ECB Observes Only 15% of Banks Publish Data on Emissions

Published on: 16 March 2022
by KnowESG

A Brief Summary

The European Central Bank is pressuring lenders to provide more information on the climate and environmental risks they face after discovering that only 15% of lenders publish information on the emissions they fund. The European Central Bank (ECB) has urged banks to respond quickly, stressing that only a handful of institutions submit performance or risk data. The watchdog expects to see "significant improvement." at the end of the year.

Banks are being pressured by European regulators to plan for potential losses from extreme weather or costs associated with polluting industries going out of business. This year, the ECB is conducting the most in-depth look yet at climate risks on lenders' balance sheets, predicting that exposed banks would face a higher bar for financial reserves in the future, potentially reducing shareholder returns.

ECB said Climate risk is being gradually integrated into how the watchdog regulates lenders, and it will ultimately influence the capital requirements it sets for individual banks.

Simultaneously, lenders are just now beginning to assess the amount to which the activities they finance contribute to global warming. Deutsche Bank AG released its first-ever disclosure of financed emissions earlier this month, albeit the report left out the greatest carbon-emission impact, Scope 3.

Frank Elderson, the deputy chair of the ECB supervisory board, said: "There is very little justification for this lack of substantial progress. The sheer speed at which regulation and metrics are developing in this field should leave no room for any doubt: addressing climate-related and environmental risks and publishing good-quality disclosures is not optional.”

The ECB did note some improvement in the industry, noting that more than 70% of banks now explain how their boards supervise climate and environmental challenges, compared to just over 50% in 2020. Even though half of those who have notified the ECB that they believe they are exposed, 75% of banks do not tell the public whether such risks have a significant impact on their risk profile.