Elderson details progress on climate risk and supervisory priorities
Frank Elderson, Member of the Executive Board of the European Central Bank, stated in a Bloomberg interview that banks are largely managing climate risks, but supervisory challenges persist. He detailed the ECB's proportionate escalation approach and future priorities.
Climate risk management: A proportionate approach
The ECB adopted a multi-year approach to managing climate and nature-related risks, starting with expectations in 2020 and a review in 2022. This led to a deadline of end-2024 for banks to meet standards, with interim milestones.
Elderson noted that all but two of the 110 supervised banks are now largely managing these risks without periodic penalty payments.
The ECB issued 32 formal decisions, primarily for materiality assessments, but found its proportionate escalation approach effective.
Over 90 percent of banks now consider climate and nature-related risks material, leading to increased investments and resources.
Elderson also addressed criticism regarding the volume of findings, explaining the new 'two-tier system' where F3 and F4 findings are most material, allowing the ECB to focus its scarce resources on the most critical issues.
Beyond climate: Data, simplification, and union completion
Elderson highlighted ongoing challenges in risk data aggregation and reporting, stating that while banks recognize its importance, progress is insufficient.
He emphasized the ECB's commitment to simplification of processes while maintaining sound supervisory standards, rejecting calls for deregulation.
The Executive Board Member stressed the urgency of completing the European banking union, including a deposit insurance scheme, and the capital markets union.
He also warned that the likelihood of a disorderly climate transition scenario is increasing daily, underscoring the need for legislative action and consistent policy to avoid severe financial disruption.
Source: Frank Elderson: Interview with Bloomberg
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