EU Banks Must Include Climate Risks in Their Policies Before 2024

The European Central Bank (ECB) gives banks until the end of 2023 to include risks related to climate change in their strategy. After that, most banks still have a “wait and see approach,” the ECB said.

 

Banks must demonstrate from the ECB that they can absorb any losses resulting from climate-related events, such as extreme weather. However, they also need to prepare that some corporate customers can no longer continue on the same footing due to climate policy. This can happen, for example, with large polluters who can no longer afford the emission rights.

In July, the ECB, as supervisor of central banks in Europe, already conducted a stress test. The results were less alarming than many financial service providers feared. However, ECB staff said that the financial sector’s risks might be more significant than the test revealed.

Banks must meet all ECB climate requirements by the end of 2024. First, lenders must categorize the risks associated with climate change and other environmental issues. Then, before March 2023, they must also have investigated the impact these risks have on their business operations.