The growing importance of climate-related and environmental (CRE) risks for the banking sector calls for quick actions by financial institutions and supervisory authorities.

On 24 October 2022, the European Banking Authority (“EBA”) published its report on the integration of ESG risks in the supervision of investment firms. The report is addressed to supervisory authorities as the assessment of Environmental, Social and Governance (ESG) factors and risks, if deemed material, would progressively and proportionally be incorporated into the supervisory capital assessment.

A few days later, the European Central Bank (ECB) published the results of its thematic review of banks’ capabilities to manage CRE risks, which conclude that despite improvements, banks still need to make progress to better identify and manage those risks.

The ECB has now set institutions-specific deadlines for achieving full alignment with its expectations by the end of 2024 including intermediate milestones in 2023.

In addition, the recent publications of the Bank of England (BoE) and the ECB climate stress test results confirm the need for banks and supervisors to continue building their capacities to manage CRE risks and improve their practices through the collection of forward-looking data, the development of climate risk modelling tools or further engagement with their counterparties.

Together with the members of its ESG risks task force, the ABBL aims to leverage the EBA’s recommendations as well as the compendium of good practices observed by the ECB to follow-up on the whitepaper published in 2021 and further support the improvement of practices across the Luxembourg banking sector.

Should you wish to know more about and/or contribute to the ABBL activities in the field, please reach out to Julien Froumouth or Gilles Pierre.