Kieran Fox’s Post

The European Banking Federation (EBF) says lenders in the region won’t be able to compete with their US rivals if regulators continue to pile on ESG (environmental, social and governance) rules that Wall Street remains free to ignore.The warning from the bloc’s main bank lobby comes as the European Central Bank (ECB) puts pressure on lenders to capture ESG risks, including in loan-loss provisions, marking a new frontier in ESG reporting standards. #banks #esg #regulation https://lnkd.in/eQyhPrAP

A new set of EU rules is poised to come into effect on 1 January which creates new expectations for banks to report risks to their financial stability from climate threats. We look at how the capital requirements regulation (CRR) will affect banks operating in the EU, including those headquartered elsewhere. The revised capital requirements regulation, which applies from 1 January, is part of a package of legislation that implements the Basel 3 framework into European law, which is aimed at making sure banks are sufficiently capitalised to prevent another financial crisis. It includes the requirement that ESG risks are included in banks’ internal calculations for assessing whether they are holding enough capital. “The economy needs stable banks particularly as it goes through the green transition. It is in turn crucial for banks to identify and measure the risks arising from the transition towards a decarbonised economy,” said the European Central Bank’s Frank Elderson. Under the new rules banks will have to increase their reporting to regulators on ESG risks, as well as on market risk and exposure to crypto assets. The CRR demands that banks submit this data to the European Banking Authority (EBA), which will publish it on a data hub. This disclosure requirement will apply to all institutions, even small banks, but the EBA is due to support small institutions by helping them generate the necessary disclosures. The EBA will draft implementing technical standards for these disclosures by July 2025. Reactions have been mixed. Philippe Ramos of Positive Money Europe says that “There is nothing binding. It’s only disclosure,” so “It won’t incentivise banks to invest that much in climate-friendly projects.“ Meanwhile PwC says “CRR III will change how a bank views the risk – and hence also the relationship between risk and return – of its products, customers and business lines. The impact of CRR III will depend on the respective bank’s business model and regulatory approach.” Read the full story: GreenCB.co/3D4PG6g #GreenFinance #ClimateRisk #SustainableBanking #BaselIII #ESGRegulation #FinancialStability #EUClimatePolicy

NGFS published Transition Plan Package Last week, the Network for Greening the Financial System (NGFS) published its Transition Plan Package. It has published three detailed reports on: 1. considerations for emerging markets and developing economies in tailoring transition plans; 2. how financial institutions can use real economy transition plans to inform their own climate-related risk management and facilitate transition finance; and 3. Key elements of credible transition plans and how micro-prudential authorities can assess credibility #ngfs #transitionplans #climaterisk #transitionfinance https://lnkd.in/eNKtiec2

ABN AMRO recently wrote a report on how “green” EU banks are and how they are exposed to climate-related risks. Some key findings in the report: 🏦70% of EU bank loans are financing the sectors that highly contribute to climate change, a large concentration of these are in real estate and manufacturing. 📊Banks face significant transition risks as sectors vulnerable to climate change disruptions may undergo substantial upheaval. 🌳The study reports an average TAC (Taxonomy Alignment Coefficient) of 5%, higher than the previous study's 2%, and a TEC of 31%, compared to the prior 21%. This difference could be due to the sample excluding large banks and focusing on specific EU countries. It is important to distinguish between a bank's "greenness" and its transition risk. Even if a bank significantly increases its "green" lending, it does not necessarily guarantee a low transition risk. However, such lending practices can incentivize high-emission sectors to reassess and improve their environmental practices. Thank you ABN AMRO Bank N.V. for the insightful report! If you want to read the full report: https://lnkd.in/dvfwfH5Q

"How to enhance the role of macroprudential authorities in monitoring interconnectedness, deploying macroprudential tools and ensuring cross-border coordination within the EU”? This was the main theme of the panel I have attended in Brussels, a whole day of technical workshop organised by the European Commission to contribute to the international debate on macroprudential policies for NBFI (Non-Bank Financial Intermediation).     This event follows the adoption in January 2024 of the Commission report https://lnkd.in/enpyNfEE on the macroprudential review for credit institutions, the systemic risks and vulnerabilities of NBFI, and the interconnectedness with the banking sector. With the aim to increase stakeholder engagement.   During this panel, I have made the points on the following: 1. There is a strong need to make clear distinction in the wide range of NBFIs. 2. Asset managers are different from banks on many aspects. Accordingly, banking-like macro prudential measures cannot be transposed as such to investment funds and their managers. 3. In addition, these are already highly regulated with investor protection central to this framework. These rules will be extended with additional requirements on liquidity management tools adopted through the revision of the AIFMD and UCITS directive. It is important to wait for effective implementation of these tools and their impact before envisaging any additional requirements in the macro prudential space. 4. A lot is also to be done on data with real sharing between policy makers and effective analysis to get better understanding. 5. The concept of lead supervision with the notion of "group” is going into the right direction. Effective functioning needs however to be further defined to ensure it is relevant to the asset management sector and that interaction between supervisors is well organised. Thanks for this interesting debate! -Tobias Buecheler, Head of Regulatory Affairs, Allianz -Rodrigo Buenaventura, President, Comisión Nacional del Mercado de Valores (Spain) -Mark Cassidy, Director, Financial Stability, Central Bank of Ireland -Steffen Kern, Chief Economist and Head of Risk Analysis, European Securities and Markets Authority -Francesco Mazzaferro, Head of ESRB Secretariat, European Systemic Risk Board -Klaus Wiedner, Director, DG FISMA, European Commission (moderator) More information about the "Targeted consultation assessing the adequacy of macroprudential poliocies for non-bank financial intermediation" https://lnkd.in/eynUwrrD

One of the biggest stories remains reform at the World Bank and of the broader global financial system. The bank has a new capital adequacy framework to get more out of its money, a new mission statement, and a host of proposals for how it can streamline its activities, do more to address climate change, and measure progress. On that front we’ve seen the first set of indicators for the new corporate scorecard, and will look for the second half to be released at the annual meetings in October. The revamp of its system for measuring progress, which dramatically reduces the metrics it measures is part of the the bank's broader reform efforts, is part of an effort towards "radical transparency.” World Bank President Ajay Banga has emphasized improving the bank’s engagement with the private sector and finding ways to use its own capital to draw in more private money. We’ll be watching what comes out of the Private Sector Investment Lab he convened, beyond proposals that led to a revamp of the bank’s guarantee programs. https://lnkd.in/dAaWGRTG

The financial industry is exposed to nature-related risks through the investment, insurance, and banking services provided to companies that depend on and impact nature. The European Central Bank found that around 75% of bank loans to companies operating in the Euro space were made to companies that had at least one major nature-related dependency.    In our most recent article, Gloria Perez Torres, LLM, Prof.PgDip (FCC) provides insight into how the Taskforce for Nature-related Financial Disclosure (TNFD) may affect the Financial Services industry. Please see here for more detail: https://lnkd.in/evnP5nYc

“The European Banking Federation says lenders in the region won’t be able to compete with their US rivals if regulators continue to pile on ESG rules that Wall Street remains free to ignore. (…) The ECB is looking for evidence that banks can cope with losses stemming from what it calls “emerging risks,” which include clients’ carbon emissions and rising costs associated with consuming natural resources. The exercise comes after a 2023 review concluded that the vast majority of banks in the region are unprepared. It’s the latest sign that regulators in Europe are moving along a different trajectory than their counterparts in the US. In the EU, banks now face ESG-adjusted capital requirements, more disclosure rules and the possibility of an explicit climate buffer, all of which regulators say will ultimately equip the sector to deal with the risks ahead. In the US, meanwhile, planned rules and guidelines are being walked back against a backdrop of Republican-led opposition to all things ESG.”

An open letter has been sent to the Bank for International Settlements – BIS as part of the Basel Committee on Banking Supervision consultation on Climate-related financial disclosures. With global temperature increase hitting 1.5-degrees in the second half of 2023[5], we should be bracing ourselves for #climate risks cascading through the #financial sector. We need an effective financial #disclosures regime to account for the true impact of climate risks. This means closing the loopholes for concealment of #emissions through financial intermediation, peeling back the layers and looking through to the underlying activities and their associated emissions. The letter can be found on our website. Signatories include: Zak Gottlieb Frank Van Gansbeke Lauren Compere Jesse Griffiths Benoît Lallemand The Finance Innovation Lab Finance Watch Martin Rohner Global Alliance for Banking on Values Christina Herman Delilah Rothenberg Anne Perrault Kate Geary Recourse Fran Boait Rethinking Capital Ben Cushing Sierra Club Richard Brooks Stand.earth Josh Ryan-Collins UCL Institute for Innovation and Public Purpose diogo silva BankTrack Asti Roesle Hunter Lovins Naomi Hirst Kate Levick E3G New Economics Foundation Andrew Watson Mark Dia Aaron Morehouse, Ph.D. Read James Vaccaro's related article: Closing the financial disclosure loophole to prevent “emissions laundering”, published today in Illuminem & Green Central Banking. 👇 https://lnkd.in/eEF7j3_J