ECB: Banks must pay more attention to climate risk | News

FRANKFURT (dpa-AFX) – ECB banking supervisors warn financial institutions to take action against the threat of billions of euros in risk from climate change. “Eurozone banks urgently need to step up their efforts to measure and manage climate risk,” said Andrea Enria, the head of banking supervision at the European Central Bank (ECB), presenting the results of the first ECB climate stress test.

In unfavorable scenarios, environmental lending and market losses to industry are expected to be at least EUR 70 billion, as calculated. The sum applies to 41 out of 104 banks in the test. It represents “only a fraction” of the real climate risk for the industry, supervisors warned. Deputy Head of ECB Banking Supervision Frank Elderson stressed: “We expect banks to act decisively and develop robust stress tests in the short to medium term.”

Financial institutions directly overseen by the ECB have had to calculate how well they are armed with the financial and economic shocks stemming from the climate risks. For example, the test modeled that extreme heat or severe flooding would affect Europe for one year from January 1, 2022. The short-term risk of moving to a greener economy was taken as a sudden rise in the price of climate-damaging carbon dioxide (CO2) between 2022 and 2024 by around 100 dollars per ton.

The aim was to find out how such scenarios affect, for example, real estate financing. Or how big the risk is that the green transformation of the economy will cause problems for corporate customers, and this will result in losses for banks. Depending on how quickly politicians take action to slow global warming, such threats more or less come into play. This has been modeled on a real stress test under three scenarios over a 30-year period. Only 41 larger institutions had to pass the full test “for proportionality reasons compared to smaller banks”, the ECB explained.

Supervisors acknowledged that as of 2020, banks have made “some progress” in coping with the financial and economic effects of climate change. However, about 60 percent of the institutions surveyed did not yet have a stress testing framework to model climate risk for their operations. Only 20 percent. takes into account climate risk when lending.

Another stress test result: Nearly two-thirds (65.2 percent) of banks’ income from operating with corporate non-financial customers comes from sectors that produce a lot of greenhouse gases. For example, these could be companies whose production depends on fossil fuels such as oil and natural gas.

It is important for institutes to receive “more precise data and insight into their clients’ conversion plans,” said managers. “This is a prerequisite for banks to be able to assess and manage their exposure to climate risk in the future.”

Banks could not fail the climate stress test. According to the ECB’s banking supervisors, the results also have no direct impact on capital requirements for institutions. The aim of the exercise was to identify weaknesses and challenges for banks in terms of climate risk management.

“The ECB’s climate stress test is a good exercise for the banking sector. Ultimately, however, the decisive factor is the reduction of CO2 emissions in customer portfolios, ”Commerzbank chief risk officer Marcus Chromik told news agencies dpa and dpa-AFX. in Frankfurt. This “educational exercise” will speed up the issues of data availability and risk methodology. “However, one thing has also become clear: everyone involved, ie supervisors, banks and companies, still have a long way to go,” concluded Chromik.

Karolin Kirschenmann, researcher at ZEW Mannheim – Leibniz-Center for European Economic Research commented: “Banks can play an important role in financing the investments necessary to transform the economy.” At the same time, the transition to climate neutrality and sustainable development will not work without a bold and clear climate and economic policy: “The financial sector can support transformation, but cannot replace the missing or unambitious climate policy.”

The ECB has been directly monitoring the largest banks in the euro area since November 2014. Currently, there are 111 institutions representing almost 82% of the total. banking market in the currency area of ​​19 countries. From Germany, these include: Deutsche Bank and Commerzbank, the central cooperative institute DZ Bank, the Dekabank savings bank, the real estate financier Aareal Bank, Hamburger Sparkasse (Haspa) as the largest German savings bank and state-owned banks BayernLB, LBBW and Helaba./ben / zb / dp / jha

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