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ECB sets deadlines for banks to deal with climate risks

The European Central Bank (ECB) has published the results of the 2022 thematic review on climate-related and environmental (C&E) risks. Together with the review, the ECB also published the Good practices for climate-related and environmental risk management. The thematic review concludes that over 85% of the banks included in the review have basic practices in place to measure climate risk. Banks are still lacking, however, sophisticated methodologies and granular information on C&E risks. According to the ECB, 96% of the banks have a least one blind spot in their climate risk framework and they are concerned about the execution capabilities of approximately 50% of all banks.

Institutions have received specific deadlines, but some minimum milestones have been defined by the ECB:

• By the end of March 2023, the ECB expects banks to adequately categorize C&E risks and to conduct a full assessment of their impact on the banks’ activities.
• By the end of 2023, the ECB expects banks to include C&E risks in their governance, strategy, and risk management.
• By the end of 2024, the ECB expects banks to meet all requirements of the supervisory expectations.

For a limited number of banks, the review resulted in an impact on the SREP and therefore the Pillar II capital requirements.