The European Central Bank said that no major Eurozone lender is meeting the bank's climate risk management goals, just months before it conducts the world's largest climate stress test. The ECB outlined its climate and environmental risk expectations a year ago, but banks appear to be slow to adjust, and the supervisor has frequently urged lenders to speed up.
"Banks have made initial efforts toward incorporating climate-related risks," the ECB said, "but none has come close to meeting all supervisory expectations." "Only one-third of banks have plans in place that are at least broadly adequate, and half of those plans will not be fully implemented by the end of 2022," it added.
In terms of management bodies, risk appetite, and operational risk management, banks have made progress in meeting ECB expectations. However, the ECB claims that they are failing in areas such as internal reporting, market and liquidity risk management, and stress testing.
The ECB noted that less than a fifth of banks have identified important risk indicators to monitor, and that those that decided that they are not exposed to climate-related risks all had substantial shortcomings in their assessments.
In the first half of 2022, the ECB intends to conduct a comprehensive review of banks' preparedness, as well as a climate stress test.
Climate risk is projected to be "gradually" factored into capital requirements, implying that non-compliant lenders will be obliged to increase their capital positions in the future.