Bank Sustainability Offices Are ‘So 2011,’ ECB’s Elderson Says

(Bloomberg) -- European banks who view sustainability as a topic they can consign to a powerless department need to get with the program, according to their top regulator.

“A bank having a sustainability office is so 2011,” European Central Bank Executive Board Member Frank Elderson said in an interview with Bloomberg TV. “For a bank this is not some kind of a fringe, this is core.”

Europe’s central banks are leading the charge to ensure lenders have a grasp on the fallout they face from climate change as extreme weather and the transition away from polluting industries exposes them to losses. The ECB has faulted the vast majority of banks it oversees for failing to meet its expectations for managing such risks.

“We now need banks to really incorporate, and this is what our expectations are all about, to incorporate this in their very DNA, in their business models, in their management information systems, in their risk management,” Elderson said.

Elderson, an influential voice on climate change in the central banking community, welcomed voluntary commitments by banks to net-zero emissions by 2050, a goal that was enshrined in the Paris Agreement more than half a decade ago.

Still, he reiterated a plea for the European Union’s next package of banking regulations to include “clear mandatory legal requirements for banks to have Paris-compatible transition plans.”

Elderson chairs the Network for the Greening of the Financial System, a group of 100 central banks and regulators. The NGFS is improving climate risk data, conducting analysis that’s relevant for monetary policy and studying litigation stemming from climate change and biodiversity loss, he said.  

“When we say that we come up with these commitments, it means that every CEO of every bank, of every insurance undertaking will notice that,” Elderson said in the interview on the sidelines of the COP26 climate summit in Glasgow. “They will have to think very seriously how they will manage their climate-related and biodiversity loss-related financial risks.”

©2021 Bloomberg L.P.