Richard Whiting’s Post

Banks must identify, measure and manage climate-related and environmental risks, says Supervisory Board Vice-Chair Frank Elderson. They are already making progress on this front and the amount of exemplary good practice is increasing. Banks can leverage these examples to ensure they meet supervisory expectations by our end-2024 deadline. We will use all measures in our toolkit to ensure sound management of climate-related and environmental risks in the banking and financial sector. Read the speech https://lnkd.in/eheStkQx

Take a look at the most recent speech of SSM Vice-Chair Frank Elderson on climate and nature risks: -To be climate and nature risk resilient, banks must identify, measure and - most importantly - manage climate-related and environmental (C&E) risks -Failing to adequately manage C&E risks is no longer compatible with sound risk management, just as it would not be acceptable to turn a blind eye to other relevant drivers of standard risk categories. -The ECB has consistently reminded that this is not a call on banks to divest from carbon-intensive industries. It is, instead, a call to actively manage the risks, for instance, through client engagement and transition and resilience finance. -Although at present none of the banks under our supervision fully meets all our expectations, each and every of our expectations has already been fulfilled by at least one bank. This shows that progress is possible, and that it is not just taking place among a few banks, but across the board. This is good news, since we expect all banks under our supervision to be fully aligned with our supervisory expectations by the end of 2024. -The set of exemplary good practice is increasing. Banks can leverage these examples to ensure they meet supervisory expectations by our end-2024 deadline. ECB Banking Supervision will use all measures in our toolkit to ensure sound management of C&E risks. -The ongoing climate and nature crises will inevitably render our economy more susceptible to shocks. From a risk-based perspective, ECB Banking Supervision will continue to play our part in spurring on banks to prepare for these risks, in a 1.5 degree, a 2 degree and even a 2.9 degree scenario.

An excellent overview of ECB position on CER risks and the coming challenges for SSM banks. And a worthwhile quote, illustrating that de-risking massively by divesting from carbon intensive activities is not the expected path: « The ECB has consistently reminded that this is not a call on banks to divest from carbon-intensive industries. It is, instead, a call to actively manage the risks, for instance, through client engagement and transition and resilience finance. In other words, banks must be cognizant of the risks they take and manage them accordingly ». Let’s expect that the incentives to be a sheer transition enabler, instead of being a massive de-risker, will be fully recognized in the future (through regulation or market practices).

🌍 Ensuring Banks' Resilience to Climate and Environmental Risks: Overcoming Challenges Together 🌿 The speech by Frank Elderson highlights an inspiring call to action for all of us to come together and ensure the resilience of banks against climate and environmental risks. By recognizing the urgency of this issue and taking concrete steps to build internal capacity and implement good practices, we can pave the way for a more sustainable future. The message underscores the importance of collaboration and ongoing dialogue between regulators and the industry, emphasizing that we all have a collective responsibility to face the challenges ahead. Let us take up this challenge with unwavering commitment and work together to overcome the remaining hurdles, for the benefit of our planet and future generations. 🔍 Understanding the Urgency: the tangible impacts of climate change and nature degradation, citing 2023 as the hottest year on record and the rising frequency of extreme weather events. These risks aren't isolated but intricately interwoven into traditional risk categories, posing challenges across credit, liquidity, market, reputational, and operational fronts. 🔧 Building Internal Capacity: Recognizing the need for expertise, Elderson emphasizes the importance of internal capacity-building within banks. Empowering employees at all levels, fostering a comprehensive understanding of C&E risks 📊 Current State of Risk Management: While progress has been notable, full alignment with supervisory expectations is yet to be achieved. However, positive strides have been made, with some banks effectively integrating C&E risks into strategy, governance, and risk management frameworks. 🌟 Implementation Challenges and Good Practices: Notably, several banks have already adopted innovative risk management practices focusing on nature-related risks, demonstrating the feasibility of addressing these challenges. 🚀 The Path Ahead: 2024 marks a pivotal year for banks to fortify their resilience against C&E risks. It is important to meet supervisory expectations and embrace Paris-compatible transition plans to navigate the evolving regulatory landscape effectively. 👥 Collaboration is Key: By sharing good practices and staying abreast of regulatory developments, banks can navigate the complex landscape of C&E risks more effectively. In conclusion, We are all collectively responsible for ensuring banks' resilience in the face of climate and nature risks. With unwavering commitment and collaborative efforts, we can overcome the remaining stumbling blocks and pave the way for a more sustainable future. #ClimateResilience #Banking #Sustainability

A seed grows with no sound. For 5 years, European banks have been engaged and challenged by their supervisor to step up on climate change. You may not have noticed if you’re not in the thick of these developments but things are changing faster that you might imagine. European Central Bank executive board member and ECB Banking Supervision Supervisory Board vice-Chair (and Network for Greening the Financial System (NGFS) founding Chair emeritus) Frank Elderson gave his assessment of progress in climate and environmental (C&E) risk management by European banks in a speech last Thursday (abridged version below abridged version below, the original is worth reading for the examples). Frank Elderson is certainly not known for being complacent so his rather positive assessment has some weight. —————— We have come a long way since we first started discussing C&E risk management. It is thanks to the hard everyday work of thousands of dedicated experts in banks all over Europe that vital progress achieved. The risks stemming from the climate and nature crises are increasingly being integrated into banks’ risk management, strategies and governance. Relevant expertise and human capital is crucial. Banks’ management bodies need to be well-versed in C&E risks, and we expect banks to reflect these skills in board composition. And we see banks walking the talk, for instance by setting up a dedicated committee composed mainly of independent directors with the appropriate skills. But this is not only a task for CEOs and committee members. Employees across the organisation should be aware of how the climate and nature crisis might affect their everyday tasks. And it is also critical for banks to have the necessary resources to implement well-designed frameworks across the institution. The ECB has consistently reminded that this is not a call on banks to divest from carbon-intensive industries. It is a call to actively manage the risks, for instance, through client engagement and transition finance. In other words, banks must be cognizant of the risks they take and manage them accordingly. We see more and more banks doing so. Although at present none of the banks under our supervision fully meets all our expectations, each and every of our expectations has already been fulfilled by at least one bank. These examples show that, while the task is challenging, good practices are already out there. By the end 2024, we expect all banks to be aligned with our expectations. We will closely monitor progress and, if necessary, we will use all the measures in our toolkit these include imposing periodic penalty payments and setting Pillar 2 capital requirements as part of the annual Supervisory Review and Evaluation Process. Since 2019, some major stumbling blocks have been overcome thanks to thousands of motivated experts – bankers and supervisors alike. But the job is not yet done: 2024 is a crucial year to clear our path of the remaining stumbling blocks.

The Basel Committee on Banking Supervision released a discussion paper on the use of climate scenario analysis (CSA) for managing and supervising climate-related financial risks. The Committee, which had initially set principles for these risks in June 2022, notes that varying CSA practices across banks and jurisdictions hinder uniform supervisory standards and result comparability. It seeks stakeholder feedback to potentially enhance global banking regulations and practices, aligning with ongoing efforts by the Financial Stability Board and the Network for Greening the Financial System. #BaselCommittee #ClimateRisks #ClimateScenarioAnalysis #BankingSupervision #RiskManagement #FinancialStability

In this update, we have outlined the impact of recently published regulations as applied to the Pillar 2 interest rate risk (IRRBB) and credit spread risk (CSRBB) approach and reporting requirements on all banks within the EU. Read our insights

A few thoughts below on the impact of recently published regulations as applied to the Pillar 2 interest rate risk (IRRBB) and credit spread risk (CSRBB) approaches and reporting requirements on all banks within the EU. Read some of our insights in the article below

If we are to evaluate risks to the financial sector properly, investors need reliable, prudent and consistent disclosures that show how banks could be affected by climate-related risks. We therefore welcome the Basel Committee on Banking Supervision’s focus on strengthening banks’ disclosure requirements for climate-related financial risks. In its most recent consultation, the Basel Committee on Banking Supervision (BCBS) invited submissions regarding the potential to extend the Pillar 3 disclosure framework to include climate-related financial risks. Natasha Landell-Mills, CFA summarised our contribution to the consultation. Read more here: https://lnkd.in/eca-ukvD

Join us on Thursday morning as I host a webinar on the PRA’s new regulations on Solvent Exit Planning for non-systemic banks and building societies. My colleagues and I will cover the most complex areas of the new regulations; relevant parts of the 15th May Dear CEO letter on Recovery Planning; and, pragmatic approaches that firms can take in the short and medium term to prepare for Day 1.  https://lnkd.in/eFw_Akhr