March 22, 2022
In a keynote speech on March 14, Dutch banking supervisor Frank Elderson (ECB Director and Deputy Head of ECB Banking Supervision) criticized what he saw as the inadequate information policy of major European banks regarding climate risks. While acknowledging progress, he described the improvements as marginal(https://www.handelsblatt.com/finanzen/banken-versicherungen/banken/klimawandel-ezb-aufseher-kritisiert-informationspolitik-der-banken-zu-klimarisiken/28161092.html).
Elderson has already attracted attention on several occasions in the past with sharp criticism of what he sees as the inadequacy of banks' climate policies, including the discussion of stronger capital requirements as a result of climate risks. As early as 2021, he called for "eurozone banks to drastically improve their capacity to deal with climate and environmental risks."
Where specifically are his criticisms:
- From a supervisory perspective, the progress made by the major European banks since the first climate risk assessment in November 2020 has been marginal.
- The guidance from the ECB's Guide on climate-related and environmental risks is still not sufficiently addressed. According to Elderson, none of the 115 banks supervised by the ECB has met expectations.
- In addition, the supervisor accuses banks of trying to distract from their low quality of climate risk disclosure by making many general disclosures about green issues.
- Supervisors expect a greater contribution to a carbon-neutral economy through climate-focused risk management by banks.
- Elderson finds banks' disclosure reports lacking concrete details about adjustments to risk metrics as well as climate targets that make it clear that lending and investment policies are aligned with the Paris Agreement. As a positive example, Elderson cites a bank that has set a specific goal of achieving a loan portfolio with net zero emissions by 2050.
The ECB has sent individual feedback letters to the banks under its supervision and expects substantial progress at its next review in late 2022.
Overall, the criticism appears to be exaggerated, as it must also be taken into account that supervision also lacks clear specifications in many areas. In addition, initiatives such as the Net Zero Banking Alliance Germany should also be recognized. Commerzbank, Deutsche Bank, BNP Paribas, DKB, DZ Bank, ING, LBBW and Umweltbank have joined forces in this initiative and committed to climate-neutral investment and loan portfolios by 2050.