Thursday

2nd Dec 2021

ECB warns most EU banks have no 'Paris' climate plan

  • 'Banks urgently need to set ambitious and concrete goals and timelines to mitigate their exposure,' ECB executive board member Frank Elderson wrote (Photo: ECB)
Listen to article

The European Central Bank (ECB) warned on Monday (22 November) that most commercial banks it supervises do not have concrete plans to start preparing for climate change.

In the first-ever exercise of its kind, the ECB assessed the state of climate-related and environmental risk-management in the banking sector.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Out of the 112 banks the ECB oversees "only a handful of them mention actively planning to steer their portfolios on a Paris-compatible trajectory", ECB executive board member Frank Elderson wrote in an accompanying blog.

"Fewer than half of them have taken any steps at all to adjust their business."

Two-thirds of the banks have integrated a form of climate risk assessment into their credit deliberations, but banks will need concrete phase-out plans to steer away existing investments in fossil fuels as well.

"Banks urgently need to set ambitious and concrete goals and timelines to mitigate their exposure to current and future [climate and environmental] risks," Elderson wrote.

He warns bank chiefs should not fall into the trap of waiting for the right moment to act because the "prudential" moment to act has already arrived. "The message of today's report is clear: the time for action is now."

Last week, the ECB reported that 2021 was already one of the most expensive years for extreme weather events.

Although extreme floods, such as the one that hit the Ahr-valley in Germany and Belgium and the Netherlands, are visible examples of climate and environmental risk, with damage expected to cost up to €10bn - climate shocks can impact the financial system in a variety of ways.

So-called "transition risks", or stranded assets, stem from investments in companies that will become obsolete once people shift to sustainable alternatives. Coal assets, or extensive gas infrastructure, can pose such a risk.

The 29 largest energy-suppliers in Europe and the UK risk a potential loss of investment amounting up to €114bn, EUobserver recently reported.

Another way climate change can pose a risk is through environmental degradation and loss of biodiversity.

A recent study by the Central Bank of the Netherlands (DNB) found that Dutch financial institutions are exposed to €510bn in risk from companies dependent on ecosystem services and biodiversity.

'Green Swan' event

Extreme environmental or climate-induced shocks can also cause a global financial crisis.

Covid-19 is an external shock that, like climate change, is "related to a change in our ecosystem" and has been described by the Bank of International Settlements (BiS) as a "green swan event" in a report published in January 2020.

Green finance will need to prevent these risks from materialising.

However, "integrating climate-related risk analysis into financial stability monitoring is particularly challenging because…traditional backwards-looking risk assessments cannot accurately anticipate the form that climate-related risks will take," the BiS wrote in its report.

According to Elderson and the ECB, banks will need to move to a planned phase-out of fossil fuel investments.

The ECB plans to do a EU-wide stress next year, which will look at the carbon intensity of outstanding loans and the supervised banks' ability to withstand financial outfall from environmental or climate change shocks.

Banks that perform poorly in the stress test may face higher capital requirements.

Analysis

French central bank says: It's the ecology, stupid!

Biodiversity is fundamental to Earth's life-support systems humans depend on. But governments, financial institutions and policymakers have failed to act accordingly for decades.

Interview

Current global financial system is a 'dance with death'

"If Brazil is stripping its forests, that is because it has to repay foreign debts. Countries like Brazil, or African countries, are encouraged to borrow dollars instead of their own currency" explains South African economist Ann Pettifor.

News in Brief

  1. EU commission unveils proposal to digitalise justice systems
  2. German ICUs expected to peak at Christmas
  3. Report: First Omicron case found in the US
  4. US urges Russia to pull back troops from Ukrainian border
  5. Ukraine president calls for direct talks with Russia 'to end war'
  6. Renewable energy saw 'record year of growth'
  7. Dutch coalition talks aim for Christmas breakthrough
  8. Poland curtails media access to Belarus border

All-time high for Norway's oil and gas production

Norway currently has 90 oil and gas-producing fields, which could rise to more than 130. One way that harms the shift to a greener economy is because offshore wind and the burgeoning hydrogen industry are competing for the same workers.

Stakeholders' Highlights

  1. Nordic Council of MinistersNew report reveals bad environmental habits
  2. Nordic Council of MinistersImproving the integration of young refugees
  3. Nordic Council of MinistersNATO Secretary General guest at the Session of the Nordic Council
  4. Nordic Council of MinistersCan you love whoever you want in care homes?
  5. Nordic Council of MinistersNineteen demands by Nordic young people to save biodiversity
  6. Nordic Council of MinistersSustainable public procurement is an effective way to achieve global goals

Latest News

  1. EU mulls mandatory vaccination, while urging booster for all
  2. EU unveils €300bn reply China's infrastructure programme
  3. Current global financial system is a 'dance with death'
  4. EU skirts pushbacks, suggests people seek asylum in Belarus
  5. EU warned against making 'Future EU' conference a one-off
  6. My 6-point plan for Belarus, by former Lithuanian PM
  7. No obligation to defend Ukraine from Russia, Nato chief says
  8. EU agency: 'Omicron vaccine' approval to take 3-4 months

Join EUobserver

Support quality EU news

Join us