But the information is patchy and hard to compare across lenders. Some have started disclosing their financed emissions - also known as Scope 3 - which include the carbon footprint of clients. “When we see that there is going to be real steps being taken by regulators to force banks to be serious about greening their book, then we will say, OK, now this factor is financially material,” Lenders said.Ĭurrently, banks aren’t providing enough transparent data for investors to get a real sense of where the risks lie, Lenders said. This year’s stress test could also feed through indirectly to the capital bar, the ECB said in January. Though fraught with controversy, the ECB has signaled that individual capital charges via so-called Pillar 2 requirements may ultimately be a consequence of the identification of climate risks. The preparations will follow the European Central Bank’s landmark climate stress tests, which started this month. Ultimately, “you can certainly have quite a big repricing,” he said.Įuropean bank regulators are set to start work later this year on adding climate-change risks to the framework for setting capital requirements, marking a shift that would penalize lenders that fail to prepare for losses from extreme weather and the costs of decarbonization.

In the event that climate stress tests reveal “significant expected losses” among banks, then “we’re talking about starting to integrate in the price discovery mechanism elements that weren’t even considered at all,” Lenders said in an interview.

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