Climate change: European banks vulnerable, according to the Central Bank

FRANKFURT, Germany –

The European Central Bank is warning that many of the financial institutions it oversees are moving too slowly to protect themselves and Europe’s banking system from the impact of climate change, and it is setting new deadlines to meet those requirements.

The ECB said progress had been made, but a review of 186 banks released on Wednesday showed change was uneven and “the glass remains half full”, said senior ECB official Frank Elderson , in a blog post on the central bank’s website.

The Frankfurt, Germany-based central bank for the 19 countries that use the euro has set deadlines for banks to meet climate requirements by the end of 2024.

The ECB, acting as a banking supervisor, is pushing banks to identify where they might face climate change risks and how they would act. Banks are essential to the functioning of the European economy because most companies obtain the credit they need to operate from banks rather than financial markets, unlike the American practice, for example.

“Most banks have therefore not yet answered the question of what they will do with customers who may no longer have sustainable sources of income due to the green transition,” said Elderson, one of the six members of the Executive Board of the ECB and Vice-Chairman of its Supervisory Board. banking supervisory board. “In other words, too many banks are still hoping for the best without preparing for the worst.”

The ECB and the Bank of England have taken climate change into account more than the US Federal Reserve, which has taken modest steps to integrate climate concerns into its regulatory framework. The US central bank has come under fire from Republicans in Congress who say the issue is not within the Fed’s purview.

In Europe, bank strategy documents are replete with references to climate change, Elderson said, but the actual shifts to customers in more climate-friendly types of business and therefore to more environmentally sustainable revenue streams remain rare.

Banks are not setting interim targets for achieving net zero carbon emissions by 2050 or collecting detailed data at the level of individual loans and investments, Elderson wrote.

While many are phasing out specific activities, such as support for coal-fired power generation, it is unclear how these early steps will protect banks’ business models from the impact of climate change and environmental issues in the years to come. to come, he said.

The bank’s primary mandate is not the environment but inflation control, a task it tries to accomplish by raising interest rates. However, it can pursue other goals – such as supporting general EU economic policies, which include tackling climate change – if this does not interfere with tackling inflation.

The European Union has committed to achieving net zero emissions by 2050 as part of the 2015 Paris climate agreements.

The ECB also said in September that it would give companies climate scores before buying their bonds and that it intended to prioritize those doing the most to reveal and reduce greenhouse gas emissions. Greenhouse.