![]() ![]() ![]() This expectation comes at a timely moment as more and more banks publicly commit to aligning their financing activities with the objectives of the Paris Agreement. Moreover, the principles expect a bank’s board and senior management to ensure that the bank’s internal strategies and risk appetite statements are consistent with any publicly communicated climate-related strategies and commitments. They also highlight the need to fully incorporate material risks into banks’ own internal capital and liquidity adequacy assessment processes. For instance, they emphasise the importance of assessing the materiality of climate risks and considering their potential impact on banks’ business models. Importantly, the Basel Committee’s principles promote many of the practices that the ECB had signalled as crucial for the proper management of C&E risks. The Basel Committee backed this up by announcing it expects implementation of these principles as soon as possible and that it will monitor progress in these fields across its member jurisdictions. They are a major milestone, as it means that supervisors from all around the world now unanimously confirm not only that climate risks may be material, but also that both banks and supervisors urgently need to contend with them. These principles have been prepared in a Basel Committee task force that I co-chair. Just last week, the Basel Committee on Banking Supervision, the main global standard-setter for the prudential regulation of banks, published its “ Principles for the effective management and supervision of climate-related financial risks”. And we see that banks are consequently allocating more and more financial and human resources to managing these risks.Īnd this is what supervisors around the world expect from banks. During various supervisory exercises recently conducted by the ECB, most banks recognised that they have significant exposures to these risks, which they expected to materialise in the short to medium term. For banks, the prominence of C&E risks is significant, too. ![]() The new Basel Committee on Banking Supervision principles for the effective management and supervision of climate-related financial risksĪll around the world, there is a growing consensus on the urgency of dealing with the climate and environmental crises. The silver lining is that the state-of-the-art governance and risk management practices now being adopted by some banks confirm that what the ECB is asking is possible. The bad news is that this progress is not across the board, and laggards remain in all areas. The good news is that, one year after my first speech on the state of C&E risk management by euro area banks as Vice-Chair of the ECB’s Supervisory Board, banks are starting to progress in their management of these risks. There will be good, bad and hopeful news. I will share some preliminary findings from our review of how banks incorporate C&E risks into their risk management practices. Today I will update you on the recent progress on both the international agenda and the ECB’s own supervisory agenda on climate-related and environmental risks, or C&E risks for short. Physical and transition risks from climate change and environmental degradation are already materialising all around us. Conferences like these are a chance to inform each other of what we are doing and to share the knowledge and expertise we are accumulating to gear ourselves to a world that is already undergoing a climate crisis. So this is an ideal platform for exchanging views on the financial sector’s role in addressing the risks of the ongoing climate and environmental crises. I understand that today’s audience includes managers and experts from banks and banking associations, supervisors, academics and students. Keynote speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, 10th Annual Conference on Bank Steering & Bank Management at the Frankfurt School of Finance & Management
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