The ECB recently discussed results of its latest Supervisory Review and Evaluation Process (SREP), and climate risk was an area of continued weakness in banks’ credit risk management frameworks. In 2022, ECB Banking Supervision began making efforts “to ensure banks effectively identify and manage their C&E [climate-related and environmental] risks. Most banks got the message, but a small number of them are still behind.
“In 2024, supervisors conducted targeted follow-ups to ensure banks had appropriately captured novel risks, such as geopolitical instability and climate change, in their provisioning. While most institutions had significantly improved, a minority still revealed severe shortcomings. For these institutions, the ECB has deployed escalation measures…
This year’s effort also focused remediating the remaining climate-related shortcomings communicated to banks in previous SREP cycles and ensuring consistency in the supervisory assessments across institutions. Overall, banks had made solid progress in the follow-up measures, with most severe findings being remediated in line with supervisory expectations. Around half of all measures from the previous SREP cycles have now been remediated. Gaps remain in some cases; these include the full integration of C&E risks into risk management frameworks, into key performance indicators, and into IT systems.
A small number of institutions showed slower progress, particularly in areas such as operational risk linkages and integration into broader risk frameworks.”
Even if the status of CSRD is in limbo, other EU mandates concerning climate risk management remain clear.
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