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New European Central Bank paper proposes additional capital requirements to mitigate against climate risks. Regulators are increasingly recognising the importance of capital risk buffers for resilience against systemic climate risks. An ECB study by Florian Bartsch, Iulia Busies, Tina Emambakhsh, Michael Grill, Mathieu Simoens, Martina Spaggiari, and Fabio Tamburrini provides a detailed methodology for calibrating systemic risk buffers (SyRB) to address short-term transition-related climate risks in Europe. Learn more: GreenCB.co/3VSCIhk #CapitalRequirements #SystemicRiskBuffers #ECB #ClimateChange

📜 New European Central Bank paper proposes additional capital requirements to mitigate against climate risks. ♻️ As regulators are increasingly recognising the importance of capital risk buffers for resilience against systemic climate risks, the ECB study provides a detailed methodology for calibrating systemic risk buffers (SyRB) to address short-term transition-related climate risks in Europe. 🔍 The study uses granular loan-level data to assess the exposure of 104 significant institutions across 19 Euro-area countries between 2023 and 2025. They consider both baseline and adverse macroeconomic scenarios. 📊 To avoid double counting and isolate transition-related effects, they compare results from current policy and accelerated transition scenarios. 💡 The results show that aggregate losses from an abrupt transition can be substantial, particularly for financial institutions heavily exposed to carbon-intensive sectors. Transition losses under an unanticipated accelerated transition scenario are estimated at around €52bn; reaching €72bn under adverse macroeconomic conditions. Full article here https://buff.ly/3VOSOsk #ClimateRisk #Ecb #TransitionRisk #SystemicRiskBuffer #Bank #CentralBank #CapitalRequirement #Pillar2 #Basel #Prudential #Europe

Macroprudential capital buffers are a key instrument to consider for safeguarding the banking sector against systemic risk challenges posed by climate change. Discover this proposed framework by Florian Bartsch, Iulia Busies, Tina Emambakhsh, Michael Grill, Mathieu Simoens, Martina Spaggiari and Fabio Tamburrini (European Central Bank) to calibrate a macroprudential capital buffer for climate purposes ⤵️

Time for a true boffin to get into the weeds of the European Central Bank's recent paper on climate risk pricing by banks. Tony Hughes, Ph.D. goes deep on the findings, and offers his own interpretation of why a climate risk premium could be emerging among EU banks. Read all about it in today's Unpacking Climate Risk 👇 https://lnkd.in/eAQYhGP2 #climaterisk #banking #riskmanagement #ESG #sustainability

🌍 The European Central Bank's (ECB) tough stance on banks may be symbolic, but it raises important questions about gaps in holistic climate risk assessments. In the #BFSI sector, assessing climate risks is complex due to diverse lending portfolios and sector-specific nuances. Financial losses, sudden adjustments in asset values, and the increasing cost of capital are some examples of the financial implications if climate change risks are not effectively identified, measured, managed, monitored, and disclosed as per #TCFD considerations. Are we truly considering all aspects of climate risk? Key deficiencies identified by the ECB: 🔹 Incomplete Consideration of Risk Categories: Many assessments miss out on all relevant risk categories, including physical (acute & chronic) and transition (policy & legal, technology, reputation, and market risks). 🔹 Overemphasis on Transition Risks: Focusing only on transition risks (low- carbon economy), while neglecting physical risks makes difficult to prioritize acute risks (extreme weather) and chronic risks (climate change). 🔹 Net vs. Gross Risk Identification: Using a net approach instead of a gross approach by missing on the impact assessment and #doublematerilaity aspect, undermines a bank's ability to measure actual impact and plan for effective mitigation. Climate risk intersects with credit, market, and operational risks and should be integrated into an organization's overall risk management framework, not treated separately. 🌱 #ClimateRisk #RiskManagement #ESGMaterilaity Editorial Credit -The Business Times

The European Central Bank has updated its 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗥𝗶𝘀𝗸 𝗜𝗻𝗱𝗶𝗰𝗮𝘁𝗼𝗿 𝗽𝗮𝗰𝗸𝗮𝗴𝗲 available for us to use and play with. In the 160+ pages documentation ECB 0explains which key indicators they use to track Physical and Transition risk of Climate Change. The best part is that they make also 𝗵𝗶𝘀𝘁𝗼𝗿𝗶𝗰𝗮𝗹 𝗮𝗻𝗱 𝗳𝗼𝗿𝘄𝗮𝗿𝗱 𝗹𝗼𝗼𝗸𝗶𝗻𝗴 𝘃𝗮𝗹𝘂𝗲𝘀 of these indicators available for downloading.  This looks very promising and ECB is committed to work on this even further. This is something definitely worth checking out and following. See details below: Some examples of the indicators ECB is using: 𝗧𝗿𝗮𝗻𝘀𝗶𝘁𝗶𝗼𝗻 𝗥𝗶𝘀𝗸: • 𝗧𝗵𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗲𝗱 𝗲𝗺𝗶𝘀𝘀𝗶𝗼𝗻𝘀 (𝗙𝗘) indicator provides information on the financing of high-emitting economic activities. It tracks the amount of total carbon emissions from NFCs that can be linked to funding from financial institutions, based on a set of identifiable securities and loan portfolios. • 𝗪𝗲𝗶𝗴𝗵𝘁𝗲𝗱 𝗮𝘃𝗲𝗿𝗮𝗴𝗲 𝗰𝗮𝗿𝗯𝗼𝗻 𝗶𝗻𝘁𝗲𝗻𝘀𝗶𝘁𝘆 (𝗪𝗔𝗖𝗜) is calculated as the greenhouse gas emissions of a debtor/issuer divided by the debtor’s/issuer’s total revenue and weighted by the value of the creditor’s/holder’s investment as a share of its total investment portfolio. 𝗣𝗵𝘆𝘀𝗶𝗰𝗮𝗹 𝗿𝗶𝘀𝗸: • 𝗧𝗵𝗲 𝗽𝗼𝘁𝗲𝗻𝘁𝗶𝗮𝗹 𝗲𝘅𝗽𝗼𝘀𝘂𝗿𝗲 𝗮𝘁 𝗿𝗶𝘀𝗸 (𝗣𝗘𝗔𝗥) indicator provides insight into the prevalence of a natural phenomenon and is compiled as a sum of risk scores (from 1 – low risk to 3 – high risk) • 𝗧𝗵𝗲 𝗻𝗼𝗿𝗺𝗮𝗹𝗶𝘀𝗲𝗱 𝗲𝘅𝗽𝗼𝘀𝘂𝗿𝗲 𝗮𝘁 𝗿𝗶𝘀𝗸 (𝗡𝗘𝗔𝗥) indicator measures the losses that financial institutions are expected to incur should their debtors not be able to repay their loans following a natural event that damages their physical assets. • 𝗧𝗵𝗲 𝗰𝗼𝗹𝗹𝗮𝘁𝗲𝗿𝗮𝗹-𝗮𝗱𝗷𝘂𝘀𝘁𝗲𝗱 𝗲𝘅𝗽𝗼𝘀𝘂𝗿𝗲 𝗮𝘁 𝗿𝗶𝘀𝗸 (𝗖𝗘𝗔𝗥) indicator provides an estimate of expected losses within a bank’s portfolio. The difference is that the new indicator also takes into account the mitigating effect of collateral pledged with a loan commitment. #Riskmanagemt #climatechange #climaterisk #data #regulation

In a momentous stride, the European Central Bank (ECB) has declared its decision to levy fines on banks that fall short of climate-related requirements. This landmark ruling accentuates the escalating regulatory emphasis on environmental accountability within the financial sector. The ECB's action serves as a stark admonition to institutions that are behind in their climate commitments, underscoring the criticality of incorporating robust climate risk management practices. https://lnkd.in/ddruezgW As the environmental landscape undergoes a transformation, businesses are at the forefront of this change. It is crucial for them to prioritise sustainability and adhere to environmental regulations. The ECB's initiative is a clear indication that climate-related deficiencies will not be overlooked, and financial institutions are expected to lead the charge in addressing climate change. Let's wholeheartedly embrace this transition towards a more sustainable future and ensure our practices contribute positively to global environmental goals. #ClimateChange #Sustainability #FinancialSector #ECB #EnvironmentalAccountability #GreenFinance #ClimateRisk #BankingRegulation #SustainableBusiness #ClimateAction #OceanBlocks

As the environmental and climate crisis escalates, central bankers are increasingly under pressure to take measures to tackle it.  The European Central Bank has made a commitment to consider #climatechange when making monetary policy decisions. But why and how should it do this? Nicolás Águila and Joscha Wullweber examine how the narratives used by the ECB to justify its approach have changed over time. They find a new form of market liberalism adapted to climate change, or market liberalism, in climate crisis mode.

Climate change is a major driver of financial risks, especially in the banking sector. Frank Elderson of the European Central Bank emphasizes that materiality assessments are key to understanding and managing climate risks. In our latest blog, we explore the importance of materiality assessments, the different approaches (single, double, and triple materiality), and how they align with regulatory expectations like the ECB’s 2020 guidelines. Learn how these assessments can help your business stay resilient and future-ready. Read the full blog now👉 bit.ly/3Yenwhc #MaterialityAssessments #ClimateRiskManagement #ESG #Sustainability #BankingSector #ECB #RiskManagement #BusinessStrategy #RegulatoryCompliance #StakeholderEngagement #ClimateAction

The Federal Reserve's 2023 analysis indicates that major U.S. banks are encountering substantial challenges in data and modeling when assessing climate risk impacts on their loan portfolios. Unlike the Bank of England (BoE) and the European Central Bank (ECB), which aim to play a significant role in supporting the transition to a greener economy, the Federal Reserve does not plan to use policy to achieve climate goals. This should not be entirely unexpected.