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Climate risks for banks – the supervisory perspective

Kerstin af Jochnick, Member of the Supervisory Board, wrote an article on climate and environmental (C&E) risks facing Eurozone banks. 
The key messages of the article are that: 

  • ECB considers it reasonable that banks can comply fully with all C&E risk expectations by the end of 2024. Banks have already implemented state-of-the-art governance and risk management practices and, in more than 80% of cases, plan to complete the actions outlined in their plans by the end of 2023.
  • ECB aims to fully integrate C&E risks into regular supervisory cycles and treat them in the same manner as other material risks that banks face, ultimately affecting Pillar 2 requirements.

Additionally, Kerstin af Jochnick mentioned that: 

  • Later this year, the ECB will publish a thematic review on banks' alignment with its supervisory expectations on C&E risk management.
  • A growing number of banks are taking steps to align with the ECB's supervisory expectations. 
  • While the banks are making progress, the trend is not uniform, and there are still delays in all areas.
  • There is progress when talking about banks taking actions to foster alignment with their supervisory expectations. The 90% of the banks that felt their practices did not meet ECB expectations in part or at all in 2021 reported their alignment this year.
  • Regarding banks' C&E risk disclosure, the gap analysis in the ECB's 2022 report revealed that they had made significant progress compared to 2021 in several areas, such as governance and risk management.
  • However, the report also highlighted that most banks still need to make significant efforts to transparently disclose their exposure to C&E risks and further improve their disclosure practices.
  • Regarding the climate risk stress test, the results showed that around 60% of banks lack robust climate risk stress test frameworks and many banks lack accurate data and insights into their customers' transition plans. Also, the results showed that most banks do not include climate risk in their credit risk models.

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RBI Regulatory Advisory

Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria  | Tel: +43 1 71707 - 5923