On 21 May 2021, the European Banking Authority (EBA) published the findings of its first EU-wide pilot exercise on climate risk.
As the EU taxonomy and climate risk stress test frameworks are still developing, the pilot exercise was designed as a learning exercise to investigate how existing and newly developed climate risk assessment and classification tools perform, and to test banks’ readiness to deal with related data and methodological challenges. The pilot exercise was run on a sample of 29 volunteer banks, which provided raw data on non-SME corporate exposures to EU countries, and focussed on the identification and quantification of exposures from a climate perspective, in particular, on climate transition risk.
Overall, the findings of the pilot exercise note that more disclosure on transition strategies and greenhouse gas emissions is needed to allow banks and supervisors to assess climate risk more accurately. In addition, the results highlight the importance for banks to expand their data infrastructure to include clients’ information at the activity level. The EBA believes that this is particularly crucial as for the 29 banks in the sample, more than half of their exposures to non-SME corporates were allocated to sectors that might be sensitive to transition risk.