Europe’s Banks Are Targeting CO2 Neutrality Without a Plan to Get There
Several European banks are targeting carbon-neutrality by the middle of the century without having a plan to cut their exposures to polluting industries by 2030, according to the region’s top watchdog.
The European Central Bank is more focused on what banks want to achieve every five years leading up to 2050, according to Executive Board member Frank Elderson.
“Banks systematically fail to establish a clear link between their stated carbon emissions goals for 2050 and their concrete actions in the present and medium term,” Elderson said in a speech in Vienna on Wednesday.
He also reiterated a call for European banks to be legally required to have targets that are in line with those set in the 2015 Paris Agreement on reducing carbon emissions.
The ECB is pushing banks to improve their grasp of the risks that climate change poses both in terms of extreme weather and potential losses on loans to polluting companies that could go out of business. The watchdog will hold a stress test next year and plans to gradually hold banks that are overly exposed to climate risk to higher capital requirements.
Elderson also offered a “sneak preview” of findings from an evaluation of banks’ assessments of whether they meet the ECB’s climate expectations:
- About half are adapting their governance arrangements and some have developed “comprehensive dashboards” for assessing climate and environmental risks when granting credit
- Some are tightening the criteria they use for granting criteria and others are measuring and disclosing the carbon emissions linked to their loan books
- Only a quarter have set key indicators to steer their business with regard to factors such as green loan origination or exposure to high-carbon sectors
- A dozen banks have started to measure the alignment of their portfolios, define indicators and consider how to align their strategy to the Paris Agreement while avoiding an excessive build-up of transition risks
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