On 22 November 2021, the European Central Bank (ECB) published a report, ‘The state of climate and environmental risk management in the banking sector’, which assesses how European banks are adjusting their practices to manage climate and environmental (C&E) risks, in line with the expectations set out in the November 2020 ECB Guide on C&E risks.
Over 100 directly supervised banks with combined assets of €24 trillion were assessed for the report and the results conclude that none of the institutions are close to fully aligning their practices with the expectations on C&E risks. Attempts have been made as the ECB identified that two-thirds of banks have made progress in integrating climate-related risks into their credit risk management, through measures such as enhanced due diligence procedures or new phasing-out criteria to limit financing activities highly exposed to climate-related risks. Banks have been developing plans to improve, however, overall progress has been too slow. Only one-third of banks have plans in place that are at least broadly adequate, and half won’t have completed implementation of their plans by the end of 2022.
All banks received a feedback letter outlining the main shortcomings as well as an overview of peer benchmarking. A qualitative requirement may also be communicated as part of the 2021 Supervisory Review and Evaluation Process for some banks.
In 2022, the ECB will review the banks preparations in regards to managing climate and environmental risks with a specific focus on their incorporation into strategy, governance, and risk management.