Legal & Regulatory News

European Central Bank urges action to incorporate climate risks into risk governance frameworks

On 5 October 2021, Edouard Fernandez-Bollo, Member of the Supervisory Board of the European Central Bank (ECB) delivered a speech on banking supervision priorities post-pandemic, emphasising the need for banks to incorporate climate-related and environmental risks into their strategy and risk governance.

In the speech, it was noted that ECB Banking Supervision recently undertook an extensive survey on banks' self-assessments against the ECB's expectations on climate risks. The results showed that a majority of banks are aware of the importance of climate-related risks and its importance to their business model but, of the banks that recognised this importance, 80% lack a clear strategic and operational framework to deal with these risks due to unavailability of adequate data.

The speech noted that progress seems to have been made, with banks asking customers to disclose data where possible and, where not possible, proxies are then used instead. The ECB will now conduct a full supervisory review of banks' practices for incorporating climate risks into their risk frameworks as well as carrying out a stress test focusing on climate-related risks.

Click here to access a transcript of the speech.