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Climate risk deadlines set by ECB for banks

The European Central Bank (ECB) has concluded a thematic review focused on climate-related and environmental risks of 186 banks with combined assets worth €25 trillion, aiming to ensure alignment with supervisory expectations.

According to the review, banks are still far from managing climate and environmental risks effectively. Banks under ECB remit are now given staggered deadlines to meet the supervisory expectations progressively laid out in the ECB's guide on climate-related and environmental risks (2020). 

A review concluded that, despite 85% of banks now having basic practices in place in most areas, they are still lacking more sophisticated methods and granular analysis of climate and environmental risks. Almost all banks (96%) continue to underestimate the scope and magnitude of such risks.

As a response, ECB has set institution-specific deadlines for achieving full alignment with its expectations by the end of 2024:

  • By end of March 2023, the ECB expects banks to assess how climate and environmental risks affect their business activities and categorize them accordingly.
  • By the end of 2023, the ECB expects banks to integrate climate and environmental risks into their governance, strategy, and risk management.
  • By the end of 2024, the ECB expects banks to meet all remaining supervisory expectations on climate and environmental risks outlined in 2020’s guideline, including full integration in the Internal Capital Adequacy Assessment Process (ICAAP) and stress testing.

The deadlines will be constantly watched, and enforcement action may be taken if required.

On a positive note, EBA also published a compendium of good practices observed in some banks, intending to encourage the sector-wide change of processes while proving that rapid development is feasible.

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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