ECB 2022 Climate Stress Test Calls European Banks to Action
On July 8, 2022, the European Central Bank ("ECB") released the results from its annual stress tests, this year focused on banks' ability to incorporate climate risk stress testing into their risk management frameworks. The report found that most banks have not developed the adequate processes to incorporate climate risks into their stress-testing framework. The ECB will not issue any immediate binding decisions on banks. The ECB performed the review as a learning exercise, in which they will take the results and incorporate them into their upcoming guidance.
The report highlights several areas of concern for the ECB. A significant area of concern for banks is the lack of climate-related data available to credit institutions. These areas of concern foreshadow future regulations from the ECB and banks should begin to review their stress-testing frameworks and improve climate data collection processes in response to the predicted ECB rulings.
