New EU rules require banks to continue improving climate risk disclosures, ECB report says

Starting this year, European banks must prepare to comply with stricter EU rules on climate and environmental risk disclosures. The European Banking Authority (EBA) has issued implementing technical standards (ITS) on Pillar 3 disclosures, which will apply to most significant banks in the euro area. Eligible banks need to make their first disclosures under the new rules by the end of June 2023. 

Frank Elderson, Vice-Chair of the ECB's Supervisory Board, acknowledges the progress made by banks but emphasizes the need for further improvements. Stricter disclosure rules are being implemented, and the ECB is ready to take supervisory actions to ensure compliance. 

Banks have increased the amount of basic information they disclose across various categories compared to the previous year. However, the quality of disclosures needs to be improved. Only 6% of significant banks provide adequate information in all assessment categories. Although more banks provide some information on the emissions they finance, it is often incomplete or not adequately substantiated. Thus, banks need to prepare for the impending EBA standards. 

The ECB's assessment also compares the climate and environmental risk disclosures of EU-based global systemically important banks (G-SIBs) with their non-EU counterparts. While EU-based G-SIBs are not fully aligned with supervisory expectations, they generally outperform global peers in all assessment categories. Supervisors have notified banks of the findings and requested them to address shortcomings and provide plans to meet the upcoming EBA reporting standards. The ECB's report includes examples of good practices for banks to consider in aligning their disclosures with supervisory expectations. In the latter half of 2023, the ECB will review whether eligible banks meet the new standards, and non-compliance will result in supervisory action under the Capital Requirements Regulation (CRR).