On 14 March 2022, the European Central Bank (ECB) published its report on banks’ progress towards transparent disclosure of their climate-related and environmental risk profiles. Frank Elderson, Member of the ECB’s Executive Board and Vice-Chair of the ECB’s Supervisory Board, has also delivered a speech on the ECB’s supervisory approach on climate-related and environmental risks.

As Mr Elderson explains in his speech the publication of the report is part of the ECB’s supervisory agenda on climate. Climate and environmental risks have been one of the ECB’s supervisory priorities for some years now and it has started treating them just like any other prudential risk. The report notes that since the last report in November 2020 the quality of banks’ disclosures have improved especially in the areas of risk management, governance and business models. However, this improvement has been only marginal: as of 2021, seven in ten banks disclosed information about climate and environmental risk management and governance – compared to five in ten in 2020 -, while only four in ten shared relevant information about the incorporation of climate and environmental risks into their strategic considerations – up from three in ten in 2020. And, all in all, none of the 115 banks directly supervised by the ECB fully meets supervisory expectations for disclosures.

In terms of follow up, the ECB has already sent individual feedback letters to all banks under its direct supervision, setting out the key gaps in their disclosures and conveying an explicit expectation that they will take decisive action to address these gaps. In his speech Mr Elderson reminds banks that failing to disclosure exposure to risks, constitutes a breach of the Capital Requirements Regulation and as such the ECB stands ready to use the full array of supervisory tools at its disposal. The ECB also publishes a yearly report on banks’ Pillar 3 disclosures, where it has the option to publicly list those banks which repeatedly fail to disclose their climate and environmental risks.

The ECB will review banks’ climate and environmental disclosures again at the end of 2022.