Banks in the euro area still lack climate risk targets

None of the large banks in the euro area meets the European Central Bank's (ECB) climate risk management objectives. The ECB announced this on Monday, just a few months before it plans to conduct its largest climate stress test to date. A year ago, the ECB outlined its expectations regarding climate and environmental risks, but the banks in the Euroregion it oversees seem to be slowly implementing them. The European Central Bank has therefore repeatedly called on creditors to speed up the pace. "Banks have taken the first steps to integrate climate-related risks, but none of them has yet met all the expectations of supervisors," the ECB said in a statement. "Only one third of banks have plans that are at least adequate, and half will not be able to complete their plans by the end of 2022," she added. Banks have made progress in meeting the ECB's expectations regarding governing bodies, risk appetite and operational risk management. However, they fail in areas such as internal reporting, market risk and liquidity management and stress testing, the ECB said. Less than one-fifth of banks have developed key risk indicators for monitoring, while those that have concluded that they are not exposed to climate-related risks have had significant shortcomings in their assessment, the ECB said. The ECB plans to conduct a comprehensive review of bank preparation in the first half of 2022, together with a climate stress test. Climate risk is expected to be "gradually" integrated into capital requirements, suggesting that non-compliant creditors will eventually be forced to strengthen their capital positions.