ECB criticises too little progress by banks on climate risks
22 March 2022
In a keynote speech on 14 March, the Dutch banking supervisor Frank Elderson (ECB Director and Deputy Head of ECB Banking Supervision) criticised what he saw as the inadequate information policy of major European banks with regard to climate risks. Although he acknowledged 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 several times in the past by sharply criticising what he sees as the banks' inadequate climate policy and has also brought the discussion of stronger capital requirements as a result of climate risks into play. As early as 2021, he called for "eurozone banks to drastically improve their capacity to deal with climate and environmental risks".
What are his specific points of criticism?
- From a supervisory perspective, the progress made by the major European banks since the first climate risk assessment in November 2020 is only marginal.
- The requirements of the ECB Guide on climate-related and environmental risks are still not sufficiently taken into account. According to Elderson, none of the 115 banks supervised by the ECB has met the expectations.
- In addition, the supervisor accuses the banks of trying to distract from their low quality in climate risk disclosure by publishing a lot of general information about green issues.
- The supervisory authority expects a greater contribution to a CO2-neutral economy through climate-oriented risk management by banks.
- Elderson misses concrete details in the disclosure reports of the banks about the adjustments of the risk metrics as well as climate targets through which it becomes clear that the credit and investment policy is oriented towards the Paris Agreement. As a positive example, Elderson cites a bank that has set itself the 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 seems exaggerated, as it must also be taken into account that supervision also lacks clear guidelines in many areas. In addition, initiatives such as the Net Zero Banking Alliance Germany should also be recognised. 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.