The European Central Bank (ECB) announced today the publication of its review of EU banks’ climate and environmental risk disclosure practices, indicating that while reporting has improved over the past year, very few banks are prepared to meet regulatory disclosure requirements set to take effect this year.
The assessment, covering 103 significant banks under the direct supervision of the ECB, and 28 other institutions supervised by national authorities, found that banks have significantly improved climate and environmental risk disclosure compared to the ECB’s review last year, with 86% of banks now disclosing material exposures to these risks, compared with only 36% last year. Similarly, nearly all of the banks report on how their boards oversee climate and environmental risks, compared to around 70% in the prior assessment.
Reporting on Scope 3 financed emissions, which typically account for the vast majority of banks’ climate footprint, also improved, with 50% now reporting, compared to only 15% last year, although the study found that most banks’ Scope 3 disclosures were not yet adequate, with only 16% providing complete, specific and substantiated information.
Despite the improvement, however, the ECB found that the vast majority of banks are not yet meeting their full reporting requirements, with only 6% of banks assessed as providing “broadly adequate” disclosure across all of the categories of the review.
The study comes as banks face near-term pressure to comply with sustainability-related reporting requirements under the European Banking Authority’s Implementing Technical Standards (ITS) on Pillar 3 ESG risks, which take effect this year, and include requirements to provide quantitative and qualitative disclosures on topics including climate-related transition and physical risks, asset exposures to climate change events, proportion of financing activities aligned with the EU Taxonomy, and Scope 3 aspects, among others. Some banks will be required to make their first disclosures under the new rules as soon as June 2023.
In a statement outlining the findings of the review, the ECB said that it has sent requests to banks “to address shortcomings and to provide plans on how they will prepare to meet the impending EBA reporting standards,” and that it has warned banks that non-compliance with the new standards will constitute a breach of EU law, triggering supervisory action.
Frank Elderson, Vice-Chair of the ECB’s Supervisory Board, said:
“We acknowledge that banks have been making progress, but further improvements are urgently needed,” said. “Stricter disclosure rules are taking effect this year. If necessary, we will take the appropriate supervisory actions to ensure that banks comply”.