Urgent and vitally important – 2023 is a critical milestone in stepping up the management of climate and environmental risks.

As the global financial system navigates through turbulent times, it is easy to overlook the gravely urgent and vitally important issue of climate-related and environmental (C&E) risks. Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, addressed this pressing issue in his keynote speech at the Foreign Bankers’ Association (FBA) 30th-anniversary event in Amsterdam on March 27, 2023.

According to the Synthesis Report released by the Intergovernmental Panel on Climate Change (IPCC), temperatures have risen to 1.1 degrees Celsius above pre-industrial levels. This is a wake-up call to the global financial industry to align their strategies with the objectives of the Paris Agreement, accelerate the transition towards a net-zero economy, and manage climate-related risks as a top priority.

While most banks under ECB supervision are members of the FBA, the Net-Zero Banking Alliance, and have made bold commitments to achieve net-zero emissions by 2050, a significant gap exists between their stated ambitions and actions.

Regulators and supervisors, like the ECB and the Basel Committee on Banking Supervision (BCBS), also share a global consensus on integrating C&E considerations into their DNA. However, much needs to be done from a prudential point of view to address C&E risks adequately.

In light of this, 2023 marks a key milestone in stepping up the management of climate and environmental risks. As a result, banks, regulators, and supervisors must prioritize aligning credit portfolios with the objectives of the Paris Agreement and managing climate-related risks as a priority action.

Related Facts:

– The Synthesis Report released by the IPCC warns of severe and irreversible consequences if the world fails to limit global warming to 1.5 degrees Celsius.
– The Net-Zero Banking Alliance includes over 50 banks and represents over $20 trillion of assets under management.
– The European Green Deal, launched in 2019, aims to make the EU economy sustainable by achieving net-zero emissions by 2050.

Key Takeaway:

Banks, regulators, and supervisors must urgently prioritize managing climate and environmental risks to align with the Paris Agreement’s objectives, accelerate the transition to a net-zero economy, and mitigate the disastrous consequences of global warming.

Conclusion:

The global financial industry must not lose sight of the gravely urgent and vitally important issue of C&E risks as they navigate through turbulent times. 2023 must be a year of action for banks, regulators, and supervisors to align with the Paris Agreement’s objectives and lead toward a sustainable and resilient global economy.