13 4월 2023 Banking - Financial Regulation

Climate and environmental risks: banks, are you ready?

In February this year the National Bank of Belgium (NBB) published a Communication (Communication- NBB_2023_02 of 09.02.2023.docx) setting out its expectations in relation to the management by Belgian banks of climate and environmental risks.  Through that communication, the NBB confirmed that it shares the ECB expectations as set out in its November 2022 Guide on climate-related and environment risks (Guide on climate-related and environmental risks (europa.eu)) and considers that “all Belgian credit institutions, including “less significant institutions” (LSIs), should meet the expectations set out by the ECB in its guide, while taking into account the nature, scope and complexity of the activities of the institutions concerned”.  While the expectations set out in the NBB communication and the ECB Guide are not legally binding, they form part of the “prudential package” that the NBB expects all Belgian banks to comply with.

The NBB/ECB expectations can be divided into four categories: 

  • Business model: in setting out their strategy, internal governance, processes and mechanisms, banks should take into account the current and forward looking impact of climate and environmental risks on their business model and activities.
  • Governance and risks appetite: banks are required to identify, manage, monitor and report risks they are (or might be) exposed to. Climate and environment risks should be addressed in the banks’ governance and risk appetite. Robust internal reporting mechanisms should be put in place to ensure that these risks are properly managed.
  • Risk management: banks are expected to include climate and environment risks in their risk management framework and in their analysis and stress testing.
  • Disclosure: transparency is key in addressing climate and environment risks. Banks should make available information on their exposure to such risks.

The ECB also published, alongside its Guide, the results of its thematic review on climate and environmental risks (Walking the talk – Banks gearing up to manage risks from climate change (europa.eu)). This publication contains, amongst many other things, a series of good practices identified by the ECB as part of its review. Definitely worth the reading. 

The message is clear: banks, be ready !

For more information, contact your regular contact at the Financial regulation team.