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
    News

    APRA Publishes Results of Climate Risk Self-Assessment Survey

    The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.

    August 04, 2022 WebPage Regulatory News
    News

    ACPR Publishes Updates Related to CRD IV and Covered Bonds

    The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).

    August 03, 2022 WebPage Regulatory News
    News

    BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs

    The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.

    August 03, 2022 WebPage Regulatory News
    News

    EIOPA Publishes Guidance on Climate Change Scenarios in ORSA

    The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

    August 02, 2022 WebPage Regulatory News
    News

    EBA and ECB Respond to Proposals on Sustainability Disclosures

    The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.

    August 01, 2022 WebPage Regulatory News
    News

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    July 29, 2022 WebPage Regulatory News
    News

    EBA Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News
    News

    EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 29, 2022 WebPage Regulatory News
    News

    EESC Opines on Proposals on CRR and European Single Access Point

    The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).

    July 29, 2022 WebPage Regulatory News
    News

    HM Treasury Publishes Multiple Regulatory Updates in July 2022

    HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.

    July 29, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8423