RBNZ Publishes Financial Stability Report for May 2020
RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.
ECB Updates Guidance on Reporting of Securities Holdings Statistics
ECB updated the guidance notes for reporting related to the statistics on holdings of securities by reporting banking groups (SHSG).
