Featured Product

    EBA Publishes Results of Pilot Exercise on Climate Risk

    May 21, 2021

    EBA published results of the first pilot exercise on climate risk in EU. The exercised is aimed to map bank exposures to climate risk and provide an insight into the to-date green estimation efforts of bank. The results show a clear picture of the data gaps at banks and highlight the sense of urgency to remedy these gaps if banks are expected to achieve a meaningful and smooth transition to a low-carbon economy. It is only through a more harmonized approach and common metrics that the efforts of banks will prove meaningful in addressing and mitigating the potentially disruptive impacts of environmental risks. The findings also show big differences in the application of the EU taxonomy by banks.

    The results of the pilot exercise show that more disclosure on transition strategies and greenhouse gas emissions would be needed to allow banks and supervisors to assess climate risk more accurately. The results also highlight the importance for banks to expand their data infrastructure to include client information at the activity level. More than half of the bank exposures to non-small and medium enterprise corporates (58% of total) are allocated to sectors that might be sensitive to transition risk. A parallel analysis, based on greenhouse gas emissions, reveals that 35% of total submitted exposures of banks are toward EU obligors, with greenhouse gas emissions above the median of the distribution. The exercise shows that banks are in different development phases to assess the greenness of their exposures, in context of the EU taxonomy classification. Two estimation techniques—bottom-up estimates and top-down tool—have been considered in the exercise and the report on findings highlights the differences in outcomes. Given the outlined constraints and, based on a first estimate coming from the top-down tool, an EU-aggregated green asset ratio stands at 7.9%. The scenario analysis shows that the impact of climate risks across banks varies in magnitude and is concentrated in particular sectors. Tools for scenario analysis are quickly developing and further progress should be made on modeling the transmission channels of climate risk shocks to balance sheets of banks.

    EBA conducted this pilot exercise on a sample of 29 volunteer banks from 10 countries, representing 50% of the total assets in the banking sector in EU. The exercise focused on the identification and quantification of exposures from a climate perspective, in particular, on transition risk. The scope of the exercise was narrowed to EU corporate exposures, for which climate-related information is expected to be easier to retrieve at this stage. Bank exposures were mapped and evaluated according to different classification approaches, including the EU taxonomy. Results of this pilot exercise and the experience gained in this process will represent the basis of a wider discussion on how to design a climate risk stress test for the banking sector in EU. Further interaction with the industry will be key to exploring possible solutions and identifying key challenges for developing methodologies and data requirements that would be suitable for this purpose. Overall, EBA will continue working, in line with its mandate, on the design of a climate risk stress test framework. 


    Related Links

    Keywords: Europe, EU, Banking, Climate Change Risk, ESG, Green Asset Ratio, Pillar 3, Disclosures, Basel, Sustainable Finance, Sustainable Economy, EBA

    Featured Experts
    Related Articles

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582