“Sustainable finance: what is expected from transition scenarios?” at the Eurofi High Level Seminar 2022
Many thanks to the organisers for letting me participate remotely in
this panel alongside such distinguished speakers. And thank you to the
Chair of the panel for allowing me to open the discussion with some
remarks on the importance of transition planning. I fully appreciate the
irony of what I’m about to say, what with you in Paris and me here
on-screen, but we are all on the path to Paris. Citizens, firms, banks
and prudential supervisors alike are working towards the climate goals
agreed in 2015 as the EU and national governments roll out policies
implementing the Paris Agreement.
In previous speeches, I have stressed the need for banks to put in
place transition plans compatible with EU policies implementing the
Paris Agreement – plans with concrete intermediate milestones to enhance
banks’ long-term strategies and decision-making. More and more banks
are already doing this themselves, while the European Commission also
called for enhanced transition planning in its sustainable finance
strategy published in July 2021.
For ECB Banking Supervision, the main concern that needs to be
addressed by these transition plans is the level of banks’ risk
exposures and the effectiveness of their controls. Have the exposures
been sufficiently mitigated and are they prudent? As climate-related and
environmental risks become increasingly widespread and more material,
banks will, inevitably, be exposed to them, through both physical and
transition risks. Banks therefore need adequate risk mitigation measures
in place. This is what we need to assess as the prudential supervisor.
Introducing a legal requirement for banks to have a clear, detailed
and prudent transition plan in place would increase the consistency of
the regulatory and supervisory framework and contribute to maintaining a
level playing field. Needless to say, we are very happy to see that
this is exactly what the European Commission has proposed in its review
of the Capital Requirements Directive, which is now with the
co-legislators.
But it doesn’t stop there. For banks to be able to manage their
transition risks adequately, they need to have information on how their
customers are performing relative to a Paris-aligned transition path.
This is where the European Commission’s proposal for a Corporate
Sustainability Reporting Directive comes in. The ECB welcomed this
proposed directive in a legal opinion and it is now awaiting approval by
the co-legislators....
more at SSM
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