EBA publishes findings of EU-wide bank climate risk exercise

May 21, 2021

The European Banking Authority (EBA) has published the findings from its first EU-wide pilot exercise on banks’ exposures to climate risk.

The main objective of the exercise was to map banks’ exposures to climate risk as well as providing an insight into the green estimation efforts that banks have conducted so far.

According to the EBA, the findings provide a clear picture of banks’ data gaps and underline the sense of urgency to fix them if they want to transition smoothly to a low-carbon future. The agency referenced the need for a ‘more harmonised approach’ and common metrics to ensure banks’ efforts will prove meaningful in mitigating environmental risks.

The study found that more disclosure on transition strategies and greenhouse gas (GHG) emissions would be required to enable banks and supervisors to assess climate risks more accurately. Of the 29 banks that were involved in the sample, more than half (58%) of their exposures to non-SME corporates were allocated to sectors that may be sensitive to transition risk.

The EBA noted the latter finding highlighted the importance for banks to expand their data infrastructure to include clients’ information at activity level.

A parallel analysis focused on GHG emissions discovered that 35% of banks’ submitted exposure were towards organisations with GHG emissions above the median of the distribution.

Furthermore, a first estimate of the starting point of banks’ green asset ratio currently stood at 7.9%, a finding which underlined big differences in their application of the EU taxonomy.

The EBA said, “Despite the appreciated efforts made by the volunteer banks in the sample, given the data gaps and the various approaches used, the findings presented in the report should be considered as starting point estimates for future work on climate risk.

“The EBA will continue to work actively on measuring and assessing climate related risks in the banking sector and these findings are a key starting point in view of building up consistent and comparable climate risk assessment tools, which will help banks quantify the amount of exposures that might require managerial attention from a transition perspective.”