AP

Report: Europe’s banks need to raise game on climate risk

Jul 8, 2022, 3:23 AM | Updated: 3:56 am

FRANKFURT, Germany (AP) — Europe’s banks aren’t sufficiently considering risks from climate change and must “urgently step up efforts” to make sure they understand the possible impact of floods, wildfires and losses on investments.

That was a key conclusion from a climate stress test on 104 banks run by the European Central Bank and released Friday.

The ECB said that for now the climate stress test was a learning exercise that would not result in requiring banks to strengthen their financial buffers against possible losses from borrowers who can’t pay.

But the bank’s supervisory arm warned that as things stand now, 60% of the 104 surveyed banks have no framework for assessing the impact of climate risk on their financial solidity, and only 20% consider climate risk when granting loans.

Banks in southern Europe were more exposed to risks from heat and drought that could hit construction and agricultural businesses, the report indicated.

Banks “currently fall short of best practice” when it comes to assessing the risk that borrowers would not be able to repay loans due to climate-related incidents. It noted that almost two-thirds of bank income comes from corporations in industries that emit large amounts of carbon dioxide, leaving them vulnerable to loss as businesses have to shift to lower-emission production.

Banks have received feedback from the ECB and “are expected to take action accordingly” under the supervisor’s best practices guidelines. The ECB is the banking supervisor for the 19 countries that use the euro. Banks are key to keeping the economy running well because they are the primary source of credit and financing for businesses in Europe, a contrast to the US where more financing comes from financial markets.

The report said a smaller sample of 41 banks from the test would have suffered 70 billion euros in losses under a “disorderly transition” scenario in which the price of carbon emissions rises dramatically over a three year period.

The report said that banks would suffer lower losses if efforts to fight climate change were stepped up enough to keep the increase in global average temperatures to 1.5 degrees Celsius or less. Losses would be larger in scenarios under which efforts to limit the temperate rise were postponed and then drastically increased, or simply not undertaken. The ECB noted that banks “barely differentiate” between differing long-term scenarios that could affect their businesses.

The findings from the test will serve as “a compass” for banks to boost their awareness of climate issue and prepare for the risks and opportunities of a transition to net zero, that is, a situation in which any carbon dioxide emissions are small enough to be absorbed by the environment or abated through methods such as underground storage.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

President Joe Biden gestures after speaking to graduating students at the Morehouse College commenc...

Associated Press

Biden tells Morehouse graduates that scenes in Gaza from the Israel-Hamas war break his heart, too

Joe Biden on Sunday offered his most direct recognition of U.S. students' anguish over the Israel-Hamas war.

5 hours ago

Rudy Giuliani...

Associated Press

Rudy Giuliani is the final defendant to serve indictment in Arizona fake elector case

Rudy Giuliani has been served an indictment in Arizona's fake elector case for his role in an attempt to overturn the 2020 election.

1 day ago

Houston storms cause widespread damage on Friday...

Associated Press

Some in Houston facing no power for weeks after storms cause widespread damage, killing at least 4

Houston storms cause widespread damage on Friday, May 17. Thunderstorms hit the southeastern part of Texas, killing at least four people.

2 days ago

Man gets 30 years in prison for attacking ex-Speaker Nancy Pelosi’s husband with a hammer...

Associated Press

Man gets 30 years in prison for attacking ex-Speaker Nancy Pelosi’s husband with a hammer

A man has been sentenced to 30 years in prison for attacking the husband of then-House Speaker Nancy Pelosi with a hammer.

2 days ago

audio from President Joe Biden’s interview about classified documents blocked...

Associated Press

GOP advances Garland contempt charges after White House exerts executive privilege over Biden audio

The move to release audio from President Joe Biden’s interview about classified documents was blocked on Thursday by the White House.

3 days ago

Asylum processing for new migrants: Changes could come soon...

Associated Press

The Biden administration is planning more changes to quicken asylum processing for new migrants

The Biden administration is planning to quicken the asylum processing for new migrants as an interim step rather than an executive order.

4 days ago

Sponsored Articles

...

COLLINS COMFORT MASTERS

Here are 5 things Arizona residents need to know about their HVAC system

It's warming back up in the Valley, which means it's time to think about your air conditioning system's preparedness for summer.

...

Midwestern University

Midwestern University Clinics: transforming health care in the valley

Midwestern University, long a fixture of comprehensive health care education in the West Valley, is also a recognized leader in community health care.

...

Fiesta Bowl Foundation

The 51st annual Vrbo Fiesta Bowl Parade is excitingly upon us

The 51st annual Vrbo Fiesta Bowl Parade presented by Lerner & Rowe is upon us! The attraction honors Arizona and the history of the game.

Report: Europe’s banks need to raise game on climate risk