How Are Banks Adapting to Climate Change Risks?

We’ve looked at how banks are taking climate and environmental risks into account in their business. What did we find? Are banks meeting our supervisory expectations? Our host Katie Ranger discusses the results of our thematic review with Executive Board member and Supervisory Board Vice-Chair Frank Elderson on The ECB Podcast. The views expressed are those of the speakers and not necessarily those of the European Central Bank. Published on 2 November 2022 and recorded on 21 October 2022. In this episode: 01:10 – The results of our thematic review How banks are managing climate and environmental risks, and what happens if they don’t meet our supervisory expectations. 11:20 – Zooming in on bank strategies What steps banks have taken to understand how climate-related risks might impact their business model, and how they intend to adjust their strategy, such as through transition plans, plus areas that need more work. 18:06 – What is holding banks back from acting Why banks need to look at both short and longer term horizons when thinking about these risks. 20:18 – Zooming in on risk management How banks are taking climate-related risks into account when ensuring they have enough capital to cover their risks, and where more progress is needed. 23:50 – Why can’t banks just stop funding carbon-intensive activities? Why banks need transition plans to manage their risks as the world moves towards a greener economy, and our role here as supervisor. 26:46 The next steps for supervisors and banks How we will supervise banks to make sure they adequately manage climate-related risks and what we will do if they don’t, and what banks need to do to continue their path towards greening their business. 29:10 – Our guest’s hot tips Additional material: Walking the talk - Banks gearing up to manage risks from climate change and environmental degradation. Results of the 2022 thematic review on climate-related and environmental risks, 2 November 2022 https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.thematicreviewcerreport112022~2eb322a79c.en.pdf?25fcb44be2443e30f9dd0ab68c0a7d84 Press release: ECB sets deadlines for banks to deal with climate risks, 2 November 2022 https://www.bankingsupervision.europa.eu/press/pr/date/2022/html/ssm.pr221102~2f7070c567.en.html The ECB Blog by Frank Elderson: Banks need to be climate change proof, 2 November 2022 https://www.bankingsupervision.europa.eu/press/blog/2022/html/ssm.blog221102~398faec8ca.en.html The ECB Podcast: Greening the financial system: milestones in our climate change journey, 9 July 2022 https://www.ecb.europa.eu/press/tvservices/podcast/html/ecb.pod220709_episode36.en.html The ECB Podcast: Time to act now: results of the economy-wide climate stress test, 22 September 2021 https://www.ecb.europa.eu/press/tvservices/podcast/html/ecb.pod210922_episode20.en.html The ECB Podcast: Tackling climate change as a central bank: Between motivation, obligation and limitation, 12 May 2021 https://www.ecb.europa.eu/press/tvservices/podcast/html/ecb.pod210512_episode16.en.html The ECB Podcast: Climate change and the role of central banks, 3 March 2020 https://www.ecb.europa.eu/press/tvservices/podcast/html/ecb.pod200303_episode5.en.html Climate change and banking supervision https://www.bankingsupervision.europa.eu/about/climate/html/index.en.html Climate change and the ECB https://www.ecb.europa.eu/ecb/climate/html/index.en.html UN Biodiversity Conference (COP 15), 7 – 19 December 2022 https://www.unep.org/un-biodiversity-conference-cop-15 Smithsonian American Art Museum: Online Gallery for Alexander von Humboldt and the United States: Art, Nature, and Culture https://americanart.si.edu/exhibitions/humboldt/online European Central Bank www.ecb.europa.eu European Banking Supervision www.bankingsupervision.europa.eu