Banks must integrate climate risk information by 2024
In accordance with the European Green Deal, the ECB requests that, by 2024, banks integrate and report climate and environmental (C&E) risks into their daily activities.
To this end, from 2023, companies may be required to provide non-financial information with particular attention to reporting on climate and environmental risks. The Banks – after verifying the correctness of the information provided – will communicate to the EBA (European Banking Authority) the exposures of carbon-intensive activities and those that could present physical risks due to climate change, illustrating risk mitigation and concrete aid to reduce the carbon footprint produced.
In the first half of 2022, the ECB (European Central Bank) subjected most credit institutions to significant tests – Climate Risk Stress Test (CST) – in order to assess their ability to cope with economic and financial shocks arising from C&E risks. The findings showed that only 20% consider C&E risk as a variable in the granting of loans.
These results, although negative, do not have a direct impact on risk capital for the current year but have led to the adoption by the ECB of further measures integrating climate change into its Eurosystem monetary policy operations. C&E risks are assessed for corporate bond purchases and for the purpose of the collateral system, they are reflected in disclosure requirements and risk management. The Paris agreements require a periodic review to verify that there is always alignment with the defined standards.
Overall, EBA and the ECB expect major banks to incorporate climate risks by the end of 2023 and to be able to provide adequate reporting according to synthetic indices, already published by the EBA on the basis of EU Regulation 2020/852, which quantify the exposure of banks to sustainable companies.