By Robin Hamaker-Taylor
On 20 May 2020, the European Central Bank (ECB) published a draft guide setting out its expectations for banks on managing and disclosing climate-related and environmental risks under the current prudential framework. The 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.
The ECB issued this new guidance to clarify how ECB Banking Supervision is expecting banks to consider these risks in their in their governance and risk management frameworks and when formulating and implementing their business strategy, according to the ECB press release. Apart from setting out expectations around climate risk management, the guide also outlines expectations on enhancing banks’ climate-related and environmental disclosures. The ECB is pursuing transparency, with increased disclosures as a main route for this.
In issuing this guide, the ECB is moving in step with other central banks around the world. The guide was developed in close cooperation with European national authorities and aims to ensure high supervisory standards are applied consistently across the euro area. The ECB’s guidance, for example, echoes the Bank of England’s 2019 BoE Supervisory Statement (SS) on banks’ and insurers’ climate risks – read more about the BoE SS here. Importantly, the ECB’s guide is designed to fit within the boundaries of applicable European Union and national law. It aims to foster banks’ preparedness for managing climate-related and environmental risks under current prudential rules, in accordance with the European Commission’s Action Plan on financing sustainable growth and the European Banking Authority’s Action plan on sustainable finance. Click here to read our recent summary of the current status of the Commission’s Action Plan.
The ECB is now seeking feedback on their draft guide, with the consultation running until end of 25 September 2020. The guide itself and a list of frequently asked questions (FAQs) are available on the ECB’s Banking Supervision website. Following the end of the public consultation, the ECB will publish the comments received together with a feedback statement.