On 20 May 2020, the European Central Bank (ECB) published a draft guide for consultation that explains how it expects banks to safely and prudently manage climate-related and environmental risks and disclose such risks transparently under the current prudential framework. Whilst the ECB’s immediate attention is on the COVID-19 pandemic, it remains committed to further advancing the management and disclosure of climate-related and environmental risks in the banking sector.

The purpose of the draft guide is to raise industry awareness of climate-related and environmental risks and to improve the management of such risks. It will also serve as a basis for supervisory dialogue. As such the guide specifies how ECB Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy. It also outlines how the ECB expects banks to become more transparent by enhancing their climate-related and environmental disclosures.

The draft guide is designed to fit within the boundaries of applicable EU and national law. It will be a tool that outlines the ECB’s understanding of how banks are expected to safely and prudently manage climate-related and environmental risks under the current prudential framework (the Capital Requirements Regulation, Capital Requirements Directive IV and relevant European Banking Authority guidelines). Joint supervisory teams will discuss these expectations with their banks as part of the supervisory dialogue. Banks are expected to assess whether their current practices are safe and prudent in the light of the expectations and, if necessary, to start adapting them. The ECB will consider any practices that diverge from the expectations on a case-by-case basis.

The deadline for comments on the draft guide is 25 September 2020. As part of the consultation process, the ECB will organise an industry dialogue webinar on 17 June 2020.

The guide will apply as of the final publication date. The ECB will expect significant banks to consider the extent to which their current management and disclosure of climate-related and environmental risks are safe and prudent in the light of the expectations set out in the guide. Where needed, it will also expect significant banks to promptly start adapting their practices. However, the ECB acknowledges that banks may need some time to adapt their practices. The methodologies and tools for managing and disclosing climate-related and environmental risks are expected to mature over time.

The ECB has also published a list of frequently asked questions.